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1998 Orphan Drug Tax Credit data
- This note looks at 1998 Orphan Drug approvals and the Orphan
Drug Tax credit, as evidence of levels of private expenditures on
clinicial trials.
Attached to the end of this message is the text of the US Orphan Drug Tax
Credit. Note that if a drug qualifies as an Orphan Drug in the USA, which
is not difficult, the government gives a tax credit equal to 50 percent of
a company's expenditures on US clinical trials.
Through this instrument alone, the US government is paying at least half
the private sector cost of the orphan drug clinical trials. The current
US budget document estimates the cost of this tax credit to be $40 million
in 1998, and $50 million in 1999. Because of the way the credit works,
the amount of the credit is also the amount of (after credit) private
sector expenditure.
A list of orphan drug approvals is given on this web page:
http://www.fda.gov/orphan/designat/recent.htm
By my count, in 1998 the FDA gave marketing approval to 19 Orphan Drugs
and products. If the Budget estimate was accurate, the $40 million would
be only $2.1 per Orphan drug approval. To repeat, private sector
expenditures on clinical trials were $2.1 million per approved orphan
drug, for 1998. (Because this is per approval, the number is already
adjusted for risk of failure.) I'll check with the Treasury to see
how close its estimates are to actual tax returns.
Jamie
http://www4.law.cornell.edu/uscode/26/45C.html
US Code as of: 01/26/98
Sec. 45C. Clinical testing expenses for certain drugs for rare diseases
or conditions
(a) General rule
For purposes of section 38, the credit determined under this
section for the taxable year is an amount equal to 50 percent of the
qualified clinical testing expenses for the taxable year.
(b) Qualified clinical testing expenses
For purposes of this section -
(1) Qualified clinical testing expenses
(A) In general
Except as otherwise provided in this paragraph, the term
''qualified clinical testing expenses'' means the amounts
which
are paid or incurred by the taxpayer during the taxable
year
which would be described in subsection (b) of section 41
if
such subsection were applied with the modifications set
forth
in subparagraph (B).
(B) Modifications
For purposes of subparagraph (A), subsection (b) of
section
41 shall be applied -
(i) by substituting ''clinical testing'' for
''qualified
research'' each place it appears in paragraphs (2) and
(3) of
such subsection, and
(ii) by substituting ''100 percent'' for ''65
percent'' in
paragraph (3)(A) of such subsection.
(C) Exclusion for amounts funded by grants, etc.
The term ''qualified clinical testing expenses'' shall not
include any amount to the extent such amount is funded by
any
grant, contract, or otherwise by another person (or any
governmental entity).
(D) Special rule
For purposes of this paragraph, section 41 shall be deemed
to
remain in effect for periods after June 30, 1995, and
before
July 1, 1996, and periods after June 30, 1998.
(2) Clinical testing
(A) In general
The term ''clinical testing'' means any human clinical
testing -
(i) which is carried out under an exemption for a drug
being tested for a rare disease or condition under
section
505(i) of the Federal Food, Drug, and Cosmetic Act (or
regulations issued under such section),
(ii) which occurs -
(I) after the date such drug is designated under section
526 of such Act, and
(II) before the date on which an application with respect
to such drug is approved under section 505(b) of such Act
or, if the drug is a biological product, before the date
on
which a license for such drug is issued under section 351
of the Public Health Service Act; [1] and
(iii) which is conducted by or on behalf of the
taxpayer to
whom the designation under such section 526 applies.
(B) Testing must be related to use for rare disease or
condition
Human clinical testing shall be taken into account under
subparagraph (A) only to the extent such testing is
related to
the use of a drug for the rare disease or condition for
which
it was designated under section 526 of the Federal Food,
Drug,
and Cosmetic Act.
(c) Coordination with credit for increasing research expenditures
(1) In general
Except as provided in paragraph (2), any qualified clinical
testing expenses for a taxable year to which an election under
this section applies shall not be taken into account for
purposes
of determining the credit allowable under section 41 for such
taxable year.
(2) Expenses included in determining base period research
expenses
Any qualified clinical testing expenses for any taxable year
which are qualified research expenses (within the meaning of
section 41(b)) shall be taken into account in determining base
period research expenses for purposes of applying section 41 to
subsequent taxable years.
(d) Definition and special rules
(1) Rare disease or condition
For purposes of this section, the term ''rare disease or
condition'' means any disease or condition which -
(A) affects less than 200,000 persons in the United
States,
or
(B) affects more than 200,000 persons in the United States
but for which there is no reasonable expectation that the
cost
of developing and making available in the United States a
drug
for such disease or condition will be recovered from sales
in
the United States of such drug.
Determinations under the preceding sentence with respect
to any
drug shall be made on the basis of the facts and
circumstances as
of the date such drug is designated under section 526 of
the
Federal Food, Drug, and Cosmetic Act.
(2) Special limitations on foreign testing
(A) In general
No credit shall be allowed under this section with respect
to
any clinical testing conducted outside the United States
unless
-
(i) such testing is conducted outside the United
States
because there is an insufficient testing population in
the
United States, and
(ii) such testing is conducted by a United States
person or
by any other person who is not related to the taxpayer
to
whom the designation under section 526 of the Federal
Food,
Drug, and Cosmetic Act applies.
(B) Special limitation for corporations to which section
936
applies
No credit shall be allowed under this section with respect
to
any clinical testing conducted by a corporation to which
an
election under section 936 applies.
(3) Certain rules made applicable
Rules similar to the rules of paragraphs (1) and (2) of section
41(f) shall apply for purposes of this section.
(4) Election
This section shall apply to any taxpayer for any taxable year
only if such taxpayer elects (at such time and in such manner
as
the Secretary may by regulations prescribe) to have this
section
apply for such taxable year.
Footnotes
[1] So in original. The semicolon probably should be a comma.
-------------------------------
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
http://www.cptech.org
Voice 202/387-8030 | Fax 202/234-5176
love@cptech.org