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Industry says cutting tax credit will make orphan drug research unviable

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Removing the federal tax credit for orphan drug development will leave pharmaceuticals companies with 'no choice but to divert research dollars elsewhere.' says Francois Nader.
Removing the federal tax credit for orphan drug development will leave pharmaceuticals companies with 'no choice but to divert research dollars elsewhere.' says Francois Nader. - (AARON HOUSTON)

When NPS Pharmaceuticals received federal approval to sell Gattex earlier this year, it was great news for those who suffer from short-bowel syndrome — a very rare disease.
It also was great news for the Bedminster company, which stands to benefit from $50 million in tax credit for developing this so-called orphan drug.

NPS, however, is not celebrating as much as you think.

The Orphan Drug Tax Credit is on the tax reform chopping block — and instead of waiting to see what happens in Washington this fall, NPS CEO Francois Nader and others are going on the offensive to save it.

"If the Orphan Drug Tax Credit were removed, biopharmaceutical companies would have no choice but to divert research dollars elsewhere to focus on medicines to treat larger patient populations with potentially greater and more certain financial returns," Nader said in an email.

NPS has another orphan drug in the works: It's developing Natparra as a treatment for hypoparathyroidism, a disorder that causes blood calcium levels to fall.

What's spurring concern for the industry is the input being sought by the Senate Finance and House Ways and Means committees on comprehensive tax reform. The committees are expected to consider wide-ranging proposals that would eliminate numerous tax credits in exchange for lower rates and a simpler code.

The National Organization for Rare Disorders, which is leading efforts to save the Orphan Drug Tax Credit, petitioned the committees in July to preserve the credit, which allows companies to deduct 50 percent of clinical testing expenses from developing such medicines. Groups in the nation's biotech clusters also are organizing to protect the credit.

Diane Dorman, NORD's vice president of public policy, said whatever the merits of broader tax reform, circumstances involving rare diseases warrant special consideration.

"We're not talking about tea bags and sugar here," Dorman said. "We're talking about credits for people with desperate conditions. There's a real human element."

Count BioNJ among the trade groups closely watching developments.

"We'll do whatever it takes when the time is right," said its president, Debbie Hart. "We'll write the letters, make the phone calls, and let our companies know when the time is right to make phone calls."

More than a dozen New Jersey companies, including NPS, have been granted orphan drug status for therapies treating ailments ranging from inflammatory bowel diseases to forms of anal cancer.

'EVERYTHING IS ON THE TABLE'

NORD expects debate on tax reform to pick up after Congress reconvenes. No hearings specifically focusing on the orphan drug tax credit are set, but the Danbury, Conn.-based nonprofit anticipates a thorough debate.

"Everything is on the table," Dorman said.

Specifically, the Senate Finance Committee in June unveiled a "blank-slate" approach to tax reform, calling on senators to explain what tax breaks, deductions and credits should be kept. The effort is being pushed as the first major overhaul to the tax code since 1986.

A message seeking comment from the Senate committee was referred to earlier statements from Max Baucus (D-Nebraska), the committee chairman, and ranking Republican Orrin Hatch, of Utah. The senators say tax breaks should only be preserved if they grow the economy, make the overall code fairer or advance important polices.

"We both believe that some existing tax expenditures should be preserved in some form," Baucus and Hatch wrote in a June 27 letter to other senators. "But the tax code is also littered with preferences for special interests."

Tax reform efforts tend to gain support from business leaders, who argue that marketplace decisions too often are distorted by complicated tax policy.

Tom Bracken, CEO of the New Jersey Chamber of Commerce, said the chamber generally welcomes federal efforts to reduce inequities in the current tax code, but deferred comment on specifics of the orphan drug credit to biotech industry leaders.

Groups that support the tax credit say its track record supports permanence. According to the FDA, 445 drugs treating orphan diseases have been approved since 1983, compared with only 10 in the decade before.

And NORD said prospects favor continued progress as science advances. About one-third of the new drug approvals by FDA are for rare conditions, while there remain about 7,000 rare diseases lacking medication.

"If you look at the history of what the credit has been able to accomplish, it is recognized as one of the most successful acts in the history of Congress," Hart said.

Mary Dunkle, NORD vice president for communications, said the organization is aware that tax reform ideas — often popular in theory — could fizzle under scrutiny.

But given legislative confrontations of recent years marked by debt-ceiling showdowns and sequester cuts, NORD is bracing for a busy autumn.

"It's such a volatile period," Dunkle said. "We're definitely taking this seriously."

E-mail to: tomz@njbiz.com
On Twitter: @biztzanki

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