ADMINISTRATION'S ORPHAN DRUG PROPOSAL WOULD INCREASE R&D FOR RARE DISEASES

The Bush administration has proposed an expanded tax credit for companies that manufacture medicines that target rare diseases, known as orphan drugs, in an effort to ramp up research into these illnesses.

The administration's fiscal year 2007 budget would allow manufacturers to retroactively receive tax credits for the expenses they incur in developing orphan drugs if the FDA later designates the drug to address a rare disease. Under current law, companies are able to claim a 50-percent tax credit for expenses related to human clinical testing of drugs for rare conditions after designation, but not beforehand.

The current law is "an incentive to defer clinical testing" for these drugs, the Treasury Department's budget analysis says. The change would have no effect on federal revenue, according to the analysis. The administration's proposal would be effective for qualified expenses incurred after Dec. 31, 2005, the Treasury Department adds.

This provision creates an incentive for research into these diseases by reducing R&D costs, an industry source said. Reducing these costs will change a company's cost-benefit analysis for a drug that would not have much of a market, said the source, who added that the result would be increased innovation. The source was unaware of any opposition to the proposal, but cautioned that the issue has received little attention as yet.

PhRMA, while still reviewing the proposal, tentatively supported its language." Although we still need to review the bill, it is important to stress the urgency of developing new medicines for life-threatening and debilitating rare diseases. About 6,000 rare medical conditions afflict about 25 million patients in the United States alone," said Jeff Trewhitt, PhRMA's spokesman.