The R&D Tax Credit Aspects of Arthritis



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Arthritis
        One in every five adults in the U.S. has doctor-diagnosed arthritis. By 2030, 67 million American adults are expected to suffer from rheumatic diseases and conditions that affect the joints. The present article will discuss recent innovations in the diagnosis, monitoring, and treatment of arthritis as well as the R&D Tax Credit opportunity available for those engaged in this area of research.


The Research & Development Tax Credit

        Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent.  On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against payroll taxes.


Understanding Arthritis

        The word arthritis is used to refer to more than 100 types of rheumatic diseases and conditions that affect joints. Though more common among women and the elderly, these ailments can affect people from all ages, sexes, and races. According to the Centers for Disease Control and Prevention, more than 52.5 million adults, or 1 in every 5 people over 18, and 300,000 children suffer from arthritis in the U.S. Considered the country’s leading cause of disability, arthritis-attributable activity limitation affects 22.7 million Americans.

        Symptoms of arthritis vary in pattern, severity, and location. They typically include swelling, pain, stiffness, and limited range of motion. Severe cases often result in chronic pain, inability to perform routine activities, and difficulties in walking or climbing stairs. There is also the possibility of permanent, sometimes visible joint changes. In addition to affecting the joints, some types of arthritis can impact the patient’s heart, eyes, lungs, kidneys, and the skin.

The Arthritis Foundation presents four categories of arthritis:  

  1. Degenerative Arthritis - the most common form of joint disease, degenerative arthritis is characterized by the inflammation, breakdown, and loss of joint cartilage.  Also known as osteoarthritis, it usually affects hands, feet, spine, hips and knees.
  2. Inflammatory Arthritis – a group of autoimmune disorders in which the body’s defense system attacks its own tissues, potentially causing joint erosion and even damaging organs such as the eyes, lungs, and skin. Examples of this category include rheumatoid arthritis and psoriatic arthritis. Early diagnosis and aggressive treatment are key to overcoming these conditions.
  3. Infectious Arthritis – caused by bacterium, virus, or fungus, infectious arthritis can usually be treated with antibiotics. Sometimes, however, infections lead to chronic conditions. Joint infections can happen through food poisoning, sexually transmitted diseases, and hepatitis C.
  4. Metabolic Arthritis – also known as gout or gouty arthritis, this condition is caused by the accumulation of high levels of uric acid in the blood, which forms crystals that settle in the tissues of the joints. Gout can cause sudden episodes of severe pain, often affecting the big toe, heel, ankle, hand, wrist, elbow, and spine.

        Arthritis and other rheumatic conditions have major economic impact. According to the Arthritis Foundation, non-traumatic joint disorders are among the five most costly conditions in the country, causing over 44 million outpatient visits, nearly 1 million hospitalizations, and over $156 billion in lost wages and medical expenses every year.


University Research

        Many of the top academic institutions in the U.S. are engaged in arthritis research. Their efforts promise to improve the lives of millions of people suffering from conditions that affect the joints.

The Johns Hopkins Arthritis Center
        The division of Rheumatology at Johns Hopkins Hospital has been ranked number one in the country by the U.S. News and World Report. The Johns Hopkins Arthritis Center has gained notoriety as a model for disease-focused care. It specializes in inflammatory arthritis, such as rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis, a form of spinal arthritis.

        In addition to treating patients and training doctors, the Center conducts cutting-edge-research aimed at paving the way for better treatment options, slower disease progression, decreased symptoms and impacts, and potential cures. Current research topics include clinical, biochemical, genetic, and imaging characterization of arthritis patients; autoantibody discovery and characterization; advanced and molecular imaging of arthritis; predictors of progression in osteoarthritis; periodontal disease in rheumatoid arthritis; exercise and nutrition in arthritis; and inflammatory arthritis in the elderly.

        In 2013, researchers at Johns Hopkins uncovered evidence that could change the understanding of osteoarthritis. In a proof-of-concept experiment, they established a relationship between a critical bone regulation protein and the progression of degenerative arthritis in mice. The innovative study changes focus from joint cartilage, traditionally seen as the primary target of osteoarthritis treatment, to the bone underneath it. If successful, this groundbreaking line of treatment can halt the exacerbation of the condition, avoiding joint replacement surgery.  


