At Leyton, we’re not just about maximizing tax incentives; we’re about fueling innovation and growth. While the R&D Tax Credit (RDTC) might be a familiar tool in your arsenal, we’re excited to shed light on another potent tax-saving instrument: the Orphan Drug Tax Credit (ODTC).
The ODTC is a federal tax incentive aimed at spurring the development of treatments for rare diseases. Rare diseases are those affecting fewer than 200,000 people in the U.S. This incentive allows companies to claim a tax credit of 25% of qualified clinical testing expenses, offering significant financial relief. If you have any questions for our experts, schedule a call!
The Impact of the ODTC
The ODTC provides a unique opportunity for companies to offset the high costs of clinical trials and gain a competitive edge in the market. With a seven-year period of exclusivity, companies can focus on addressing unmet medical needs, free from generic competition. The government created the ODTC to aid and encourage investment in these critical but costly, niche areas of research and development associated with comparatively small patient populations.
Eligibility Criteria Optimization
To determine if the ODTC is right for you, consider the following:
- Orphan Drug Designation: Have you secured orphan drug designation? This is a critical first step as the ODTC is specifically for drugs that have received this designation.
- Timing: Have you begun clinical studies within the last 3-5 years? The ODTC is most beneficial for companies that are currently in the clinical testing phase. Further, the amendment period to include the credit in your tax returns is 3 years from your original filing date.
- Profitability: Is your company profitable and paying taxes? The ODTC is most valuable for companies that have a tax liability, although it can be carried forward, and considered a deferred tax asset.
- Qualified Clinical Testing Expenses: Have you incurred expenses for clinical testing conducted after the date the drug was designated but before the drug was approved by the FDA for marketing? These are the expenses that qualify for the ODTC.
If you answered “yes” to these questions, you could be an ideal candidate for the ODTC!
RDTC vs. ODTC: A Comparative Snapshot
While the RDTC encompasses a wide range of R&D activities, the ODTC hones in on orphan drug clinical testing towards drug development. Both credits apply to qualified research expenses, but the ODTC is tailored to clinical testing expenses; notably, the ODTC includes foreign research expenditures, which these are typically excluded from the RDTC. The ODTC also can include 100% of qualified contracted research expenses, while these are taken at a reduced rate of 65% for the RDTC. Further, the RDTC offers a benefit via a calculated percentage of research expenses, typically approximately 7-10%, while the ODTC provides a 25% credit for clinical testing expenses, coupled with market exclusivity.
At Leyton, we are experts in optimizing tax incentives for our clients. Our team is adept at navigating the complexities of both the RDTC and the ODTC, ensuring you claim these valuable credits without overlapping benefits. Here’s how we can assist:
- Comprehensive Assessment: We’ll scrutinize your current and planned activities to ascertain eligibility for both credits.
- Detailed Documentation: Our team will assist you in maintaining thorough records of all qualified expenses to ensure compliance with IRS requirements.
- Draft Forms and Reports: We’ll supply all necessary draft forms filled with the pertinent information for filing, along with a defensible technical report detailing and justifying the calculation.
- Maximizing Benefits: We’ll ensure all relevant expenses are optimally included without double-dipping, maximizing the benefits of both credits.
- Ongoing Support: Leyton offers continuous support to address any queries or issues that may arise during the claim process.
Incorporating the ODTC into your tax strategy can yield substantial financial benefits and contribute to financing the development of life-saving treatments for rare diseases. At Leyton, we’re committed to helping you seize these opportunities and make a significant global impact. Join us in unlocking the potential of the ODTC and propelling innovation in the pharmaceutical industry. Together, we can transform challenges into opportunities. If you have any questions or need further assistance, please don’t hesitate to reach out to us at Leyton. Let’s make a difference together!
