Fight erupts over tax credit for ‘orphan’ disease drugs

Republicans are seeking to roll back a tax credit for drugs that treat rare diseases, alarming patient groups who fear the move would slow the development of new treatments.

The so-called orphan drug tax credit would be repealed in the tax-reform bill that passed the House last week. Patient groups are lobbying to preserve the credit, as are some drug companies. 

The credit, first enacted in 1983, is intended to spur the development of treatments for rare, or “orphan,” diseases that affect fewer than 200,000 people. Patient groups fear that without the tax credit for 50 percent of the costs of research and testing, drug companies will cut back on developing drugs for rare diseases and focus on more common ailments.

“The Orphan Drug Tax Credit gives hope to the nearly 95 percent of individuals with rare diseases without a treatment that one day they too will have a treatment, or even cure,” more than 200 patient groups wrote in a letter to congressional leadership this month. “We cannot afford to move backwards.”

If the credit is rolled back, “we think we’re going to see a slowdown in the number of approved therapies,” said Peter Saltonstall, president of the National Organization for Rare Disorders, which is leading the charge to keep the tax credit.

The group points to a study it commissioned from Ernst and Young in 2015 that found that without the credit, 33 percent fewer orphan drugs would have been developed over the last 30 years.

Eliminating the tax credit would save the government a projected $54 billion over the next decade. Congressional Republicans are using that revenue to help pay for tax cuts.

A spokesperson for Republicans on the House Ways and Means Committee argued that the corporate tax cuts in the legislation would allow drug companies to invest more in research.

“The Tax Cuts and Jobs Act recognizes the importance of medical innovation and competition in helping more Americans access lifesaving treatments,” the spokesperson said. “The bill preserves the R&D credit and lowers the corporate tax rate from 35 percent to 20 percent — so pharmaceutical manufacturers can invest more of what they earn in new solutions for patients.”

Sen. Pat Roberts (R-Kan.), a member of the Senate Finance Committee, noted that the Senate’s tax-reform bill does not completely eliminate the orphan drug credit. Instead, it reduces it from 50 percent to 27.5 percent.

“We’re talking about drugs for cancer kids,” Roberts said at a Finance Committee session on Thursday. “The House completely repealed the orphan drug credit. We took care of a limitation and then restored at least a 27.5 percent credit.”

Still, patient groups are concerned with the Senate bill, saying it would still be a significant cut. Advocates have also noted that Sen. Orrin Hatch (R-Utah), the chairman of the Senate Finance Committee, was one of the primary sponsors of the Orphan Drug Act in 1983.

“Chairman Hatch has been a strong advocate of this initiative, which is why the mark does not repeal the orphan drug tax credit, but rather makes modifications to it,” said a spokesperson for Senate Finance Committee Republicans. “However, as with any major reform, tough choices have to be made.”

The spokesperson said Hatch would continue working with lawmakers on the bill.

While some drug companies are pushing to restore the credit, the full lobbying weight of the industry has not been deployed on the issue. A pharmaceutical lobbyist said the tax credit is more of an issue for some smaller companies represented by the Biotechnology Innovation Organization (BIO), rather than the large companies that tend to be in the Pharmaceutical Research and Manufacturers of America (PhRMA).

In a statement, BIO largely held its fire on the issue, praising the Senate for partially retaining the credit in its bill.

“We are pleased that the Senate retained the Orphan Drug Tax Credit and plan to continue working with both Chambers to preserve the credit,” a BIO spokesman said. 

A PhRMA spokesperson said the group “encourage[s] policymakers to maintain incentivizes for the research and development of therapies to treat rare diseases in this process.” 

The orphan drug tax credit is not universally beloved. Some on the left argue that drug companies abuse the credit by finding loopholes to claim it for drugs that are not really new treatments for rare diseases.

Steven Knievel, an access to medicines advocate at the advocacy group Public Citizen, argued that the orphan drug tax credit is a way for drug companies to “get goodies from the government without really doing what the intent of the law was.”

But instead of abolishing the tax credit, Knievel argued for exploring alternative ways to spur drug development, such as increased public funding of research at the National Institutes of Health.

The American Cancer Society Cancer Action Network, though, said the credit is a priority and that there are many variations of cancer that are classified as rare diseases.

“The overwhelming majority of the individual cancers themselves are classified as rare diseases,” said Mark Fleury, policy principal at the cancer society. “For us it hits really close to home.”