By: Amanda Malakoff, Executive Director, The Rare Disease Company Coalition
The state of the biotech industry is at a critical inflection point. From one perspective, people are calling this era the golden age for biotech, where cutting edge medical discoveries are showing incredible promise. For example, rare disease biotechs have recently pioneered the ability to treat patients by permanently modifying a single gene to cure disease. It’s thanks to recent medical and technological innovations like these that there has never been a more dynamic time for biotech. However, from another perspective, capital is fleeing the rare disease biotech industry, prompting concerning headlines like “Biotechs face cash crunch after stock market ‘bloodbath’.” This paradox makes it easy to see why, despite the incredible innovations being made in biotech today, it is becoming increasingly difficult to realize the full potential of promising biotech innovations.
The Rare Disease Company Coalition (RDCC) represents nearly two-dozen life sciences companies that are researching, developing, and bringing treatments to rare disease patients – often those who previously had no options available to them – thanks to breakthroughs in molecular, cell, and gene therapy. Last month, I represented the RDCC on a panel discussion on the State of the Industry at The Business of Rare Policy Summit in Washington, DC, where experts and stakeholders came together for a day of dialog.
My fellow panelists and I spoke to the challenges facing clinical stage rare disease biotechs today. Namely, without products on the market, they do not bring in revenue and are largely dependent on capital markets to fund their research. However, it’s not just clinical stage companies relying on investment for research and development (R&D). Due to the complex nature of rare diseases, a comparatively higher percentage of operating expenses is dedicated to research and development all rare disease life science companies. Commercial stage companies with treatments on the market continue to invest their profits back into R&D, spending more on research than they make in revenue. As a result, commercial-stage rare disease companies often must raise billions of dollars from investors to sustain R&D.
Unfortunately, the recent downturn in the biotech stock market is keeping promising treatments from coming to market and has left an industry once flooded with money now strapped for cash. During times of economic uncertainty, investors look for lower risk portfolios, and look to key inflection points and milestones in the pharmaceutical regulatory review process. By its nature, the rare disease drug development process incurs more risk. Treatments are manufactured for limited population sizes, but their development costs remain the same or higher than drugs for larger populations due to the lack of natural history, complex diagnosis, limited access to patients for participation in clinical trials, and the often-unprecedented regulatory pathway. Public policy has a huge impact on raising capital and getting treatments to market, yet the government’s lack of consistency in addressing these challenges is putting undue constraints on potential private investment.
Investors want certainty and often look to policies made in Washington as key indicators. A “one-size-fits-all” approach to policies like drug pricing and value assessment frameworks can be especially detrimental and destabilizing to rare drug development. Amidst the current economic headwinds, it is more important than ever for Congress to preserve and foster biotech innovation so that the gains that have been made are not lost. Supportive federal regulations and policies are sorely needed to help spawn private investment in the rare disease biotech industry.
Let’s look at hard numbers to illustrate this point. Policies like the Orphan Drug Act (ODA), which was enacted in 1983 to facilitate the development of treatments for rare and ultra-rare conditions, has had outstanding success in furthering the industry. Prior to the ODA, only 38 orphan drugs had been approved in the US, compared to over 700 today. However, in 2017, some in Congress halved the Orphan Drug Tax Credit to 25%, and significantly reduced this powerful incentive made possible under the ODA for companies to invest in cures for rare diseases. Given that less than 7% of all rare diseases have an FDA-approved treatment, we simply cannot afford to reduce incentives to find, treat and cure rare diseases.
Policies must account for the complexity of rare disease drug development, which requires substantially different – and often more costly – trial designs and business models than therapies for larger patient populations. To offset the higher risk and costs associated with rare disease research, Congress must do more to provide incentives and increased certainty for rare disease companies by strengthening policies like the Orphan Drug and R&D tax credits. Doing so would send a reassuring signal to investors and help companies secure critical funding needed to continue their important work.
Rare disease research is at a precipice where years of efforts and innovation are yielding incredible results with the potential to give patients a better chance at life. Researchers, doctors, and patients are working together to advance cutting edge medical innovation, presenting us with an extraordinary opportunity to bring hope to the more than 90% of rare disease patients that lack treatment today.
While the financial challenges facing the biotech industry are significant, the solutions are straightforward. Rare disease biotechs need investors, and investors look to decisions made in Washington to provide certainty. With so many promising therapies on the horizon, it is imperative that policymakers act now to ensure the continued success of the industry. We are on the precipice of a golden age for biotech, and to fully realize it, we must confront the reality of the market head-on and work together to create an environment that catalyzes investment for rare disease research.
Research and development (R&D) is at the heart of rare disease innovation. Due to the complex nature of rare diseases, a comparatively higher percentage of operating expenses is dedicated to R&D for the over 95% of rare diseases without an FDA-approved treatment.
In 2021, our 21 Coalition members alone invested more than $12 billion into R&D, representing on average over half of their annual budgets. In addition, many of our members with products on the market are continuing to spend more on R&D than they make in revenue, investing profits back into future treatment development. The result of these endeavors have built a remarkable hub of innovation, growth and investment across life science companies.
However, a harmful tax change that if not reversed, will hurt rare disease companies’ ability to advance lifesaving innovation while limiting additional job creation and development here in the United States. Up until January 2022, a business in the United States could deduct 100% of their R&D expenses in the year during which those expenses incurred.
Now, a change in the tax code that took effect this year requires businesses to spread those deductions over a period of years—the so-called amortization requirement—making investment in innovation more expensive to conduct.
This week, RDCC joined over 400 organizations across the greater business community to urge Congress to repeal this harmful tax change. Doing so is vital to ensure that rare disease companies can continue to innovate, advance continued and ambitious research and development programs, and bring treatments to patients. On the cusp of significant breakthroughs in molecular, cell and gene therapy advancements, we must continue to support medical innovation taking place at rare disease companies to support delivery of life-altering treatments to rare disease patients.
Read the full letter to Congressional leadership here.
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