By KATIE THOMAS and SHEILA KAPLAN NOV.
8, 2017
A decades-old tax
credit designed to spur cures for rare diseases has been so successful that
it’s now become a target in the House Republican tax plan.
The proposal under
consideration would end the tax breaks for development of what are called
orphan drugs. Ending the credit used by big and small drug companies could save
the government an estimated $54 billion over the next decade, an effort to help
offset some of the anticipated losses in revenue if other Republican tax cut provisions
become law.
With the Senate
poised to offer its own broad tax plan soon, many details are still in flux.
But if the orphan drug tax credit is eliminated, the move would represent a
rare defeat for the powerful pharmaceutical industry.
The tax credit is
part of the popular 1983 Orphan Drug Act, and is one of a host of incentives
that supporters say have led to the approval of more than 500 new and
much-needed drugs for those rare diseases that each affect fewer than 200,000
people. But the program has also come under scrutiny because critics say that
some major drugmakers have exploited it by obtaining the orphan designation for
billion-dollar blockbuster drugs like Humira for treating rheumatoid arthritis
and Crestor, the cholesterol drug, that were already on the market.
Even if the proposal
passes the House, it will likely face opposition in the Senate, particularly
from Senator Orrin Hatch, Republican of Utah, who is overseeing tax reform in
the Senate and was a leading sponsor of the Orphan Drug Act.
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.
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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