The R&D Tax Credit Aspects of Blood



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Blood
        A key diagnostic element, blood draws are at the basis of seventy to eighty percent of all clinical decisions made by doctors. In the U.S., 7 billion laboratory blood tests are performed annually, representing between 2 and 2.5 percent of current health spending.

        Innovation in blood testing can revolutionize healthcare, paving the way for a new era of preventive medicine and superfast diagnoses. This article will discuss recent advancements in blood testing and present the R&D tax credit opportunity available to support companies engaged in related innovation efforts.


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 $250,000 per year in payroll taxes.

All in the Blood

        Results from blood tests are strategic in diagnosing and treating diseases. Phlebotomy, or the process of removing blood from the body for testing, can be used to measure a range of blood components, such as cells, lipids, proteins, sugars, hormones, and tumor markers. In addition to enabling the identification of various diseases, blood tests can also help doctors monitor the effectiveness of treatments.

        According to a recently published report from BCC Research, the blood testing market totaled $49.5 billion in 2013 and nearly $50 billion in 2014. Driven by an increasing demand for rapid and accurate diagnosis as well as a growing elderly population suffering from chronic conditions, this market is expected to reach $56.6 billion in 2019, with a compound annual growth rate (CAGR) of 2.6 percent.

        In the words of BCC Research analyst Shalini S. Dewan, “The blood testing market is very lucrative and highly competitive. It is fueled mainly by innovation and is driven by quality and price.”  
A Revolutionary New Method for Blood Testing
For decades, the method used to draw blood samples has remained virtually unchanged. Performed in a clinic or laboratory, it involves a tourniquet applied to the patient’s arm and a needle used to take various vials of blood. The procedure is followed by days to weeks of waiting, which is the time it takes for the doctor to get the results back from a commercial laboratory.

        According to Cleveland Clinic Innovations, the commercialization arm of Cleveland Clinic, this slow, expensive, and inefficient method is in the verge of obsolescence. “A new painless, more accurate, faster, and significantly less expensive blood testing method has arrived” to change the face of blood collection and diagnosis.

        Headquartered in Palo Alto, California, Theranos, Inc. is the creator of a revolutionary new technology that promises to simplify blood collection and processing. It consists of a proprietary infrastructure capable of performing hundreds of different tests from one tiny drop of blood pricked from the tip of a finger.

        No more needles or vials needed, Theranos' innovative testing uses 1/1,000 of the average blood sample currently necessary for most analyses. Results are made available electronically in a matter of hours, not days, enabling earlier diagnosis that can improve the chances of successful treatments.

        The novel test, which can be performed in local pharmacies and clinics alike, costs as little as ten percent of the Medicare reimbursement for its traditional counterparts. Its simplicity and inexpensiveness gives unprecedented access to actionable health information.
    
        In its quest to become a “healthcare leader” Walgreens is offering Theranos' groundbreaking blood tests within its premises. As of May, 2015, there were forty Theranos Wellness Centers at Walgreens across the Phoenix metropolitan area and another one in Palo Alto. These centers have been seen as a prelude to an upcoming, much larger roll-out.


The Democratization of Blood Testing

        Technological innovation has increased consumers’ appetite for health information. Wearable devices, such as FitBit and Apple Watch, offer new ways to monitor the body, giving birth to what has been called the “quantified self”.  

        In this context, demand for at-home diagnostics is on the rise. A growing number of patients seek to have access to lab tests without having to go through a doctor. In April 2015, the state of Arizona passed a law that gives citizens exactly this right.

        Arizona joins 27 states and the District of Columbia, which also allows direct testing. Thirteen states prohibit all sorts of consumer lab testing, while nine offer “limited access” to a designated list of approved tests.  

        Even though direct testing is already legal in the majority of states, there are still barriers to a more widespread adoption, including costs and sample collection methods.

        An increasing number of companies are starting to tap into the direct-to-consumer business, mainly by allowing customers to order and pay for tests online, visit a center to get blood drawn, and then receive the results electronically. Such is the case of WellnessFX, Inc. and Direct Laboratories. This expanding market is attracting major healthcare diagnostics companies, which must look for new sources of revenue in the face of lower reimbursement from insurers and Medicare. Examples include LabCorp and Quest Diagnostics, Inc.  

        Madison, Wisconsin-based Tasso, Inc. is working to go one step further in the democratization of blood testing: the creation of a simple, convenient, and comfortable solution for at-home blood collection. Run by former students of the University of Wisconsin-Madison, the company has developed a device the size of a ping pong ball that extracts small blood samples when held against the skin for two minutes.

        The so-called HemoLink is a major change from conventional blood-drawing, it moves the blood in open channels, rather than traditional closed ones. It relies on the forces that govern the flow of tiny fluid streams, or microfluidics. A slight vacuum inside the device enables blood to flow into an attached sample tube, which can then be mailed to a laboratory.

        By eliminating the need to travel to a clinic in order to get a blood test, the innovative device promises to save users’ time and money. It is also supposed to offer a virtually painless experience.

        Tasso has recently received a $3 million grant from the Defense Advanced Research Projects Agency (DARPA) to work with other companies in the development of blood preservatives, capable of ensuring that blood samples remain fit for analyses up to one week after collection. The company has previously received funding from the National Institutes of Health to adapt its device for HIV blood testing.

        In addition to presenting low manufacturing costs, Tasso’s self-collection device is designed to integrate seamlessly into the existing workflow of trusted laboratories. The company is in the process of perfecting its prototype, which is expected to reach the market in 2016.  


New Blood-Based Diagnoses

        Technological advancements are increasing the number of conditions that can be identified and monitored via blood tests. The following paragraphs list the three recent developments in this area.

