Should Drugmakers Be Allowed To Avoid Taxes On Their Profits From An Alzheimer’s Drug?

In one of the worst ideas I’ve heard in a long time, two congressmen have introduced a bill to make profits from the sale of certain anti-Alzheimer’s drugs tax free for seven years.  The measure, sponsored by representatives Patrick Murphy (D-FL) and Mike Fitzpatrick (R-PA), may be well-intentioned, but it would provide a multi-billion dollar windfall to pharmaceutical companies. There is no evidence it would improve the nation’s overall health and it could very well harm it.

The bill would let drugmakers exclude from income (and thus pay no tax on) revenue from the sale of “breakthrough therapy drugs to treat Alzheimer’s Disease.” We all would love to find a cure for this terrible disease, so what’s wrong with a bill that would provide financial incentives for drugmakers to speed up their work? Well, just about everything.

Here are just a few reasons why this idea is so misguided.

The financial rewards to the drugmaker who develops the first Alzheimer’s drug are enormous. The Alzheimer’s Association, which backs the bill, estimates that more than 450,000 people are diagnosed with the disease each year, a number projected to rise to more than 600,000 by 2030. Previous drugs aimed at slowing the progression of the disease (and which have very limited benefits ) are priced at $2,500 to $5,000 a year. A successful drug would likely cost far more, and consumers  probably would have to take it for their lifetimes.

These subsidies would add to the deficit, and limit government funding for other programs. Tax subsidies are not free. The federal deficit and debt will continue to rise, and these new tax breaks would only make a bad situation worse. Constrained budgets mean that government programs, including many for older adults with chronic illness, are being cut or frozen. In an especially cruel trade-off, more tax breaks for drugmakers mean less money for important services, such as caregiver respite programs, adult day services, and information services. In effect, those who already have dementia and other diseases would help pay for subsidies that may benefit those who are not yet sick.

Drug companies already get huge subsidies from the federal government.  The 2016 federal budget for Alzheimer’s research reached $1 billion and that funding is likely to increase again this year. While taxpayers subsidize this research, the government receives none of the profits from the sale of drugs that result from this publicly-funded science.

They also get exclusive marketing rights. Not only do pharmaceutical companies get a 20 year patent on new drugs, but the Food & Drug Administration also grants them exclusive marketing rights that typically last for at least five years. This protects them from price competition and forces consumers, or public payers such as Medicare, to pay more.

Alzheimer’s is far from the nation’s biggest health problem. The Centers for Disease Control estimates that about 93,000 Americans die annually from Alzheimer’s. But 614,000 die from heart disease and 591,000 die from cancer.  As terrible as Alzheimer’s is, why would we provide a huge tax subsidy to encourage drugmakers to focus on one disease when the practical effect would be to discourage them from working on cures or treatments of other, far more common, conditions?

Dementia is more than Alzheimer’s. While Alzheimer’s is the best known form of dementia, there are dozens of other conditions that cause cognitive impairment. They include stroke-related dementia, Lewy Body dementia, traumatic brain injury, and Parkinson’s Disease.   By some estimates, as many as 40 percent of dementias are unrelated to Alzheimer’s.  This proposed tax subsidy would not cover treatments for those conditions.

What does a breakthrough drug even mean? Could a firm get a tax break if it produced a drug that did not prevent dementia, but delayed its onset for five years? How about two years? One year? Writing rules for an issue that generates such passion would be a nightmare. And how long would it take before drugmakers pressure lawmakers to expand the credit to include cancer drugs, or new diabetes medications?

A tax break that helps find a cure for a disease such as Alzheimer’s sounds like a great idea. At least it does until you really look at it.

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