The R&D Tax Credit Aspects of the 21st Century Cures Act

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        Healthcare and medicine continue to be at the top of the list of the largest industries in the United States. Every year, hundreds of companies and research institutions dedicate their efforts towards improving medicine and finding cures to both widespread and rare diseases including but not limited to diabetes, cancer, and amyotrophic lateral sclerosis (ALS).

        In an industry such as this, with hundreds of participants and contributors, it is imperative to have federal regulations set in place, especially due to the weight of dealing with human lives. However, outdated regulations may play a role in preventing innovative companies and research institutions from getting their product or therapy to reach the market. In 2016, the 114th United States Congress signed the 21st Century Cures Act into law – an act designed to accelerate medical product development and fund innovative research programs.

21st Century Cures Act

        The Cures Act aims to accelerate the development of medical products and treatments to battle the increasing rates of diseases such as diabetes and cancer, as well as the ongoing opioid epidemic. It authorized $6.3 billion in funding for general medical research, revising the Food and Drug Administration’s review process, and addressing the opioid epidemic.  

        This article will discuss the changes that the Cures Act brought about as well as its role in the future of healthcare. It will further present an overview of the federal tax credit opportunity available for companies investing in medicine and healthcare innovation.

The Research & Development Tax Credit

        Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • Must be technological in nature
  • Must be a component of the taxpayers business
  • Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
  • Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

        Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent.

        On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.

U.S. Food and Drug Administration Review Process

        As previously stated, the Cures Act was designed to accelerate medical product development by expediting the process a product must undergo through the U.S. Food and Drug Administration (FDA) for approval. The drug development process, according to the FDA, consists of five steps :

I.    Discovery and Development: research is done in a laboratory.
II.    Preclinical Research: drugs undergo laboratory and animal testing for safety measures.
III.    Clinical Research: drugs are tested on people to further ensure safety and effectiveness.
IV.    FDA Review: FDA review teams thoroughly examine all of the submitted data related to the drug or device and make a decision to approve or not to approve it.
V.    FDA Post-market Safety Monitoring: FDA monitors all drug and device safety once products are available for use by the public.

        Additionally, the clinical stage is further broken up into four phases:  testing the safety and dosage, testing the efficacy and side effects, testing efficacy and monitoring of adverse reactions, and testing efficacy and safety.  Many potentially lifesaving drugs get stuck in the clinical research step due to the amount of evidence needed to pass this stage.

        Under the Cures Act, the first three phases of the clinical research stage will be combined into one, creating a more seamless trial that will consequently reduce the amount of time that drugs are in the review process. For many Americans, a speedy FDA approval can be the difference between life and death, which is why the Cures Act has harbored the support of cancer patients as well as their family and friends.  

        Scott Gottlieb, MD and FDA Commissioner, has already implemented other measures of simplifying the FDA review process, specifically for 3D printed medical devices. In the “Leapfrog Guidance,” a nickname for the Technical Considerations for Additive Manufacturing Medical Devices, the FDA sets up parameters that manufacturers should have prepared when submitting their 3D printed medical devices for review.  By providing the guidance and transparent process, manufacturers will be able to bring their devices to market more efficiently.

Precision Medicine

        The majority of the $6.3 billion in funding authorized by the Cures Act was allocated to the National Institutes of Health (NIH), the nation’s medical research agency. The agency will receive a total funding amount of $4.8 billion over ten years.  The NIH is responsible for the largest research initiatives in the United States, including precision medicine.

        Precision medicine is an innovative approach to the prevention and treatment of diseases that takes into account individual differences in patients’ genes, environments, and lifestyles. It eliminates the notion of “one size fits all medicine” and recognizes that even if two people have the same disease, it may progress differently due to the varying environments of the patients.  The objective is to provide precisely targeted treatments to the molecular underpinnings of a disease by observing the patient’s genetic and clinical data. Precision medicine also seeks to accumulate data–including biospecimen, physical measurements, questionnaires, imaging, and more–from millions of people to create a database that is critical in understanding the unique characteristics as well as the genetic features that predispose people to certain conditions.  

        The All of Us Research Program, coordinated by the NIH, is building the world’s largest and most diverse biomedical data set for the advancement of precision medicine. The funding will support the All of Us program through enrollment of participants, collection and storage of data, as well as genotyping/genome sequencing.

        In a recent White House hearing, the NIH shared its progress in relation to the All of Us program and the Cures Act. It was revealed that as of July 2018, there were approximately 86,000 volunteers signed up for the program. Additionally, All of Us will begin enrolling children to further diversify the collection of data in 2019.

BRAIN Initiative

        The brain is one of–if not the most–vital organ for human life. As a matter of fact, death is medically defined as the cessation of all vital functions, especially the stoppage of brain activity, along with the heart and respiration. The brain is also the most complex and least understood organ in the human body. Its makeup entails billions of neurons, or brain cells, with trillions of connections between them. These connections, called synapses, is what allows electrical signals to travel from neuron to neuron, ultimately causing a reaction that can be anything from the uncontrollable rumbling of the stomach to a ballerina’s graceful and elaborate movements.  

