Of all the proposals in the GOP tax plan, none may be more important to families like Jay and Amy Granzow than an obscure provision on “orphan” drug research.
The Granzows, who live in Manhattan Beach, fear that the final tax bill will end up killing or drastically cutting a three-decade-old tax credit for companies developing therapies for so-called orphan or rare diseases, such as cystic fibrosis, muscular dystrophy and Angelman syndrome. The last is a debilitating genetic disorder that afflicts the Granzows’ nearly 3-year-old daughter, Cora.
The Senate version of the $1.5-trillion tax-cut plan would slice by about half the current 50% tax credit for such drug development. The House measure would do away with it entirely, generating an estimated $54 billion in federal revenue over 10 years to help pay for other tax reductions, mostly to corporations.
“This is not the place to cut,” said Amy Granzow, 38, who last year quit her work as an attorney to take care of Cora and their 4½-year-old son, Max.
Granzow sees a treatment in sight for her daughter, who suffers from seizures, developmental delays and speech impairment. Ovid Therapeutics Inc.’s medicine for Angelman syndrome is now in clinical trials. “We need that incentive for companies to move forward,” she said.
Patient advocacy groups are hopeful that, at the very least, a tax credit as generous as the Senate version will come out of the GOP conference committee now reconciling differences between the two bills. Sen. Orrin Hatch (R-Utah), a key figure in the tax discussions, has long championed the growth of the U.S. pharmaceutical industry, including orphan drugs. But Republican lawmakers also are desperately trying to boost tax revenues to make the numbers work.
And despite their lobbying clout, big pharmaceutical firms have not been very vocal on this issue because they also have an interest in getting corporate taxes cut to about 20% from 35%.
The orphan drug program also has come under scrutiny, with some profitable drugmakers thought to be taking undue advantage of the tax credit. An investigation by Kaiser Health News, a nonprofit news service, found that in many cases, drugs first approved for more common conditions were later approved as orphan drugs. The U.S. Government Accountability Office is currently looking into the program.
“Re-evaluating the Orphan Drug Act status of a drug at the time of approval might be one way of helping ensure that it’s being applied the right way,” said Dr. Aaron S. Kesselheim, an associate professor of medicine at Harvard Medical School and also an expert on health law. “I think we need to look more rigorously at the impact of the tax credit before determining if it needs adjusting.”
Even so, patient advocacy groups and companies like Ovid say it would be a mistake to eliminate or slash tax incentives when they have helped produce scores of medicines for rare diseases since the Orphan Drug Act was enacted in 1983. Without the tax credit, the National Organization for Rare Disorders, or NORD, concluded in its 2015 study that there would be one-third fewer orphan drugs in the marketplace.
There are more than 7,000 known orphan diseases, which are disorders that afflict fewer than 200,000 people in any given year. Currently government-approved treatments exist for about 350 of these diseases.
Simply put, the current tax code encourages drug companies to favor orphan-drug development, said Paul Melmeyer, NORD’s director of federal policy in Washington.
“What we’re worried about is when a company is discussing internally what direction they want to go with their drug development, whether it would be rare diseases or therapy for common diseases, currently it’s less expensive to develop that rare disease,” Melmeyer said. “Without the tax credits, they might redo these calculations.”
The tax credits are non-refundable. A young drug-development firm that spends $10 million for orphan-drug development in a given year, but does not have any sales, would not be getting a $5-million check from the U.S. Treasury. But when the company has sales later and makes a profit, it can then apply those credits to offset taxes.
That prospect is not lost on a biopharmaceutical firm like Ovid. Since its founding in the spring of 2014, the New York-based company has plowed millions of dollars into developing medicines for Angelman syndrome and epilepsy.
Dr. Jeremy Levin, the former chief executive of Teva Pharmaceutical Industries who joined Ovid as its head to work on neurological diseases, said the company would not walk away from its drug-development efforts, with or without the tax break. Ovid’s work on a treatment for Angelman syndrome is now in Phase II clinical trials, so it could be a few years before a drug is marketed to the public.
“Of course, we’re utterly committed to the patients and development of the drug,” Levin said in an interview Tuesday. “But the impact will be much broader,” he said of a possible loss or big cut in the tax credit. “It will be on the ability of other companies coming into this area” of orphan drug development, he said. “And this is very important, to have many companies coming.”
Amy Granzow remembers vividly the April 2016 evening when Cora had her first seizure and suddenly seemed to stop breathing. It was not until early this year that she and her husband, a plastic surgeon who teaches at UCLA, learned from a genetic test that Cora had Angelman syndrome.
For now, the Granzows are putting Cora through 22 hours of therapy a week, to help her slow-developing motor skills and speech. Now Cora, with her deep green eyes and light brown hair, can utter a few words and is learning how to climb stairs. Her mother doesn’t want her to end up in a wheelchair, as adults with the disease typically do.