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Last summer, it sounded like a bad joke. Were House Republicans serious about eliminating the research tax credit provision of the Orphan Drug Act, if not the ODA itself?
Passed in 1983, the Orphan Drug Act has been driving pharma innovation for 35 years. It has helped spur the development and approval of more than 550 treatments for orphan diseases.
The research tax credit was the key driver behind this success. By allowing companies to claim a 50% tax credit for qualified clinical testing expenses, developing drugs for rare diseases became economically feasible for the first time.
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Over the years, the ODA has sparked breakthroughs such as Gleevec, which launched a revolution in cancer treatment, and Lamictal, which helped children with a devastating form of epilepsy.
The advances keep coming. Last year, the FDA approved Hemlibra, which will improve the lives of patients with hemophilia, and Mepsevii, the first treatment for Sly syndrome, an extremely rare and devastating metabolic disorder.
Yet even as underserved patients began to reap benefits from the ODA, our critics opened fire.
One complaint was the research tax credit costs the U.S. Treasury billions of dollars in revenue. Perhaps, but it has also saved thousands of lives by encouraging companies to develop treatments for diseases that would otherwise not be feasible to tackle.
Others charged that companies “game” the ODA by seeking indications for orphan diseases and then expanding use into common diseases. I’d argue rare diseases are the logical place to initiate a search for new treatment strategies, because for most of these diseases, there’s no treatment at all.
But if you must, adjust the law. Don’t cripple it.
It’s time to strengthen the ODA. Even though our fight against killer diseases is paying off, progress remains painfully slow. The 21st Century Cures Act, passed in 2016, was a great idea, but our critics pay more attention to our profits than the patients we’re helping.
On November 16, 2017, the House of Representatives passed its tax reform bill by a margin of 227 to 205. As promised, the bill called for a complete elimination of the ODA research tax credit. In contrast, the Senate’s version, thanks largely to Sen. Orrin Hatch, who was a sponsor of the original ODA, retained the credit. The showdown was set.
In the waning days of 2017, the public was treated to a spectacle of horse-trading during the frantic reconciliation process. The ODA was largely forgotten and disappeared from the headlines.
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The final result was a compromise as the House and Senate agreed to split the difference. The research tax credit was not eliminated, but effective in 2018, the reduction drops from 50% to 25%. Our critics think we got off easy. Our friends think we won because it could have been worse.
Here’s why I’m worried. According to a 2015 analysis, without the research tax credit, the dollars invested in orphan disease research and drug development would drop by 33%, as would the number of new treatments. What will happen if the credit is cut in half? Sure, research will continue, but at the same speed? For some patients who might have been helped by a new drug or treatment, the breakthrough will come too late.
I wonder how members of Congress will look their constituents in the eye.
Sander Flaum is a principal at Flaum Navigators.