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Will Obama Support Kennedy’s Proposed Tax Incentive for Companion Dx Developers?

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Developers of companion diagnostics products, integral to the advancement of personalized medicine, may receive a much-needed financial boost from Congress covering their research and development expenses if a new bill introduced by Rep. Patrick Kennedy (D-RI) passes.
 
The Genomics and Personalized Medicine Act of 2008, H.R.6498, would award “an eligible taxpayer [or test developer] the companion diagnostic test credit” in “an amount equal to the qualified research expenses paid or incurred by the taxpayer during the taxable year, in connection with the development of a qualified companion diagnostic test.”
 
In addition to the tax credit item, Kennedy’s bill includes major components of a personalized medicine bill, S.976, which Senator Barack Obama (D – Ill.) introduced last year. What implications the House version might have on Obama’s Senate legislation is not entirely clear. Representatives from Kennedy and Obama’s offices did not return requests for interviews.
 
Dora Hughes, Obama’s Senate health policy advisor, had previously noted that his personalized medicine bill might be marked up in the Senate this month. However, Edward Abrahams, executive director of the Personalized Medicine Coalition, believes that any attempt to reintroduce Obama’s bill or reconcile the Senate and House versions, particularly on the tax credit item, would not happen until 2009.
 
In his bid for the White House, Obama has promised to double federal funding for healthcare research, make the existing research and development tax credit permanent, and provide tax relief to small businesses and start-ups, a designation that fits many diagnostic firms. 
 
In this regard, Kennedy’s tax credit appears to be something Obama would support.
 
PMC’s Abrahams told Pharmacogenomics Reporter this week that while “tax credits are one very good idea to stimulate research and development, how that is done remains an open question.”
 
Meanwhile, Johns Hopkins University’s Genetics and Public Policy Center’s Gail Javitt noted that although Congress’ continued focus on personalized medicine is positive, she expressed concern that, like the Obama bill, Kennedy’s legislation would introduce unnecessary layers of bureaucracy that might actually slow progress in genomics.
 
Credit Checks
 
Kennedy’s tax credit item is the principal difference between the House and Senate versions of the personalized medicine bills, which on the whole, are very similar legislations in scope.
 
Both would create a personalized-medicine working group involving the National Institutes of Health, the Food and Drug Administration, the Centers for Disease Control and Prevention, and other groups outside of the Department of Health and Human Services. They would also start a National Biobanking Initiative that would collect and integrate genomics data with environmental and clinical health information; provide funding to improve training for genetic treatment and counseling efforts; and devise ways to help improve regulatory oversight of genetic and pharmacogenomic tests.
 
In S.976, Obama proposes that the National Research Council of the National Academy of Sciences “study and recommend appropriate incentives to encourage codevelopment of companion diagnostic test[s]” by pharmaceutical and device manufacturers, but stops short of issuing actual incentives.
 
While the tax credit under H.R.6498 goes further than S.976 in this regard, to qualify for Kenney’s proposed incentive, the companion diagnostic for which the test developer is claiming credit needs to be a “qualified companion diagnostic test.” 
 
“The term ‘qualified companion diagnostic test’ means a diagnostic test in connection with a drug which is designed to provide information which can be used to increase the safety or effectiveness of the drug, and is approved by the Secretary of Health and Human Services,” according to the text of H.R. 6498.
 
In addition an “eligible taxpayer” able to receive the tax credit, is an entity “requested to develop a qualified companion diagnostic test by the Secretary of Health and Human Services in connection with a drug that has been submitted under section 501(b)(1) of the Federal Food, Drug, and Cosmetic Act, or for which an application has been approved under such section.
 

“New committees and layers of bureaucracy are proposed when what is needed are concrete steps to enhance oversight and improve laboratory and test quality.”

Since the bill broadly states that a qualified companion diagnostic is one that is approved by HHS, this appears to include both FDA-cleared tests and homebrew assays performed at labs cleared by CMS’ Clinical Laboratory Improvement Amendments. By the criteria set forth in Kennedy’s bill, Monogram could have qualified for the tax credit in developing its CCR5 co-receptor tropism assay, which is a companion diagnostic for Pfizer’s HIV drug Selzentry.
 
Monogram’s Trofile assay was used in pivotal clinical trials for Selzentry and is performed at CLIA-certified labs. The company submitted information to FDA’s Center for Drug Evaluation and Research as part of Selzentry’s master file and the drug’s label stresses that only patients whose CCR5-tropism status has been established by companion diagnostic testing may receive the drug [see PGx Reporter 05-10-2006]. 
 
