By Lisa Seachrist

Washington Editor

WASHINGTON * Sen. Orrin Hatch (R-Utah) introduced a bill to the Senate Monday to permanently extend the Orphan Drug Tax Credit.

The Orphan Drug Act of 1997, S. 293, would end the year-to-year renewals of the tax credit that defrays the costs associated with developing a drug to treat rare disorders. The bill was cosponsored by Sen. Max Baucus (D-Mont.).

"Few provisions of the tax code can claim to have clearly reduced human suffering and to have expanded our store of medical knowledge," Hatch told the Senate. "This credit has done both."

"We are thrilled that Senator Hatch introduced the bill," said Lisa Raines, vice president for government relations at Genzyme Corp., of Cambridge, Mass. "What people need to realize is that all of the genetic diseases, most cancers, and most neurological diseases are rare disorders so these affect a lot of Americans.

The Orphan Drug Tax Credit was enacted in 1983 to encourage drug companies to develop drugs to treat diseases that afflict a relatively small number of people. Orphan drugs are those that are aimed at a diseases that strike no more than 200,000 patients in the U.S. The credit allows companies to receive a 50 percent tax break for the clinical research costs associated with developing an orphan drug.

The bill expired in 1986, but the credit has repeatedly received one and two-year extensions. Unfortunately, when the credit expired at the end of December 1994, there was an 18-month gap before it was renewed. Hatch sponsored the extension last year which is set to expire on May 31. Rather than extend the credit, S. 293 proposes to permanently ensconce it in the tax code.

"The credit doesn't offer a full incentive if companies can't count on it," said Raines.

In addition, the bill also permanently extends the tax credit three years prior to the expenditure and 15 years after * a provision Hatch included in last year's extension of the tax credit.

Biotech companies are the most likely to benefit from this proposal because they typically aren't making money at the time they are doing research on a drug for an orphan indication; and, therefore, they have no federal corporate tax liability. Until last year, the tax credit served as an incentive only for companies that earned a current-year profit. As a result, if you couldn't use the credit immediately, it was lost forever.

By extending the period of time in which a company may take the credit, the bill makes it more available to start-up companies.

"Biotech companies develop a disproportionate number of the orphan drugs," said Raines. "Until last year, the credit wasn't useful to the vast majority of companies who had yet to market their first product."

President of the National Organization for Rare Disorders, Abbey Meyers agreed: "Expanding the carry-back and the carry-forward turned the tax credit into a tremendous incentive. Before it was just an incentive to big companies, now it's important to small companies as well. "

Hatch pointed out in statements to the Senate that, in the decade before the Orphan Drug Tax Credit came into law, only seven drugs for orphan indications had gained FDA approval. In the 14 years hence, more than 100 such drugs have gained approval and more than 600 are in development.

"Because of the high cost of drug experiments and the enormous expense involved in gaining FDA approval, many researchers set these promising drug innovations aside," Hatch told the Senate. "This should not happen, not when so many are suffering from these rare diseases, and we have an effective credit available that has proven its benefits."

Rep. Nancy Johnson (R-Conn.) will sponsor a similar bill in the House.

However, the efforts toward a balanced budget could put tax credit at risk. Raines said, "With Congress and the President both seriously talking about a balanced budget for the first time, the tax credit could expire in May and be permanently lost."

On a more encouraging note, Raines also pointed out that, for the first time in three years, the Clinton Administration included a one-year carry-forward for the tax credit in the fiscal year 1998 budget.

"We will see much more orphan drug research if we make this credit permanent," said Raines. *