The R&D Tax Credit Aspects of Dermatology Innovation
The Epidermis is the largest organ in the
human body. Although the epidermis protects vital organs
within the body, skin is vulnerable to many forms of disease,
disorders, rashes, and cosmetic irregularities. Demand for
dermatology services has significantly increased in the past
decade as a result of alarming increases in skin cancer
diagnoses. The recent economic recovery has also driven a
"resurgence of demand for cosmetic procedures". As a result of
the increase in demand for dermatology services, there will
likely be an increase in the availability of R&D tax
incentives for dermatology research in coming years.
The Research &
Development Tax Credit
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13%
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 January 2, 2013, President Obama
signed the bill extending the R&D Tax Credit for 2012 and
2013 tax years.
Medical vs. Cosmetic
Dermatology
The American Academy of Dermatology (AAD)
provides a good distinction between medical dermatology and
cosmetic dermatology. The AAD provides a plethora of
information on dermatology, dermatologists, patient care, and
more. On their website, the AAD outlines the different
training dermatologists receive for medical dermatology as
well as cosmetic dermatology. Although many professionals
practice each, medical dermatologists are trained to,
"diagnose, treat, and prevent diseases that affect the skin,
hair and nails", while training for cosmetic dermatology
include, "treating the skin, hair or nails using a treatment
that is meant to improve a patient's appearance rather than
treat a disease".
Just as there is a clear
distinction in the training necessary to provide medical or
cosmetic dermatology care, there is also a distinction between
the research goals of medical and cosmetic dermatology.
R&D efforts in cosmetic dermatology are mainly focused on
the aesthetic and therapeutic aspects of skin care science,
whereas R&D for medical dermatology strives to find new or
improved drugs and treatments for skin disease, disorder, etc.
R&D Activity in
Universities
Academic institutions invest heavily in
medical research and development. According to a 2012 study
conducted by the National Science Foundation's (NSF) Science
and Engineering (S&E) Indicators, over half of all new
S&E research space in academic institutions was built as
research space for biological and biomedical sciences or
health and clinical sciences. One such institution, NY School
of Medicine's Joan and Joel Smilow Research Center, was
completed in 2006 and received an award of merit from ENR New
York. Within the research center, the Ronald O. Perelman
Department of Dermatology Cutaneous Biology spearheads
dermatology research that focuses on using “clinical
observations to guide the direction of laboratory-based
research. The ultimate goal is to shorten the time from
scientific discovery to improved patient care”.
Cutting edge cosmetic
dermatology research is also being conducted in academic
institutions around the country. The Baumann Cosmetic and
Research Institute at the University of Miami has promoted
research for cosmetic dermatology since its inception in 1997.
Led by Dr. Leslie Baumann, a leading cosmetic dermatologist,
research at the Baumann Cosmetic and Research Institute led to
the FDA approval of Botox, dermal fillers, and a
hyperpigmentation lightening cream. Continued research at the
institute includes research into new lasers, acne solutions,
skin care products and more.
A majority of research
in universities is divided amongst clinical and laboratory
research. For medical and cosmetic dermatology, university
programs place importance on each form of research. Patients
experiencing acne, psoriasis, various forms of skin cancer,
chronic wounds, etc. can be ideal participants in clinical
research.
High Skincare Costs
As skin cancer rates increase, demand for
dermatologists increases accordingly. High demand and growing
costs have lead to expensive dermatology procedures and a high
average income for most dermatologists. As a result, the
process of diagnosing and removing even the least dangerous
form of skin cancer can cost a patient more than $25,000. The
high cost of many dermatology treatments may become a future
deterrent from people seeking skin care treatments, especially
those treatments that require surgery or the involvement of
specialists. In order to mitigate these costs, a number of
self-examination products and smart phone applications have
been developed. Physicians at the University of Michigan
Health
System launched a smart
phone application in 2012 that aimed to allow at-risk patients
to monitor suspicious looking moles and skin lesions. The
continued development of applications such as this and
SkinVision , a mobile application similar to that developed by
the University of Michigan, give at-risk patients a way to
mitigate dermatology costs. While all at-risk patients should
seek professional medical consultation, the continued
advancement of skin monitoring applications can help
dermatology patients and dermatologists eliminate valuable
steps in the treatment of certain skin disease.
Drug Development
Trends
New drug discovery remains vital to most
major life science companies, including dermatology companies.
As a leading investor in dermatology R&D, Galderma USA,
headquartered in Fort Worth, Texas, invests nearly 19% of
annual revenues into skin research. While this strategy is the
more common approach to drug discovery in the dermatology
industry, the growing pharmaceutical powerhouse Valeant
Pharmaceuticals International has vowed to move in a
completely different direction. Valeant's CEO Michael Pearson,
former head of McKinsey's pharma practice, plans to cut
research in Valeant to 3% of revenues, compared to the 19%
industry average. This cut would affect more than 35 companies
acquired by Valeant since 2008, which would include drug
development giant Bausch & Lomb. Allergan is a large
multispecialty healthcare company known for being the
developer of botox. In May, Allergan rejected Valeant's $46
billion unsolicited takeover bid in an effort to avoid steep
cuts in R&D funding, a move Allergan believes would
eventually hurt sales. As other drug developers wait to see
the eventual effects Valeant's strategy will have on drug
development, opportunities exist for smaller dermatology drug
developers to fill the R&D void. If these companies find
success, there could be tremendous financial benefits that
result.
Recent partnerships by
pharmaceutical companies have increased the possible funding
for R&D within dermatology, specifically for dermatology
drug development. As one of a series of billion dollar deals
proposed between Novartis AG and GlaxoSmithKline, the two
companies combined different components of their businesses to
form a new consumer health care business focusing on pain
management, coughs and colds, and dermatology. Many
dermatology companies may be affected by a partnership of this
magnitude. These companies may indirectly or directly benefit
from the agreement, or they may need to invest in independent
R&D to remain competitive in an industry with such a
changing landscape. While large companies heavily investing in
drug development often see multi-million dollar R&D tax
credits, all companies that engage in R&D should take
advantage of the credits they are entitled to.
Conclusion
As the pharmaceutical industry adapts to
internal and external disruptors, the medical and cosmetic
dermatology industries continue to pursue innovative solutions
to a variety of skin care needs. Dermatologists have seen skin
care demand rise over the past decade with a corresponding
rise in products, treatments, and technologies that supplement
professional skin care. Companies that invest in researching
these new and improved products, treatments, and technologies,
remain great candidates for substantial R&D tax credits.
It is important for all companies to realize these incentives
regardless of their relative size within an industry.
