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Executive Summary

The orphan drug law tax credit should operate like a grant in order to benefit those biotechnology companies not yet generating manufacturing/sales income, University of Florida law professor David Richardson suggested at a Sept. 21 meeting of the Pharmaceutical Manufacturers Association Commission on Drugs for Rare Diseases. "The basic problem with [the tax credit] is that it is nonrefundable," Richardson maintained. Other tax credits "are refundable in the sense that if you are entitled to it, you just get, in effect, a grant from the government"; however, with a nonrefundable credit "a company that is not in a profit-making capacity can't take advantage of it; it just disappears," he explained. If the tax credit were refundable and "if it were available to companies that are not yet in the development or sale business," Richardson suggested, "then it could be much more useful as an inducement to various groups in providing capital for the development of these drugs." Whereas a Senate version of the orphan drug legislation would have provided outright grants in excess of $40 mil., "only about $240,000 to $260,000" in tax credits were claimed during the first year after the law's enactment, he said. "The orphan drug credit could be, but probably is not now, a helpful tool in getting some of these orphan drugs looked at [because it] is basically not usable by many of the companies that perhaps could use it or would like to use it," he said. "It needs some revision." Richardson is director of the University of Florida's Graduate Tax Program. Commission member Pedro Cuatrecasas, Glaxo senior VP for R&D, contended that the Orphan Drug Act has effectively spurred development of abandoned products and should be expanded to encourage development of new drug compounds. The law has "pretty well taken care of things that were sitting on the shelf . . . a reservoir, which was maybe not as large as many people thought," Cuatrecasas said. "Now, we're at a stage where we are really trying to encourage research toward novel, creative, new developments. This [effort] is going to take a different set of conditions to promote." For example, nonclinical studies should be supported under an expanded Orphan Drug Act, Cuatrecasas suggested. A "major" problem is that the current law "does not cover any of the nonclinical areas, which are often most expensive: toxicology, formulation, chemical development, etc.," he said. Commission Chairman George Goldstein, MD, Sterling VP-medical director, announced at the meeting that PMA has awarded a $10,000 grant to the National Organization for Rare Diseases (NORD) to fund its database. PMA will consider providing continued funding if it is needed in the future, and plans to "reassess this on a regular basis. It is important to provide a central source for reliable data, and we are pleased to be able to announce that today," he said. Available on CompuServe, the database costs NORD $45,000 per year to maintain. It has been funded since 1984 on an annual $25,000 grant from the Generic Pharmaceutical Industry Association. In 1986, NORD received a one-year donation of $20,000 from the March of Dimes. With the PMA grant, NORD says it still needs an additional $10,000 to maintain the database.

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