[Congressional Record Volume 141, Number 118 (Thursday, July 20, 1995)]
[Senate]
[Pages S10426-S10427]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      THE ORPHAN DRUG ACT OF 1995

  Mr. HATCH. Mr. President, today I am introducing the Orphan Drug Act 
of 1995, legislation to modify and extend permanently the orphan drug 
tax credit. Identical legislation has been introduced in the House by 
Representatives by Nancy Johnson and Robert Matsui. This credit 
encourages private firms to develop treatments for rare diseases. As 
many of my colleagues know, this medical research tax credit expired at 
the end of 1994. I am pleased that my good friend and colleague from 
Montana, Senator Baucus, is joining me.
  Since the 1983 enactment of the orphan drug tax credit, we have seen 
very encouraging progress in developing new drugs to alleviate 
suffering from a number of so-called orphan diseases. The name 
``orphan'' was coined to reflect a perceived lack of concern about 
diseases that affect relatively small numbers of people.
  Mr. President, the incentive provided by this credit gives hope to 
individuals who suffer from such rare but devastating conditions as 
Tourette's syndrome, Huntington's disease, and 
neurofibromatosis. Many drugs 
designated as orphan drugs have a much smaller potential market than 
even the 200,000 patients referred to in the definition in this bill--
sometimes they are for conditions that affect as few as 1,000 persons 
in the United States. This means that without some incentive there is 
simply no possibility for a firm to profit from its decision to develop 
drugs that treat these diseases.
  Fortunately, the ``orphan'' perception has been changing over the 12 
years that this research credit has been in effect. In fact, Mr. 
President, pharmaceutical companies have made great strides in 
discovering treatments for these orphan diseases. While only seven 
orphan drugs were approved by the FDA in the decade before the credit's 
initial passage, over 100 have been approved since and approximately 
600 are now in development.
  For example, the FDA recently approved the first-ever treatment for 
Gaucher disease, a debilitating and sometimes fatal genetic disorder. 
This disease afflicts fewer than 5,000 people worldwide, yet Genzyme 
Corp. expended its time and money to search for a treatment precisely 
because of the orphan drug credit's incentives.
  Mr. President, this credit's effectiveness has been tested for the 
past 12 years, and it has passed with flying colors. Few provisions of 
the tax code can claim to have clearly reduced human suffering and to 
have expanded our store of medical knowledge. This credit has done 
both.
  By helping small, entrepreneurial firms to take advantage of the 
orphan drug credit, we can make it even more effective. Currently, Mr. 
President, the tax credit only serves as an incentive for companies 
that earn a current-year profit. Under the previous law, if the credit 
could not be used immediately, it was lost forever. For large, 
profitable drug companies, this was rarely a problem.
  However, for many small, start-up pharmaceutical companies, this 
current-year restriction makes the credit of little or no use. These 
firms typically lose money in the early years since they put all 
available funding into research. They only expect to see profits many 
years into the future. While many of the Nation's drug breakthroughs 
have come from these small firms, Mr. President, the credit's current 
structure has left them out in the cold.
  In order to improve the credit's usefulness, this bill will allow 
firms to carry the credit back 3 years and carry it forward 15 years. 
This will give small, growing companies an incentive to find ways to 
treat these rare diseases that cause so many to suffer.
  In my home State of Utah, a healthy biomedical industry is emerging. 
In the course of research, scientists often stumble upon treatments 
that could, if developed, improve the lives of victims of rare 
diseases. However, because of the high cost of drug experiments and the 
enormous expense involved in gaining FDA approval, many researchers 
reluctantly set these promising drug innovations aside. Mr. President, 
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.
  I urge my Senate colleagues to join me in sponsoring this 
legislation. Mr. President, I ask unanimous consent 

[[Page S10427]]
that the text of this bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1052

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. CREDIT FOR CERTAIN CLINICAL TESTING EXPENSES MADE 
                   PERMANENT; CARRYOVER AND CARRYBACK OF UNUSED 
                   CREDITS.

       (a) Credit Made Permanent.--Section 28 of the Internal 
     Revenue Code of 1986 (relating to clinical testing expenses 
     for certain drugs for rare diseases or conditions) is amended 
     by striking subsection (e).
       (b) Carryover and Carryback of Unused Credits.--Paragraph 
     (2) of section 28(d) of such Code is amended by adding at the 
     end the following flush sentences:
       ``Rules similar to the rules of subsections (a), (b), and 
     (c) of section 39 shall apply to the credit under this 
     section. No credit under this section may be carried under 
     such rules to a taxable year beginning before January 1, 
     1995.''
       (c) Technical Amendments Related to Carryover and Carryback 
     of Credits.--
       (1) Carryover of Credit.--
       (A) Subsection (c) of section 381 of such Code (relating to 
     items of the distributor or transferor corporation) is 
     amended by adding at the end thereof the following new 
     paragraph:
       ``(27) Credit under section 28.--The acquiring corporation 
     shall take into account (to the extent proper to carry out 
     the purposes of this section and section 28, and under such 
     regulations as may be prescribed by the Secretary) the items 
     required to be taken into account for purposes of section 28 
     in respect to the distributor or transferor corporation.''
       (B) Paragraph (2) of section 383(a) of such Code (relating 
     to special limitations on certain excess credits, etc.) is 
     amended by redesignating subparagraphs (A) and (B) as 
     subparagraphs (B) and (C), respectively, and by inserting 
     before subparagraph (B) (as so redesignated) the following 
     new subparagraph:
       ``(A) any unused clinical testing credit under section 
     28,''.
       (2) Carryback of credit.--
       (A) Subparagraph (C) of section 6511(d)(4) of such Code 
     (defining credit carryback) is amended by inserting ``any 
     clinical testing credit carryback under section 28 and'' 
     after ``means''.
       (B) Subsection (a) of section 6411 of such Code (relating 
     to tentative carryback and refund adjustments) is amended--
       (i) by inserting ``by a clinical testing credit carryback 
     under section 28,'' after ``172(b),'' in the first sentence, 
     and
       (ii) by striking ``net capital loss'' the first place it 
     appears in the second sentence and all that follows before 
     ``in the manner and form'' and inserting ``net capital loss, 
     unused clinical testing credit, or unused business credit 
     from which the carryback results and within a period of 12 
     months after such taxable year or, with respect to any 
     portion of a clinical testing credit carryback or business 
     credit carryback attributable to a net operating loss 
     carryback or a net capital loss carryback from a subsequent 
     taxable year, within a period of 12 months from the end of 
     such subsequent taxable year or, with respect to any portion 
     of a business credit carryback attributable to a clinical 
     testing credit carryback from a subsequent taxable year 
     within a period of 12 months from the end of such subsequent 
     taxable year,''.
       (C) Paragraph (1) of section 6411(a) of such Code is 
     amended by inserting ``unused clinical testing credit,'' 
     after ``net capital loss,''.
       (d) Effective Date.--
       (1) Subsection (a).--The amendment made by subsection (a) 
     shall apply to amounts paid or incurred after December 31, 
     1994.
       (2) Carryovers and carrybacks.--The amendments made by 
     subsections (b) and (c) shall apply to taxable years 
     beginning after December 31, 1994.
     

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