        Evidently, the billions of neurons and trillions of synapses makes the brain an extreme challenge to scientists and researchers alike. In 2013, the NIH initiated the BRAIN Initiative, an acronym for Brain Research through Advancing Innovative Neurotechnologies. The underpinning of the BRAIN Initiative lies in the detrimental effects of brain disorders such as Alzheimer’s, schizophrenia, Parkinson’s, and substance abuse. With a deeper understanding of the functioning of the brain, researchers will consequently gain a better understanding of these disorders and hopefully find methods of prevention as well as surefire cures.

        The NIH developed a detailed twelve year plan for developing and applying innovative technologies to advance brain research. With the $1.5 billion authorized under the Cures Act, the BRAIN Initiative will be able to accelerate progress toward meeting some of their goals. The NIH allocated their funding towards the following seven objectives :

I.    Discovering Diversity: identify and experiment with different brain cell types to determine their roles in health and disease.
II.    Maps at Multiple Scales:  Generate circuit diagrams to research information flow in the brain.  
III.    The Brain in Action: produce a dynamic picture of the functioning brain through large-scale monitoring of neural activity.
IV.    Demonstrating Causality: linking brain activity to behavior with interventional tools that change neural circuit dynamics.
V.    Identifying Fundamental Principles:  produce conceptual foundations for understanding the biological basis of mental processes through development of new theoretical and data analysis tools.
VI.    Advancing Human Neuroscience: develop innovative technologies to understand the human brain and treat its disorders.
VII.    From BRAIN Initiative to the Brain: integrating new technological and conceptual approaches to discover how dynamic patterns of neural activity are transformed into cognition, emotion, perception, and action.

        By 2025, the NIH aims to have increased research opportunities as well as gained more understanding of brain cells and their trillions of synapses, and hopefully taken steps towards cures for brain disorders.

Cancer Research

        Cancer has been catching up to heart disease as the leading cause of death in the United States for nearly fifty years. In 1969, heart disease caused more than twice as many deaths as cancer. Today, cancer trails behind by only 4% less and it has become the second leading cause of death in the country.  

        Cancer is not just one disease. It is a category of chronic illnesses characterized by uncontrolled growth. Countless research has been done on the chronic illness and more research is currently ongoing.

        Even with its high prevalence, cancer is one of the most highly researched diseases. National programs, such as the National Cancer Institute and the Center for Disease Control and Prevention, allow researchers from all over the country to collectively work towards improving treatments. The Cancer Moonshot, initiated by the National Cancer Institute, is a project that aims to make therapies for all types of cancer widely available, improve prevention methods, and advance early detection strategies.  The project was announced in January 2016 and continues to make strides toward a cure.

        The 21st Century Cures Act authorized $1.8 billion in funding over seven years for the Cancer Moonshot. These funds will be dedicated to advancing the key initiatives of the Cancer Moonshot. Three of the initiatives entail collecting large amounts of patient data to create comprehensive networks of evidence that can be shared between thousands of researchers.  Additional initiatives include the following:

I.    Direct Patient Engagement Network: patients will “contribute their comprehensive tumor profile data to expand knowledge about what therapies work, in whom, and in which types of cancer.”
II.    Prevention and Early Detection of Hereditary Cancers: improve current methods and develop new strategies of prevention in high risk individuals.
III.    Generation of Human Tumor Atlases: create 3D maps of tumors to document the evolution from precancerous lesion to advanced cancer.

        Other initiatives include the Adult, Pediatric, and Drug Resistance Networks, National Cancer Data Ecosystem, Drivers of Childhood Cancers, Symptom Management, Hereditary Cancers, Retrospective Analysis of Biospecimens, and New Enabling Cancer Technologies.

Regenerative Medicine

        Chronic illness is so detrimental because it slowly deteriorates the body’s tissues until function is impaired – and if left untreated, until all function is lost. Treatments for chronic diseases – like chronic kidney disease or multiple sclerosis – focus on slowing down the consequences of the damage tissue. However, even with palliative treatments many patients find themselves in need of a transplant.   

        Medical research is paving the way for treatment to switch from palliative medicine to regenerative medicine. Regenerative medicine “addresses the underlying causes of disease and has the power to restore lost functionality of organs and tissues.”  There are specifically three approaches to regenerative medicine: replacement, rejuvenation, and regeneration. Replacement, which is already widely used in medicine, is taking tissue from donors to replace damaged ones. Rejuvenation consists of enhancing the body’s own natural healing capacity. Lastly, regeneration involves the delivery of cells or cell products to diseased tissues or organs.

        The 21st Century Cures Act authorized $30 million for clinical research in the field of regenerative medicine. In the past 25 years, only 10 regenerative medicine therapies were approved by the FDA. With the funding from the Cures Act, clinical studies will be “standardized, reproducible, and generalizable.”  This and the collaborative effort between researchers across the nation will expedite advancements in regenerative medicine.

Regenerative Medicine Products Approved by the FDA

Source: Mao, Angelo S and David J Mooney. “Regenerative medicine: Current therapies and future directions” Proceedings of the National Academy of Sciences of the United States of America vol. 112,47 (2015): 14452-9.


        The 21st Century Cures Act initiated a time of focused research and development on the health issues that highly impact the United States. Since its announcement in 2016, much improvement has been made in the clinical research process, medical therapies, our knowledge of how the body works, and the process of bringing new therapies to the market. R&D tax credits can help to offset the costs involved in all of these processes and they are available to companies that are innovating in this area.

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