Regulatory Focus™ > News Articles > Orphan Drug Manufacturers Would be Exempt from 'Obamacare' Fees Under New Bill

Orphan Drug Manufacturers Would be Exempt from 'Obamacare' Fees Under New Bill

Posted 12 June 2013 | By Alexander Gaffney, RAC 

A new piece of legislation introduced this week by Rep. Jim Gerlach (R-PA) would clarify that developers of orphan pharmaceutical products are exempted from an annual fee otherwise levied on manufacturers to help fund the government's expansion of national healthcare.

Background

Orphan drug products have long been exempted from a range of fees otherwise levied on other manufacturers. As defined under the Orphan Drug Act of 1983, orphan drugs are those intended to treat diseases affecting fewer than 200,000 patients. Because of the small population of patients, companies traditionally had little to no incentive to develop products for those patients, fearing that even if a product was approved, they would not be able to recover their development costs.

Under the 2007 FDA Amendments Act (FDAAA), legislators instituted a user fee exemption for drugs either designated for or indicated for orphan populations. Section §379h(a)(1)(F) of the Federal Food, Drug and Cosmetic Act (FD&C Act) states the following:

"A human drug application for a prescription drug product that has been designated as a drug for a rare disease or condition pursuant to section 360bb of this title shall not be subject to a fee under subparagraph (A), unless the human drug application includes an indication for other than a rare disease or condition. A supplement proposing to include a new indication for a rare disease or condition in a human drug application shall not be subject to a fee under subparagraph (A), if the drug has been designated pursuant to section 360bb of this title as a drug for a rare disease or condition with regard to the indication proposed in such supplement."

Obamacare Taxes

But that isn't the only fee pharmaceutical companies are scheduled to pay to the government. Under the Patient Protection and Affordable Care Act (PPACA)- Obamacare, if you like -an annual fee is levied on branded prescription pharmaceutical manufacturers and importers. The tax is based on each company's sales, with companies that earn less than $5 million each calendar year paying 0%, with a sliding scale thereafter subjecting various percentages of sales to the tax (up to $125 million, 10%; 225 million, 40%, $399,999 million, 75%; $400+ million, 100%).

The tax is intended to raise billions of dollars each year to help fund the expansion of national healthcare programs. Though paragraph (3) of Section 9008 of the PPACA was written to explicitly exempt orphan drug sales from the tax, the section isn't clear enough for at least two legislators.

Gerlach's bill, H.R. 2315: To clarify the orphan drug exception to the annual fee on branded prescription pharmaceutical manufacturers and importers, would explicitly state that orphan drugs that have obtained licensure or approval from FDA would be exempted from the annual pharmaceutical tax-something not clear in the original bill.

The new language is thus: "The term 'branded prescription drug sales' shall not include sales of any drug or biological product which is approved or licensed by the Food and Drug Administration for marketing solely for one or more rare diseases or conditions."

The change is apparently intended to make sure that even if a tax credit was not allowed for the drug under the Internal Revenue Code of 1986, orphan drug products would still be exempt from the PPACA tax.

Small Change, Big Results

The change, though seemingly small, could have massive implications for orphan drug manufacturers who focus exclusively on orphan drug products. Though some orphan drug products make little in the way of revenue - and would thus be protected from a fee that would otherwise cut into their small profit margins - others can take in hundreds of millions, and even billions of dollars each year.

The language would not, however, allow a pharmaceutical company to take a blockbuster drug and find an orphan designation in order to avoid the tax in its entirety.

"The goal here is to make sure patients with rare diseases have access to the treatments with the amazing potential to extend and improve their lives," Gerlach said in an email to Regulatory Focus. "In addition, the legislation would allow our life sciences companies to continue investing in the development of groundbreaking research that will hopefully lead to new, innovative treatments. That's important to preserving existing jobs in our Commonwealth and creating new ones."

The legislation also further defines "rare disease or condition" for the purposes of the law, stating that:

"In this paragraph, the term 'rare disease or condition' has the meaning given such term under section 45C(d)(1) of the Internal Revenue Code of 1986, except that in the case of any drug or biological product that has not been designated under section 526 of the Federal Food, Drug and Cosmetic Act for a particular indication, determinations under such section 45C(d)(1) shall be made on the basis of the facts and circumstances as of the date such drug or biological product is approved or licensed by the Food and Drug Administration for marketing for the treatment of such disease or condition."

The bill already has one co-sponsor, Rep. Richard Neal (D-MA), and has been sent to the House Energy and Commerce Committee for consideration.


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