Stanford University
        Research shows that most cases of osteoarthritis of the knee are characterized by damages to the inside of the joint. Aiming to ease the resulting pain and prevent the progression of the disease, researchers at Stanford University have created innovative trainers that are twice as stiff on the outside edge as on the inside. By changing the angle between the foot and the knee, the cartilage is less damaged and there can be a reduction of up to 32 percent in pain after 12 months.

        Researchers are currently engaged in using the same tennis shoes to identify arthritis at its early stages, when people don’t yet have symptoms. Challenges to the early diagnosis of degenerative arthritis include the absence of a blood test capable of spotting the condition based on inflammatory levels alone (given that inflammation can have many causes). In theory, walking in the innovative shoes will decrease the levels of inflammatory markers caused by arthritis and monitoring such markers before and after the physical activity will indicate if there is inflammation in the knee specifically. If successful, this effort will allow treatment to begin even before the first symptoms of joint deterioration appear, slowing the progression of arthritis and avoiding surgeries.


University of Arizona
        After ten years studying the compounds in turmeric, researchers at the University of Arizona will begin a clinical trial to determine how the South Asian spice can be used to treat rheumatoid arthritis. According to Janet Funk, an associate professor of medicine at UA, “the chemicals in turmeric can inactivate a protein that’s responsible for starting at the very tip of the cascade of inflammatory events that happens in your body. So if you inhibit this one protein you prevent lots and lots of inflammatory things from being produced.”

        Other initiatives from the University of Arizona Research Center include a nine-year study to evaluate the safety of Febuxostat and Allopurinol in the treatment of gout as well as two studies to investigate the safety and effectiveness of investigational drugs on for osteoarthritis pain.


New York University
        According to a November 2015 study from researchers at the NYU Langone Medical Center, symptoms of psoriatic arthritis, a form of arthritis that affects some people who have psoriasis, can be significantly reduced by bariatric surgery. The authors believe that obesity may contribute to the risk of developing psoriasis and psoriatic arthritis through fat tissue-driven systemic inflammation. Therefore, excess weight loss may reduce the body-wide inflammation and pain triggered by extreme excesses of fat tissue. The study found that 62 percent of patients suffering from psoriatic arthritis that underwent weight-loss surgery experienced improvements in their condition.  
    
        In July 2015, the NYC School of Medicine and Waltham, Massachusetts-based Interleukin Genetics signed a license agreement to develop a groundbreaking genetic test to identify individuals at increased risk for progression of osteoarthritis and related complications. The innovative test is based on the assessment of variations in the Interleukin-1 gene cluster, which has been associated with inflammatory diseases. In the words of Mukundan Attur, PhD, director of NYU Langone Medical Center’s Hospital for Joint Diseases (HJD) Rheumatology Research Laboratory,“The availability of genetic-based tests that predict progression of osteoarthritis has the potential to aid not only in the treatment, but also in the development of disease modifying drugs, which do not currently exist for osteoarthritis.” This pioneering effort can go a long way in enabling more targeted, successful treatments.  
    

Arthritis Innovation

        Pharmaceutical, biotechnology, and even information technology companies are increasingly engaged in arthritis research.  The following sections cover some of the most promising efforts to develop new medications and technology that can help over 52.5 million Americans suffering from arthritis.


Investigational Drugs
        Janus kinase inhibitors, known as JAK inhibitors, hinder the activities of enzymes belonging to the Janus kinase family. Used in the treatment of cancer and inflammatory diseases, this type of medicine was included for the first time in the American College of Rheumatology (ACR) 2015 guideline on the treatment of rheumatoid arthritis.  Even though there is only one JAK inhibitor, tofacitinib (Xelijanz) currently licensed for rheumatoid arthritis treatment in the U.S., several others have been the subject of clinical research.

