Rare Diseases

Congress Weighs Repeal of Tax Credit for Rare Disease Drugs

Senator Orrin Hatch, Republican of Utah, on Capitol Hill in July, was a main sponsor of the decades-old Orphan Drug Act, which set up a tax credit to encourage drug companies to develop cures for rare diseases.

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…