11 September 2016


In addition to direct funding of R&D through research grants and contracts, governments provide a number of subsidies including concessions on property and income taxes, low interest loans and access to subsidizes services and infrastructure. More attention to the role of subsides and the global sharing of the costs of these subsidies can be part of a delinkage program.

Among the most important subsidies is the United States Orphan Drug Tax Credit (ODTC), which allows firms to deduct have the cost of qualifying clinical trial expense from their U.S. income tax liabilities. Because these credits can be carried forward several years, and used by the companies that acquire other companies, the credits are a valuable asset, and can significantly lower the costs of drug development.

In 2015, 47 percent of the new drugs approved by the FDA qualified as Orphan products. The tax credit can be seen as a mechanism to finance R&D, and one that currently is only funded by the United States. If the ODTC was expanded to more products and trials, and/or if the credit included a higher percentage of the trial expenses (higher than 50 percent), and or if the subsidy was available even to non-profit drug developers (like DNDi), the costs of drug development would be lower.

In order to progressively delink R&D costs from product prices, governments could cooperate to expand subsidies like the ODTC, at the same time as they undertake measures to lower drug prices, though price controls or shorter or weaker monopolies. In a world with full delinkage and no monopolies, increases in the subsidies for conducting clinical trials will reduce the amount of money needed to fund the incentives to invest in those trials. For example, the amount of money set aside for medical prize funds can be lower if the subsidies for conducting the research are higher. Alternatively, if the incentives for the final products remain the same, the increase in the subsidies will result in greater risk taking by drug developers.