Senate, House Agree to Cut Orphan Drug Research Credit in Half in Tax Bill

Members of the House-Senate Conference Committee discussing the GOP's tax overhaul plan on Friday released the final text of the bill, which would reduce the rare disease research tax credits biopharma companies can claim by half.

Currently, companies can claim a 50% tax credit for qualified clinical testing expenses incurred in testing certain drugs for rare diseases or conditions, generally referred to as "orphan drugs," affecting fewer than 200,000 persons in the US.

The House bill had originally sought to eliminate the tax credit entirely, while the Senate bill sought reforms that would reduce the credit rate to 27.5% of qualified clinical testing expenses.

"The conference agreement follows the Senate amendment, but reduces the credit rate to 25 percent of qualified clinical testing expenses," the text of the final bill says.

As far as the budget effect of the change, the conference bill estimates it will save $32.5 billion from 2018 to 2027.

The House and Senate are expected to discuss and vote on the bill on Monday and Tuesday, and presumably both houses of Congress have the necessary votes for the bill to pass.

Positives for Biopharma

On the flip side, biopharma companies will likely be pleased by the bill’s lowering of the corporate tax rate to 21%, beginning 1 January 2018, from 35%, which the conference committee says is the "largest reduction in the US corporate tax rate in our nation’s history."

The bill also lowers the cost of bringing overseas cash back to the US, which is considered a major victory for the US biopharma industry. Companies such as Johnson & Johnson, Amgen, Gilead, Pfizer and Merck all keep more than 80% of their cash overseas.