I.    Cancer
        Traditional biopsies are unable to keep up with the rapid transformation of tumors, forcing doctors to base their decisions on limited, outdated information.  By offering a more effective alternative to surgical and needle biopsies, innovation in blood testing could revolutionize cancer treatment and open the way for new, personalized therapies.  Instead of analyzing tissue from the tumor itself, emerging liquid biopsies allow for the identification and analysis of DNA fragments that tumors shed into the bloodstreams.

        These groundbreaking tests are the first noninvasive way to monitor cancer.  They allow doctors to profile genes and effectively target drugs to mutations. They also provide a rapid and accurate assessment of a treatment’s effectiveness, enabling more informed adjustments as the disease evolves.
    
        According to the New York Times, the use of liquid biopsies is rapidly increasing. Two years ago, they were restricted to research; “now, several are sold, more than a dozen are in development, and some doctors are using them in routine care.”  

        Based in Redwood City, California, Guardant Health, Inc. has created the Guardant360 test, which is on the market since June 2014. The process is quite straightforward: the company sends doctors a kit for blood drawing; the samples are sent back for targeted DNA sequencing; results are then made available in less than two weeks.

        In February 2015, Guardant had a $50 million funding round to expand its operations and infrastructure. With more than forty patents on its testing technology, the company is currently developing a comprehensive blood test to identify all classes of actionable tumor genomic alterations.

        Even though there is great potential for blood-based biopsies, the lack of a large-scale, definitive study to attest its efficacy and accuracy has undermined a more widespread adoption. Further research is necessary to demonstrate how liquid biopsies can improve and extend the lives of cancer patients.  Researchers are hopeful that future developments will enable the use of blood tests not only as monitoring tools but also for very early diagnosis. In the words of Antonious Schuh, from San Diego-based Trovagene, "Why does there have to be a tumor? The tumor is the symptom. The disease is the DNA.”


II.    Autism
        Researchers at the University of California-San Diego School of Medicine have developed an innovative blood test to track gene-expression patterns that are distinctive of autism spectrum disorder (ASD)  in infants and toddlers. The study, which involved children aged one to four, identified blood-based genomic biomakers that differentiated 83 percent of ASD toddlers.

        Principal investigator Eric Courchesne, PhD, professor of neurosciences and director of the Autism Center of Excellence at UCSD School of Medicine points to the potential of blood testing in autism research. “Ideally, biomarkers come from tissue affected, but in ASD this is the brain, which is obviously an inaccessible tissue. Peripheral blood of living ASD infants and toddlers is an important alternative, and obtaining blood samples is routine and safe and, thus, is a preferable and accessible tissue for identifying signatures of ASD that could be used in clinical screening and follow-up evaluations.”

        Due to the limitations of behavioral screenings, the average age of autism diagnosis in the U.S. is 53 months. The identification of autism-related molecular signatures present in the blood can advance early diagnosis and encourage the development of personalized treatments that target the underlying biology of each patient.  


III.    Depression
        The misdiagnosing or under-diagnosing of depression is a serious issue that affects millions of people. It happens because the primary way to identify the condition is still based on non-specific symptoms, such as low moods, motivation, changes in sleep, and appetite. The absence of a screening test for depression has had major implications for the efficacy of treatments.

        Unexpectedly enough, the answer to an accurate and expedite depression diagnosis might lie in the blood. Researchers at Northwestern University Feinberg School of Medicine have created a blood test to identify depression in adults. The team identified nine RNA blood markers that, at certain levels, predict the occurrence of clinical depression.

        In addition to diagnosing major depressive disorders, the test could be used to determine which kind of treatment would be most beneficial to each patient. For instance, the study concluded that three of the nine gene markers could be used to predict which patients would be more receptive to cognitive behavioral therapy.

        In going forward, researchers are interested in knowing how early in one’s life these biological markers appear. Their hope is to be able to determine children’s vulnerability to clinical depression.


Smart Technology and Blood Testing

        Innovation can potentially transform smart devices into medical tools and revolutionize blood analysis. Researchers at the University of California, Berkley developed a smartphone-run video microscope capable of detecting parasites in a finger-prick of blood.

        The so-called CellScope Loa targets users in Central Africa who face deadly infections caused by parasitic warms. Preliminary tests have proven the device’s ability to provide accurate blood information in a matter of minutes.  It uses custom, image-processing software to record and analyze movements in blood cells that signal worm larvae are wriggling. According to the New York Times, “the instrument acted as a cheap, portable laboratory — no lab technician required.”

        In a similar effort, a team of researchers from Columbia University created a groundbreaking smartphone accessory that replicates all mechanical, optical, and electronic functions of a lab-based blood test.

        The low-cost dongle in capable of performing an immunoassay that detects signs of HIV and syphilis in a finger prick of blood in just 15 minutes. Small and light enough to fit into one hand, it requires no stored energy, as it draws all necessary power from the smartphone.

        Following a successful field testing in Rwanda, Samuel K. Sia, associate professor of biomedical engineering at Columbia Engineering highlighted that:

“coupling microfluidics with recent advances in consumer electronics can make certain lab-based diagnostics accessible to almost any population with access to smartphones. This kind of capability can transform how health care services are delivered around the world.


Conclusion

        Driven by innovation, the blood-testing market is a highly competitive one.  From innovative methods for blood collection and processing to the blood-based diagnosing of diseases such as cancer and depression, recent advancements promise to trigger major transformations in healthcare. Federal and state R&D tax credits are available to support healthcare and biotechnology companies investing in blood-related innovation


Article Citation List

   


Authors

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

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

Jennifer Reardon is a Project Coordinator with R&D Tax Savers.


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