R&D Credits for Companies Combating Superbugs



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        In our effort to control human disease, we created antibiotics. Since the creation of antibiotics we have increased the number of ailments we utilize them for, and have also increased their frequency of use. We no longer use antibiotics to treat only human disease but animal disease as well. Due to the increased use of antibiotics, resistance to these drugs within bacteria has also increased. These new strains of highly drug resistant bacteria are known as "superbugs." Superbugs have become a central concern for the U.S. Centers for Disease Control and Prevention (CDC) and the American public. New and developing solutions include new drugs, improved medical equipment, and smarter data. On January 2, 2013 President Obama signed the bill extending the R&D Tax Credit through the end of 2013 and retroactive for the year 2012. Any U.S. company with costs meeting the tests below is eligible to claim an R&D Tax Credit for up to 13% of related costs. Activities within the niche field of combating superbugs, are strong R&D Tax Credit candidates as they can only combat these new types of antibiotic resistant superbugs with novel and innovative solutions.

        Methicillin-resistant Staphylococcus aureus (MRSA), Clostridium difficile (C. Diff.), and Vancomycin-resistant Enterococcus faecium (VRE) are just a few of the major antibiotic resistant bacteria strains. MRSA alone kills over 19,000 people a year in the United States. Though these infections are a major problem, most drug companies are not developing new solutions to these bacteria. There is some innovative drug research being done, however, many of the companies focusing their efforts on this area are utilizing resources beyond developing traditional types of antibiotics. The time and resources utilized in these efforts should be eligible for a research and development tax credit.


The Research and Development Tax Credit

        Federally enacted in 1981, the 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.



Background

        Many of the worst diseases in our human history have come from viruses and bacteria which make the jump from animals to humans3,6,12. You only have to think back to avian flu and swine flu (h1n1) to be reminded of this process. The black plague is an example of a bacterial infection which moved across species, with widespread consequences. Large factory farms, because of their low quality feed and high density of animals, regularly utilize varied types and quantities of antibiotics to keep their animals healthy.

        In addition to farms, hospitals also have dense populations and frequent use of antibiotics. Most hospital stays are coupled with antibiotics either to treat or prevent bacterial infections. Hospitals were one of the first places drug resistant bacteria gained widespread notice, staph infections, and many untreatable, gained mass media attention.

        These conditions, dense populations, and frequent use of varied antibiotics seem to have started the ball rolling towards what many health officials are calling the next monumental health disaster, high drug resistant bacteria, or superbugs. These superbugs have been found in both factory farm animals and wild animals near these farms. A recent outbreak of superbugs at the National Institute of Health (NIH) almost shut down all of Baltimore's health system.

        It is because of these incidents that companies are sinking time and resources into creating solutions for these superbugs. Though most of these solutions do not focus on new antibiotics8,14. Many of the larger drug companies have given up on producing antibiotics, due to their low cost and short run usage.


Superbug Fighting Developments

        A (2009) recently created company, Xenex Healthcare Services, has the sole focus of destroying superbugs in hospitals. This method uses a robot with a xenon head which drenches the target area room in ultra-violet light, killing superbugs by destroying its DNA 16.

        "The University of Texas MD Anderson Cancer Center, the first hospital to try Xenex's robot, found that it cut bacterial contamination by a factor of 20 and killed 95 percent of the deadly pathogen C. difficile. Studies at other hospitals found C. diff reduction rates of 75 percent. Cooley Dickinson Hospital in Northampton, Mass., uses three rental Xenex robots and says it's seen C. diff infections fall 53 percent16."

        Copper and silver surfaces have been shown to be effective in reducing bacteria transmission in public buildings and transportation environments such as bus stations, rail stations, and airports.

        Combating superbugs with novel new methods, such as combinations of medical grade manhuka honey (medihoney) and strong antibiotics, which typically are ineffective on their own, but when combined have proven to be a potent cure for antibiotic resistant infections.

        Cubist Pharmaceuticals is approaching the problem in a different manner. Rather than setting up new labs, growing and analyzing their own new strains of bacteria they are utilizing bacteria from caves. These bacteria harvested by Hazel Barton an associate professor at Akron University in Ohio, are included in the library of bacteria they already maintain. Cubist utilizes this library of bacteria by analyzing the different strains for the best possible antibiotics, a library made more diverse by including bacteria take from Barton's collection.

        Our bodies also produce bacteria fighting substances, which are also being researched to help in the fight against superbugs. One such effort, centered in Germany, has focused on the role sweat plays in preventing and combating infections on and near the surface of your skin. Research conducted by the Max Planck Institute has shown that there are antimicrobial peptides (AMP's) in sweat, which are very effective at long term defense against germs, as they are not able to quickly develop resistance to these AMP's2.

        IBM has been working on a nanotech gel called hydrogel that can explode bacteria cells. The hydrogel could be used to coat medical instruments and be used for creams and injections into wounds, causing them to explode and atrophy.

        Big Data prediction analysis can use predictive analysis to track and monitor disease transmission through a hospitals, nursing homes, and the general population. Big Data multi agent computer modeling can also track a disease's geographic origins and match incidents against possible sources.


Industry Implications

        The Affordable Care Act (Obamacare) will be penalizing hospitals who readmit patients originally admitted for chronic conditions, mainly heart and lung issues (who comprise over 80% of all medicare enrollees). These penalties will be levied against hospitals regardless of the reason for readmission. Since the number one reason for hospital readmissions is hospital acquired infections, it is reasonable to presume that hospitals will be investing heavily in technologies to reduce these infections and thus reduce readmissions to avoid federal penalties. Penalties levied will be up to 3% of medicare payments to the facility, which for many facilities will be in the multiples of millions in dollars lost.

        Media attention, hospitals being penalized for readmissions, and the CDC identifying this as a major concern all speak to combating superbugs being a major priority for innovators with demand for solutions converging with industry, political, and public calls for help. Each of the above technologies speaks to this demand with greater attention likely, going forward.


Conclusion

        The superbug problem is one that is global and urgent. The companies that are undertaking research and development of new drugs, procedures, equipment, and software are not only helping to curtail an urgent problem, but they are utilizing never before seen methods and technologies to do so. Any company producing new antibiotics or infection fighting equipment, utilized to combat superbugs are certainly at the forefront of medical research. These lifesaving endeavors can be supported by research and development tax credits.

Article Citation List

   


Authors

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

Kenneth Wood is a Tax Analyst with R&D Tax Savers.

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


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