Alfred Merriweather, Monogram’s chief financial officer, told Pharmacogenomics Reporter that the company has spent over $80 million over a period of 10 years to develop its phenotypic technology platform, upon which Trofile is based.
 
Drug maker Clinical Data, which is currently developing the investigational depression drug vilazodone and a companion diagnostic to help guide its administration, expressed support for Kennedy’s bill but declined to disclose its development costs for the test. A spokesperson for Clinical Data stated that the company will decide whether to submit its companion diagnostic for FDA clearance based on data from ongoing clinical trials.
 
Genomic Health, which is developing various cancer companion diagnostics based on its Oncotype DX platform with pharma partners Pfizer, Bristol-Myers Squib and ImClone, and Easter Cooperative Oncology Group, also would not disclose its development costs.
 
It is well known, however, that developing a companion diagnostic is a costly prospect, made even more expensive if the company wishes to pursue FDA clearance for the product. Furthermore, industry observers have noted the lack of a business model encouraging Rx/Dx co-development.
 
The main barriers to drug/diagnostic combination products include divergent development timelines; risk-averse pharmaceutical companies that are unwilling to invest in diagnostic products with questionable clinical validity; and the lack of a regulatory pathway promoting co-development of combination products.
 
Progress in crafting such a business model has been slow. The FDA issued a white paper on the topic in 2005, but has yet to issue more prescriptive guidance. Last October, however, the C-Path Institute announced that it will use a $2.1 million Arizona state grant to help Ventana take a lung cancer diagnostic through the FDA and standardize a regulatory pathway for companion diagnostics and therapies [see PGx Reporter 10-17-2007].
 
Abrahams, referring to the tax credit in Kennedy’s bill, said the PMC “is pleased that there is a recognition [in Congress] that market forces by themselves are not going to increase the adoption of drug/diagnostic combination products.” The PMC is planning a conference in January to discuss the business models that may be conducive to advancing personalized medicine, he said.
 
Presidential Backing?
 
A potential Obama win in the 2009 Presidential elections and the ailing health of Senator Edward Kennedy’s (D-Mass.), who has introduced his own bill about oversight of genetic tests, further obfuscates whether Obama’s bill is dead in the water, who in the Senate would champion a similar personalized medicine bill, and if a new version would include the tax credit item from the House version.
 
If the Obama bill is marked up this month as his health-policy advisor has said, then his Presidential campaign promises suggest he might support giving a tax credit to companion diagnostic developers.  
 
For instance, the Democratic Presidential nominee has promised to double federal funding for basic research; supports making the Research and Development tax credit permanent to promote domestic R&D; and said he intends to eliminate all capital gains taxes on start-up and small businesses to encourage innovation and job creation.
 
According to GPPC’s Javitt, “In general, we think it is important to develop policies to foster the codevelopment of drugs and diagnostics. Clearly, it is necessary to be as innovative about regulatory policy and drug development in genetic medicine as the science itself has been, and an array of policy options should be on the table.”
 
However, beyond the tax credit issue, Javitt feels that certain aspects of both H.R.6498 and S. 976 would increase bureaucracy. The GPPC has criticized a proposal in Obama’s personalized medicine bill to create an Institute of Medicine study on how to improve federal oversight and regulation of genetic tests. Last June, Obama added this particular proposal as an amendment to the FDA Revitalization Act of 2007.
 
At the time, the GPPC criticized the amendment noting that earlier studies investigating the genetic-testing market have already concluded that additional oversight of the industry is necessary and that launching another investigation would be a misappropriation of federal funding, and would foster government inaction [see PGx Reporter 06-06-2007].  
 
“In terms of the regulatory/oversight provisions of the Patrick Kennedy bill, we have similar concerns to those we raised with respect to the Obama [bill],” Javitt said. “New committees and layers of bureaucracy are proposed when what is needed are concrete steps to enhance oversight and improve laboratory and test quality. … The best approach is likely to be one that combines elements of the various legislative proposals out there.”
 
In Javitt’s view, the lack of pharmacogenetic information in drug labels is one major barrier to encouraging drug/diagnostic co-development. She said the GPPC is planning a project to analyze the regulatory impediments to including pharmacogenetic information in drug labels and propose policy options to enhance the process.
 

“We’ll be able to say more on that in coming months,” Javitt said.

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