Bloomberg Law
Dec. 17, 2021, 10:30 AMUpdated: Dec. 17, 2021, 2:49 PM

Rare Disease Research in Crosshairs of Bill’s Tax Credit Limit (1)

Celine Castronuovo
Celine Castronuovo

An orphan drug tax credit limit in President Joe Biden’s signature social spending package is generating fears that it will chill research into how existing drugs might be used for rare diseases if Congress passes it into law.

Tens of millions of patients with Hodgkin’s lymphoma, sickle cell disease, and other rare conditions have benefited from more than 730 drugs and therapies approved by the Food and Drug Administration since Congress first passed the Orphan Drug Act in 1983.

But a section of the House-passed Build Back Better Act (H.R. 5376) narrows the kinds of drugs that would qualify for a rare disease tax credit to those whose first official use is to treat uncommon conditions or that are first indicated—or labeled for use—as orphan drugs.

The restriction is intended to stop high-performing drug companies from boosting their profits. But the concern is that it will wipe out a financial incentive for companies to investigate how drugs already approved for some conditions might also be used to treat rare disorders.

“I’m on a drug that saved my life,” said David Fajgenbaum, a medical professor and the associate director at the University of Pennsylvania’s Orphan Disease Center who suffers from Castleman disease, a rare condition involving an overgrowth of cells in the lymph nodes.

“Unfortunately, there are other patients out there that have rare diseases where the drug that could save their life is already in the neighborhood pharmacy, but no one’s figured that out,” he said.

Fajgenbaum discovered during his own research as a medical student that Sirolimus, a drug traditionally used to prevent organ rejection following a kidney transplant, also stopped his immune system from attacking and killing him as a result of his Castleman disease.

Affordable Research

Advocates for expanding research into rare disease treatments argue that the provision, which has also been included in the latest version of the Senate Finance Committee’s proposed Build Back Better text, could be especially harmful for smaller drug companies that may not have enough funding on their own to conduct the necessary research and testing.

Such studies can run into the tens of millions of dollars, something advocacy groups can’t raise on their own, said Fajgenbaum, who is also co-founder and executive director of the Castleman Disease Collaborative Network.

“If it is a product that has been on the market and a company believes that there is another potentially lifesaving use of that drug in a rare disease, we want there to be incentives in law for that company to do the necessary clinical trial testing to prove safety and effectiveness,” said Rachel Sher, vice president of policy and regulatory affairs for the National Organization for Rare Disorders.

The FDA declined to comment on the tax credit restriction’s potential impact, citing it as a matter subject to pending legislation.

Orphan Drug Act

For nearly four decades, the FDA has been responsible for granting orphan drug designations for drugs and biologics that can prevent, diagnose, or treat rare cancers, blood disorders, and other uncommon conditions.

The Orphan Drug Act defines a “rare disease or condition” as one that affects fewer than 200,000 people in the U.S. or that impacts more than 200,000 but “for which there is no reasonable expectation that the cost of developing and making” the drug available “for such disease or condition will [be] recovered from sales” of the drug.

The law has allowed developers of orphan drug-designated products to be eligible for tax credits for qualified clinical trials and exemption from manufacturer user fees that help fund FDA operations. The label also qualifies sponsors to potentially receive seven years of market exclusivity for their drug after the FDA approves it.

Although any single rare disease may impact a relatively small number of people, advocates say the large swath of the aggregate population impacted is reason enough to develop lifesaving treatments.

Roughly 30 million Americans—or one in 10—have at least one of the more than 7,000 rare diseases identified across the country, according to FDA data.

“If 10% of the population is affected by something, we really should be putting some real time and attention and money and research to understanding what we can do to either prevent or treat that something,” said Linda Goler Blount, president and CEO of the Black Women’s Health Imperative and a member of the Rare Disease Diversity Coalition, which was launched by the imperative to address the challenges of minority rare disease patients.

In recent years, Congress has already reduced the percentage of clinical testing expenses eligible for coverage under the orphan drug tax credit.

The 2017 Tax Cut and Jobs Act lowered the total amount companies could receive from 50% to 25% of clinical testing expenses for drugs granted an orphan drug designation. NORD and other groups have said that the full impact of this change is not yet known, but that additional limits on financial incentives for developing rare disease treatments can only hurt the cause.

“It, unfortunately, comes down to money,” Goler Blount said. “But of course, if you’re that family member, if you’re that person, you know it doesn’t feel like a little issue.”

‘Gaming The System’

Lawmakers involved in crafting the tax credit changes say the provision is meant to help reserve federal funds for the drug developers that need it most.

“This policy simply prevents pharmaceutical companies from gaming the system,” House Ways and Means Chairman Richard Neal (D-Mass.) said in a statement. He added that the “proposal aims to ensure that the incentives under the Orphan Drug Act are targeted for treatments developed for patients with orphan and rare diseases and are not gamed by manufacturers of blockbuster drugs.”

The Office of the Inspector General, in findings released in September, found that some of the highest-expenditure drugs in Medicare have received at least one orphan drug indication, qualifying them for certain financial incentives.

Many high-expenditure orphan drugs included in the study were initially approved “to treat relatively common diseases or conditions,” according to the report.

The benefits associated with an orphan drug label may “provide significant financial incentives for manufacturers to seek orphan designation for drugs approved to treat common diseases or conditions,” the report said.

It also questioned whether the tax credit’s “current eligibility requirements and incentives” are “the most effective way to ensure the continued development of affordable drugs to treat patients suffering from rare diseases and conditions.”

The 20 drugs approved for rare disease indications that were included in the OIG report, however, “represent approximately only 4% of all orphan-designated drugs,” the FDA said in a letter submitted in response to the findings.

“FDA is committed to facilitating the development of treatments for patients with rare diseases,” the agency added at the time. “The ODA is an important tool in achieving this goal.”

Policymakers “cannot turn a blind eye to how successful the Orphan Drug Act has been in catalyzing increasing treatment options for patients, both through new agents and post-approval indications,” Andrew Powaleny, a spokesperson for trade group the Pharmaceutical Research and Manufacturers of America (PhRMA), said in an emailed statement.

PhRMA released a report Thursday showing that nearly 800 potential medicines for rare diseases are currently in clinical trials or awaiting review by the FDA. Powaleny added that, despite the significant gains made in research over the years, the tax credit benefits are still necessary, as fewer than 10% of rare disease patients in the U.S. have treatments available to them.

“Congress should not threaten or create uncertainty about the core incentives needed to help these patients,” Powaleny said.

For now, rare disease advocates are bracing for the possibility that the tax credit limit will become law.

“The advocacy will really have to be stepped up to go to philanthropy, to try to get funding to do research, to create other mechanisms to conduct research,” Goler Blount said.

The central question, said NORD’s Sher, is not whether companies need the orphan drug tax credit but whether they will continue to do the necessary clinical trial testing to get rare disease indications added to their products without the credit.

“NORD’s concern—and the concern of the 30 million rare disease patients we represent—is that the answer is no,” she said.

(Updated with comment from PhRMA in the 29th to 31st paragraphs.)

To contact the reporter on this story: Celine Castronuovo at

To contact the editors responsible for this story: Alexis Kramer at, Melissa B. Robinson at