        In February 2015, global healthcare company Eli Lilly & Co. and Wilmington, Delaware-based biopharmaceutical company Incyte Corporation announced the success of Phase 3 trial of JAK 1-2 inhibitor Baricitinib. The investigational medicine demonstrated statistically significant improvement compared to placebo after 12 weeks of treatment. The research aims to create an additional therapeutic option for patients with moderately-to-severely active rheumatoid arthritis who had an inadequate response to, or were intolerant of, at least one conventional disease-modifying antirheumatic drug. 

        Headquartered in North Chicago, Illinois, AbbVie is also engaged in developing innovative rheumatoid arthritis treatment. In September 2015, the biopharmaceutical company announced the success of the investigational oral JAK-1 inhibitor ABT-494 in phase II studies for refractory moderate-to-severe rheumatoid arthritis in patients who had experienced inadequate response to tumor necrosis factor (TNF) inhibitors or methotrexate. In the words of Michael Severino, MD, chief scientific officer of AbbVie, "We believe ABT-494 has the potential to become a best-in-class therapy, particularly in the most challenging patient population of TNF-inadequate responders".

        Ongoing research is also helping expand the applications of existing drugs. Secukinumab, trade name Cosentyx, is a human IL-17 inhibiting drug manufactured by Novartis. Though commonly used to for treatment of autoimmune disease psoriasis, investigation is underway to use it as therapeutics for psoriatic and rheumatoid arthritis as well as ankylosing spondylitis. According to a Novartis-sponsored, December 2015 study by researchers at the University of Amsterdam, Secukinumab significantly reduced signs and symptoms of ankylosing spondylitis after 16 weeks of treatment.


Blood Testing and Imaging
        Technological advances can also contribute to improving arthritis care. Innovative imaging and advanced blood testing technology, for instance, promise to pave the way for a better understanding of rheumatic conditions and for the development of more tailored treatments.

        Acquired by Myriad Genetics in 2014, San Francisco-based Crescendo Bioscience is the creator of the Vectra DA an advanced blood test for assessing the risk of joint damage in rheumatoid arthritis patients. The test measures disease activity through 12 markers and combines the results into a single score between 1 and 100. Vectra DA generated revenues of $43 million in fiscal year 2015, but Myriad CEO Marc Capone aims to expand into the existing $3 billion global market opportunity.  The company also created a free mobile application called MyRA, which helps patients monitor their symptoms between doctor visits and share health information with physicians.  

        A recent article published by the International Innovation magazine points to the potential role of nanoparticles in the diagnosis and monitoring of arthritis.  Conventional imaging techniques, which essentially detect the advanced manifestations of joint diseases, offer little insight with regards to determining when a treatment should be initiated. The use of nanoparticles, however, can help overcome this limitation.

        According to the article “In vivo molecular imaging approaches like magnetic resonance imaging (MRI) can take images of the inside of joints, synovium or articular cartilage, and use of contrast agents allows MRI to better pick up the magnetic signals and increase the differences between normal and abnormal tissues.”

        Recent studies have shown that superparamagnetic iron oxide nanoparticles (SPION), which were originally developed as negative contrast agents for liver imaging, are useful tools for imaging of inflammatory diseases, such as rheumatoid arthritis and osteoarthritis. Once inside the human body, SPION are taken up by immune response players that transport them into the inflamed zones. The nanoparticles then allow for very high-resolution images as well as an accurate detection of distinct patterns of inflamed joints and the assessment of the treatment’s effectiveness.


Microbiome Research
        Microbiome research, or the study of the immense community of microbes residing in and on the human body, is also a promising alternative for the treatment of arthritis, particularly inflammatory conditions. In autoimmune diseases, such as multiple sclerosis, lupus, and rheumatoid arthritis, the immune system attacks the body's own tissues. The microbiome is crucial in training the immune system during childhood. Studies have suggested that certain types of microbes living in the gut may protect us from autoimmune diseases, while others seem to make us more vulnerable.   

        In July 2015, the Beijing Genomics Institute, announced new findings regarding the differences in the oral and gut microbiomes of people with rheumatoid arthritis when compared to the ones of healthy individuals. Disparities included both the composition and function of the microbes present. Patients treated with disease-modifying antirheumatic drugs (DMARDS) experienced changes in their microbiomes and an increasing resemblance to healthy controls.


