by Christopher Gerry

The routes that lead to a career in biomedicine are as diverse as they are plentiful, but one of my colleagues has taken a particularly unorthodox path. Sonia had just graduated from law school when she learned of a “typo” in her genetic code that will almost certainly induce a fatal and untreatable brain disorder called prion disease. She and her husband, Eric, dropped everything to educate themselves—and the rest of the world—about this ultra-rare condition, eventually enrolling as graduate students here at Harvard where they’re working towards the field’s first therapy. They and other rare-disease researchers, however, will have to contend with new changes to the federal tax code that make it more challenging to develop these “orphan” drugs.

The recently passed Tax Cuts and Jobs Act (TCJA) slashes a key incentive for rare-disease drug discovery: the orphan drug tax credit. The Orphan Drug Act of 1983 encourages therapeutics development for diseases that affect no more than 200,000 people. Among other things, it grants a significant tax credit to any company that wins FDA approval for an orphan drug. The credit was originally worth 50% of the drug’s clinical trial costs, but the TJCA cuts that figure in half to 25%. Drug discovery is mind-bogglingly expensive, even under ideal circumstances, so the new financial system will lower the value of the tax credit by about $25 million on average.

Given its high stakes, the drug discovery pipeline does not treat all diseases equally. Common disorders like diabetes and heart disease receive plenty of attention from the pharmaceutical industry, in part because large patient populations increase a drug’s likelihood of recouping its costs. On the other hand, drugs for rare diseases are riskier gambits because they treat fewer patients. Therefore, without sufficient financial motivation, potentially life-saving insights could languish between the covers of a dissertation, laboratory notebook, or scientific journal.

Halving the orphan drug tax credit will save the federal government tens of billions of dollars over the next decade, but at what cost? Over 200 new drugs for rare diseases have reached the market since the Orphan Drug Act was passed in 1983; less than 40 had won FDA approval before then. The tax credit provision has played such an important role in the development of these new medicines that its complete repeal would cut the number of orphan drug approvals by an estimated 33%. And despite the success of the past 25 years, roughly 95% of the 25-30 million Americans with rare diseases still have no treatment options. Unsurprisingly, the National Organization for Rare Disorders and dozens of other patient advocacy groups have criticized the legislation; it’s much too early to “declare victory” and start fiddling with the funding spigot.

Admittedly, the implementation of the orphan drug tax credit is far from perfect. Critics often point to best-selling drugs like Humira or Crestor that received an orphan drug designation after being developed for and marketed to the general public. Instead of outright repeal, however, targeted legislative reform could close loopholes for pharmaceutical companies without harming patients.

But why do pharmaceutical companies need this tax credit at all—didn’t the TCJA just give them a giant tax cut? First, lowering taxes across the board does nothing to encourage additional investment in rare diseases. Furthermore, removing subsidies for orphan drug development threatens to exacerbate the problems regarding drug prices that already exist. Both the mean and median prices of orphan drugs are roughly 5 times those of non-orphan drugs, and making orphan drug development more expensive will likely widen that gap. Because higher prices typically lower insurers’ and physicians’ willingness to pay, patients could have reduced access to potentially life-saving treatments.

My role as a graduate student places me, Sonia, and our lab-mates at the other end of the drug discovery process. Large corporations have the resources to test, manufacture, and distribute new medicines, but many of the scientific advances that provide the kindling are achieved in academia, where shareholders and balance sheets have been supplanted by thesis committees and publication records.

This environment, however, does not shelter us entirely from the fallout of the TCJA. Our lab is broadly interested in leveraging basic insights in biology, chemistry, and medicine to alleviate human suffering from disease. And because we’re all too aware of the financial realities that power modern drug discovery, several of my colleagues who are studying ultra-rare diseases like prion disease or chordoma hope to reveal a therapeutic strategy that’s too promising to be ignored. Cutting the orphan drug tax credit undermines herculean research efforts like these all over the world.

Various economic and scientific factors make drug discovery really, really hard work. While we can’t change the scientific laws that govern human physiology, federal laws like the Orphan Drug Act have benefitted millions of patients by smoothing the edges around some of our most confounding biomedical puzzles. We should harness our full understanding of economics to make it easier, not harder, to develop new medicines for one-in-a-million patients like Sonia—Mother Nature isn’t known for her sympathy.

Christopher Gerry is a fourth-year graduate student in the Department of Chemistry & Chemical Biology at Harvard University. He currently serves as Co-Editor-in-Chief of the Science in the News blog.

One thought on “Risky Business: The far-reaching consequences of slashing the orphan drug tax credit

  1. very timely. My company, like many others have both orphan and broad indication programs. I wonder if Pharma will start rethinking this strategy of tackling both.

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