WASHINGTON _ Advocates of using tax credits to offset certainresearch costs and to encourage orphan drug development told aHouse subcommittee Tuesday that two oft-extended but temporarytax-credit measures should be permanently etched into law.

The proposals are among seven temporary tax-credit measurescompeting for permanent authorization, as the Senate begins acontentious and difficult effort to cut spending, reduce taxes anderase the $3 trillion federal deficit by 2002.

Rep. Nancy L. Johnson (R-Conn.), chairwoman of the House Waysand Means Oversight Subcommittee, cautioned that, although "all ofthese provisions have merit, it is not entirely clear we can afford toextend all of them."

"It is my hope," she said, "that the 104th Congress will determinewhich of these provisions have sufficient merit to justify enactingthem permanently, and which we can do without."

Rep. Johnson and Rep. Robert T. Matsui (D-Calif.), the rankingDemocrat on the subcommittee, however, have publicly expressedsupport for both the research and orphan drug tax credits.

Indeed, the two ranking Ways and Means committee members co-sponsored bipartisan legislation that would make the two provisionspermanent features of the nation's tax code.

The research tax credit was enacted in 1981 and scheduled to expirefive years later. Now, after at least five extensions, the measure isscheduled to expire on June 30. The orphan drug tax credit, whichwas enacted in 1983, expired on December 31, 1994, after severaltemporary extensions.

The research tax credit is complex. In essence, it rewardspharmaceutical and biotechnology firms with a tax credit if theydelve into technological problems that both further the company'saims and benefit taxpayers.

Lisa Raines, vice president of government relations for GenzymeCorp., of Cambridge, Mass., told the subcommittee members that"the biotechnology industry urges swift enactment of the Johnson-Matsui bill."

Raines, who spoke on behalf of the Biotechnology IndustryOrganization (BIO), said the "Orphan Drug Act is unanimouslyrecognized as one of the most effective pieces of legislation enactedby Congress in the last 20 years."

Before the act expired, it offered drug companies tax creditsamounting to 50 percent of their clinical testing expenses, but onlyfor research into drugs used to treat diseases that affect fewer than200,000 Americans.

In the decade before the law was passed, Raines told the committee,the U.S. Food and Drug Administration approved only seven drugsfor the treatment of these diseases. In the 12 years since the law waspassed, the FDA approved more than 100 orphan drugs, and as manyas 600 more are under development.

Much of the research into those drugs has been carried out bybiotechnology firms such as Genzyme, which developed the first, andonly, FDA approved treatment for Gaucher disease, a geneticdisorder that affects fewer than 20,000 Americans.

Abby S. Meyers, President of the National Organization for RareDisorders Inc., told committee members that passage of the originalact means that "millions of profoundly desperate patients were giventhe hope they so critically needed."

Cynthia G. Beerbower, the Treasury Department's deputy assistantsecretary for tax policy, said Tuesday that "the administrationbelieves that any extension of these provisions _ particularly theorphan drug and research tax credits _ be made permanent."

She said repeatedly extending the bills for temporary periods"undercuts the desired incentive by creating uncertainty and makingit difficult for taxpayers to make long-term business plans."

Raines said that biotech firms favor one major change in the orphandrug bill.

The proposal as written would require drug and biotech firms to usethe credit during the year in which it was earned. However, acompany that invests in orphan drug research but fails to make aprofit would have insufficient tax liabilities against which to claimthe credit.

The change would permit companies that don't currently earn a profit_ including most fledgling biotech firms _ to carry the tax creditforward so that they can benefit from the credit in the future, duringmore profitable years to come.

Chuck Ludlam, vice president for governmental affairs at BIO, saidthat all of the tax credit proposals to be considered during the two-day hearing, which ends today, "will be folded into one huge taxbill."

This budget resolution could contain revisions in the tax code passedearlier this year by the House; all of the deficit reduction proposals;and perhaps even welfare reform.

The House and the Senate hope to finish the resolution by MemorialDay, and wrap up work on the reconciliation bill by the July 4threcess. If all goes as planned, Ludlam said, the reconciliation bill willemerge from the House and Senate conference committee before theAugust recess, ready for the president's signature.

If President Clinton vetoes the bill, it will most likely surface again aspart of the government's annual debt-ceiling extension legislation, which permits the government toborrow money needed to carry on its business.

If the president vetoes that version, the government will be forced toshut down for lack of funding.

"The administration will attempt to tailor the bill so President Clintoncan sign it," Ludlam said. "The Republicans will try to tailor the billso that the president can't veto it. It will be a back-and-forth process.n

-- Steve Sternberg Special to BioWorld Today

(c) 1997 American Health Consultants. All rights reserved.