Cell Therapy and Biologics
        Cell therapy is defined as the administration of live whole cells or the maturation of a specific cell population in a patient for the treatment of disease. Though the usage of live cells has benefited patients for some time now, recent developments shed new light on the potential applications of cell therapy.  In a recently announced partnership, Exton, Pennsylvania-based Fribrocell Science and synthetic biology company Intrexton Corporation will work together for the development of genetically modified fibroblasts to treat chronic inflammatory and degenerative diseases of the joint.   Being the main connective tissue cells present in the body, fibroblasts play an important role in tissue repair, as they are responsible for making the extracellular matrix and collagen that form the structural framework of tissues.  

        Also referred to as biologics, proteins, specialty drugs, or "large molecules", biological medicines are medications derived from living material - human, animal, or microorganism.  The development of biologic response modifiers, which are engineered from a living organism to simulate the body’s response to infection and disease, has been key to helping rheumatoid arthritis patients that do not respond to traditional drugs. Manufactured by AbbVie, Humira, the second top selling medication in the U.S. in 2015, is an example of this type of medication.  

        Sanofi and Tarrytown, New York-based Regeneron Pharmaceuticals announced on January 8, 2016, that the U.S. Food and Drug Administration has accepted for review the Biologics License Application (BLA) for sarilumab, a human monoclonal antibody directed against IL-6 receptors. IL-6 levels correlate with rheumatoid arthritis activity and joint destruction. The companies carried out a global clinical development company to assess the safety and efficacy of sarilumab in reducing the signs and symptoms and inhibiting the radiographic progression of rheumatoid arthritis. Sanofi expects sales of sarilumab to reach $438 million in 2019.   

        The development of biosimilars, or “generic” versions of brand-name biologics, has also been an important focus of innovation and is expected to save the U.S. $47 billion over the next ten years.  In October Redwood, California-based Coherus BioSciences announced the success of phase III trial of CHS-0214, a proposed biosimilar of Amgen and Pfizer’s multibillion dollar blockbuster Enbrel, used to treat autoimmune disorders, such as rheumatoid arthritis.  In a partnership with Baxter’s biopharmaceutical spin-off Baxalta, Coherus’s biosimilar successfully achieved its primary efficacy endpoint, which consisted in 20 percent improvement according to the American College of Rheumatology criteria in patients with moderate-to-severe rheumatoid arthritis at week 24. Provided that positive results are confirmed in the remainder of the trial, Coherus and Baxalta are likely to file applications for approval in various markets by the end of this year.  


Mobile Applications

        Mobile technology can be very helpful when it comes to monitoring arthritis symptoms and allowing for more efficient communication with physicians.  A growing number of apps are specially designed to help patients handle their conditions. The healthcare website Healthline listed the best rheumatoid arthritis apps of 2015, which are good examples of how mobile innovation can contribute to improving the lives of millions of people suffering from this condition.  Below are four applications from Healthline’s rank:


RheumaTrack Designed by rheumatologists, RheumaTrack helps users keep a record of when they are in most discomfort. They can send the data directly to their doctors to help fine-tune your treatments.
My Pain Diary With this app users can track their pain from RA and other conditions. A special weather feature will show how the pain changes in response to temperature, barometric pressure, and other factors. Users can create a graphic of their pain and print a report for doctor’s visits.
@Hand: Rheumatology Checklist @Hand brings all of your rheumatologist’s knowledge right into the palm of your hand. Included in this app is a list of all your treatment choices, as well as the advantages of each choice. It allows users to learn what to expect when taking a particular medicine, from potential improvements to possible side effects.
RheumaHelper Designed for rheumatologists, this app includes disease activity calculators and classification criteria for various conditions.


Conclusion

        Joint disorders are major drivers of pain and disability that undermine the wellbeing of 1 in every 5 people in the U.S. From new medications to innovative diagnosis techniques, ongoing research points towards promising new avenues for treatment. Though the market for arthritis drugs and technologies is massive, investing in R&D can be costly and challenging. Federal and state R&D Tax Credits are strategic tools for improving the chances of success of arthritis-related innovation.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andrea Albanese is a Project Manager with R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.


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