The Orphan Drug Credit: A Catalyst for Rare Disease Treatment
The Orphan Drug Credit is a federal tax credit that offers pharmaceutical companies incentives to develop medications and treatments for rare diseases affecting small populations. This credit helps offset developmental costs, making breakthroughs in treating rare conditions more financially feasible.
Unlocking Development Potential with Orphan Drug Credit
Pharmaceutical companies that qualify for the orphan drug credit receive 25% of their qualified clinical testing expenses back in the form of tax credits. Rare diseases are identified as those that affect fewer than 200,000 people in the U.S. or more than 200,000 if there is no reasonable expectation of a profitable treatment.
Key Takeaways
- The Orphan Drug Act provides a 25% tax credit on qualified clinical trials to spur the development of therapies for rare diseases.
- Additional incentives include a rebate on application fees and a seven-year window of market exclusivity for approved drugs.
- Since its introduction in 1983, the act has fostered the approval of more than 780 products aimed at treating over 250 rare diseases.
- Nearly half of the treatments approved under this act focus on oncology.
Orphan Drug Credit Explained
Whether pharmaceutical companies conduct clinical tests internally or contract them out to a third party, they can still claim the orphan drug credit. Most testing, however, must occur within the United States. Orphan drugs target extremely rare conditions, known as orphan diseases, including Gaucher’s disease, Tourette’s syndrome, and Huntington’s disease.
Despite their rarity, orphan diseases collectively impact an impressive number of people. Approximately 30 million individuals in the U.S. live with one of 7,000 rare diseases, yet 95% of these conditions lack a proper treatment or cure. The orphan drug tax credit is crucial in motivating pharmaceutical companies to address these unmet needs efficiently.
Historical Perspective
In 1982, recognizing the lack of incentives for pharmaceutical companies to develop treatments for rare diseases, the U.S. Food and Drug Administration (FDA) initiated the Orphan Drug Act of 1983. Before its enactment, there were few investments in such areas due to the small patient population for each rare disease—the investors could not recover costs or make profits.
Clinical trials are financially burdensome, especially when finding enough participants is daunting. Initially, from 1983 to 2018, the orphan drug tax credit offered a robust 50% for qualified clinical testing costs. However, a 2017 overhaul in the tax policy reduced this credit to 25% under the Trump administration, a move met with opposition from various advocacy groups.
This reduction underscores the ongoing debate about the best way to stimulate medical innovation for rare diseases, ensuring both pharmaceutical companies’ engagement and accessible patient care.
Related Terms: Federal Food, Drug, and Cosmetic Act, clinical testing expenses, pharmaceutical development, tax policy.
References
- Cornell Law School, Legal Information Institute. “26 U.S. Code Sec. 45C - Clinical Testing Expenses for Certain Drugs for Rare Diseases or Conditions”.
- U.S. Food and Drug Administration. “Introduction to the Office of Orphan Products Development (OOPD)”, Pages 10, 17, and 21.
- U.S. Food and Drug Administration. “The Story Behind the Orphan Drug Act”.
- National Organization for Rare Disorders. “Impact of the Orphan Drug Tax Credit on Treatments for Rare Diseases”.
- U.S. Food and Drug Administration. “Orphan Drug Act - Relevant Excerpts”.
- U.S. Congress. “H.R. 1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018”, Page 81.
- NORD Rare Action Network. “Save the Orphan Drug Tax Credit!”
