Congress Weighs Repeal of Tax Credit for Rare Disease Drugs

No matter what happens, some experts welcomed a discussion about a political issue that was once considered untouchable because opponents risked being labeled coldhearted toward people with serious medical conditions.

“I think it opens up the debate on the orphan drug tax credit, which we think is a flawed incentive,” said James Love, director of the consumers group Knowledge Ecology International. “And I think that’s a positive thing.”

Under current law, companies that develop drugs for rare diseases can receive a tax credit for half of the cost of their clinical trials and they are also granted seven years of exclusivity, when the drug is protected from competition. Companies are not required to disclose the amounts of the tax credits they receive.

Mr. Love said he favored replacing the tax credit with direct government subsidies of clinical trials for rare-disease treatments.

In public, the pharmaceutical industry’s largest lobbying groups have not said much about the credit. The Biotechnology Innovation Organization, whose members include smaller companies, praised the overall tax plan in a statement last week, but disagreed with the elimination of the tax credit. The other major trade group, the Pharmaceutical Research and Manufacturers of America, whose members are generally large public companies, said in a statement that it was pleased that Congress has taken up a tax overhaul and, without mentioning the tax credit, encouraged policymakers “to maintain incentives” for research into rare-disease treatments.

Big drugmakers in particular stand to benefit more from the proposed lower corporate tax rate than from the loss of a tax credit that some companies do not use. And like other major corporations, the industry’s opposition may be coalescing far more against a proposed excise tax that could penalize companies for manufacturing their products overseas. These days, many drugs are made outside the United States.


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Companies that make drugs to treat rare diseases and their lobbyists are already marshaling forces to retain the tax credit. Tactics include enlisting patient-advocacy groups — many financed by drug companies — and members, whose life-threatening and debilitating diseases often have more of a compelling effect than pharmaceutical executives on lawmakers and the public.

“We didn’t have any prior warning,” said Paul Melmeyer, federal policy director for the National Organization for Rare Disorders, or NORD. “We look at that just utter lack of therapies for our patient populations. There could be even 33 percent fewer than what we have, going forward, and that is really what our concern is.”

Over the last decade, the number of new drugs to treat rare diseases has proliferated, in part because of advancements in scientific research and in part because drug companies have found new ways to profit from diseases that were once seen as unworthy of corporate investment. In 2016, nine of the 22 new drugs approved by the Food and Drug Administration were for rare diseases; in 2015, 21 of the 45 drugs approved fell into that category.

Despite the investment, advocates note that of the 7,000 rare diseases that have been identified, only about 5 percent have an approved therapy. About 30 million Americans have a rare disease, or about a tenth of the population.

While many rare-disease approvals bring advances for patients, companies have also been seen to be taking advantage of the program by seeking the designation for drugs that would be profitable anyway. The drugmaker AbbVie has won multiple approvals for rare-disease uses for Humira, the world’s best-selling drug, ranging from a form of juvenile arthritis to an eye disease, uveitis. Many new cancer approvals also receive orphan-drug designation because they are targeted at a narrow slice of the population.

With the coveted exclusivity granted by their orphan-drug status, companies can charge virtually anything they want for these products, and some manufacturers have set astronomical prices for drugs that have gone on to bring in billions in sales. Soliris, made by Alexion, racked up more than $2.8 billion in sales in 2016 even though it is only approved to treat three rare diseases.

In May, three Republican senators, including Senator Hatch, asked the Government Accountability Office to look into possible abuses of the Orphan Drug Act, prompted by an investigation by Kaiser Health News. Mr. Melmeyer said he did not think the request showed a change of heart by Senator Hatch, who is chairman of the Finance Committee that may release its tax plan as early as Thursday.

“We’re very much counting on him to step up and be the champion on this,” Mr. Melmeyer said.

In 2015, a report commissioned by the biotechnology trade group and NORD estimated that if the tax credit were removed, the number of drugs approved over the next decade would decline by 33 percent.

Eric Davis, the executive vice president and general counsel of BioMarin Pharmaceutical, which develops what it describes as “ultrarare” drugs, said the tax credit “is really critical to helping us get over the hump with our investment decisions, and I think that’s true for a lot of companies in our space.”

Philip English, a former Republican Congressman who now lobbies for drug firms, said he believed that his clients were picking up support from Republicans and said he was confident that the tax credit would survive any Senate plan.

“I think there is a consensus within the industry and within the advocacy community that the orphan drug credit has been immensely successful in generating innovative investment that has produced a string of successes,” Mr. English said.

Rachel Klein, the senior director of advocacy and strategy for the EveryLife Foundation for Rare Diseases, which was founded by a drug industry executive, said policymakers need to be careful about tinkering with a program that has been around for decades.

“What seem like small changes can really have a large impact,” she said. “Ultimately this could end up doing more harm than good, and that really would be a problem for the millions of people who are relying on these companies to develop new therapies.”

Correction: November 10, 2017

An earlier version of this article misstated the relationship between the National Organization for Rare Disorders and Philip English, a former Republican Congressman and now a lobbyist representing drug companies. Mr. English did not lobby on behalf of the organization.

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