Republican Tax Reforms Could Affect Rare-Disease R&D

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A tax credit that permits biotech companies to re-gain a portion of the cost of developing treatments for rare diseases could potentially be terminated if the Republication Tax Reform bill passes.

Currently, companies can claim a tax credit of 50 percent of the costs for clinical testing permitted by the FDA for drugs that’s purpose is to treat rare diseases, a policy that has been established for over 30 years when the Orphan Drug Act was still in place to endorse research into new drugs for diseases that are affecting less than 200,000 people.

According to the GOP Bill, that cut could now be eliminated for “certain drugs for rare disease or conditions” after Dec. 31, 2017.

Recently EvaluatePharma reported that sales of orphan drugs, could reach $209 billion by 2022, and is being controlled by big pharma instead of smaller biotech firms. Just this year, lawmakers requested to the Government Accountability Office to dig deeper into the Orphan Drug Act and administer whether its provisions are being comprised to subsidize mass-market treatments.

Instead, biotech companies as well as patient representative groups such as the National Organization for Rare Disorders (NORD) have debated that without the incentive, a lot of treatments for rare diseases would never have been made accessbile to patients.

The Biotechnology Industry Organization (BIO) has widely accepted the reforms, but made specific reference to the rare disease tax credit in a statement saying: “As Congress debates and refines this important legislation, we look forward to working with lawmakers to ensure that our nation’s tax code most effectively encourages innovation, investment and American entrepreneurship. This would include maintaining the Orphan Drug Tax Credit, and the inclusion of incentives for prerevenue innovation and for the development of advanced biofuels, renewable chemicals, and biobased products.”

As a whole, the reforms commit to be a frenzy for biopharma and various sectors. On the one hand, a headline decrease in the corporate tax rate from 35% to 20%—which has been supported by business leaders for years—is viewed as the result for widespread celebration. However, new rules on tax avoidance could hit U.S. companies that organized tax inversion deals to adjust headquarters to overseas.

Jefferies analyst Steven DeSanctis anticipates that a 20% tax rate would advance 018 S&P tech earnings growth to 17% from 13%, and healthcare companies would perform better with a increase to 16% from 8%.

Presenting this from a birds view on behalf of the industry, the U.S. Chamber of Commerce stated that the reform bill is “exactly what our nation needs to get the economy growing faster,” but also cautioned that “a lot of work remains to be done to get the exact policy mix right and move from a legislative draft to an enacted law.”

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