Orphan Drug Credit

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Orphan Drug Credit

What Is the Orphan Drug Credit?

The orphan drug credit is a federal tax credit that encourages pharmaceutical firms to research drugs and therapies for uncommon illnesses affecting small populations. The credit is intended to assist pharmaceutical businesses in lowering their development expenses.

The credit covers 25% of eligible clinical testing costs. A rare illness is one that affects fewer than 200,000 individuals in the United States, or one that affects more than 200,000 people but has no realistic hope of financially developing a therapy. 1

Key Takeaways

  • The Orphan Drug Act incentivizes pharmaceutical firms to discover therapies for uncommon illnesses by providing a 25% tax credit on eligible clinical studies.
  • Other benefits include a fee refund and a seven-year period of drug exclusivity.
  • The legislation was passed in 1983 and has resulted in the approval of over 780 medications to treat over 250 uncommon disorders.
  • Oncology accounts for over half of all authorized therapies (the treatment of cancer).2

Understanding the Orphan Drug Credit

The orphan medication credit is available whether the pharmaceutical business conducts clinical trials in-house or contracts them out to a third party. Most testing must take place in the United States.1 Orphan pharmaceuticals are medications designed to treat “orphan illnesses,” which are exceedingly uncommon medical afflictions such as Gaucher’s disease, Tourette’s syndrome, Huntington’s disease, and many more. 3

Orphan illnesses, despite their rarity, afflict a vast number of individuals. 7,000 uncommon illnesses affect an estimated 30 million individuals in the United States, yet 95% of these diseases have no therapy or cure. 4

The orphan drug tax credit is aimed to support the discovery of medicines for certain uncommon illnesses. Without these tax breaks, pharmaceutical corporations would be obliged to charge exorbitant rates that many consumers would be unable to pay.

  Primary Market Corporate Credit Facility (PMCCF)

History of the Orphan Drug Credit

The Food and Drug Administration (FDA) of the United States acknowledged the lack of motivation for pharmaceutical firms to find solutions for uncommon illnesses in 1982. The Orphan Drug Act of 1983 arose from this awareness. 3

Pharmaceutical corporations and medical researchers were unable and unwilling to invest in cures for highly uncommon illnesses prior to the passage of the Orphan Drug Act. Simply said, there weren’t enough patients for each orphan illness for pharmaceutical firms to recoup their costs, much alone earn a profit. Even when researchers can identify enough participants to undertake studies, clinical trials cost thousands of dollars per patient.

The orphan drug tax credit provides a 50% credit for qualifying clinical testing expenditures for medications examined under section 505(i) of the Federal Food, Drug, and Cosmetic Act between 1983 and 2018. 5 Beginning in 2018, the credit was decreased from 50% to 25% as part of the Donald Trump administration’s 2017 tax code rewrite. 6 Many advocacy organizations, including the National Organization for Rare Disorders, pushed against the proposal. 7

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