The R&D Tax Aspects of Gastroenterology

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        Increasing stress levels, unhealthy diets, and a growing senior population are some of the reasons behind the widespread prevalence of gastrointestinal disorders. According to a 2013 survey, 74 percent of Americans live with some sort of gastrointestinal discomfort, which, in many cases, can be the symptoms of more serious, underlying conditions.  

        Diseases of the digestive system are the domain of gastroenterology, an increasingly dynamic field for medical innovation. The present article will review recent trends in gastroenterology and discuss how R&D tax credits can help support those investing in this promising field of research.

The R&D 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.  

Gastroenterology: An Overview

        Gastroenterology is the branch of medicine dedicated to the digestive system and the disorders affecting the gastrointestinal tract (stomach and intestines) as well as accessory organs of digestion. Digestive disorders are among the most pressing public health issues worldwide. Affecting millions of people, diseases of the digestive system put a major burden on national healthcare budgets and cause significant decreases in patients’ quality of life.
        According to the most recent data by the National Institutes of Health, 60 to 70 million people suffer from of digestive diseases in the U.S. In 2010, 48.3 million ambulatory care visits and 21.7 million hospitalizations were attributed to digestive ailments.  A 2012 study estimated the annual spending on gastrointestinal diseases in the U.S. at $142 billion, both in direct and indirect costs.

Disease-Specific Innovation

          Many of the ongoing innovation efforts in the field of gastroenterology focus on specific diseases. The following paragraphs present an overview of recent advancements.  

I.    Irritable Bowel Syndrome (IBS)
        An estimated 12 percent of Americans suffer from IBS, a chronic condition that affects the large intestine (colon). There is currently no specific diagnostic test for IBS. However, a recent study in the Netherlands has found that, when measured together, a combination of 16 different chemicals in the breath can accurately identify 89.4 percent of IBS patients. This is a major step towards the development of innovative, noninvasive tools for diagnosing and monitoring IBS.

        In 2015, the U.S. Food and Drug Administration (FDA) approved two new drugs for IBS treatment - Viberzi, made by Allergan PLC, and Xifaxan, by Valeant Pharmaceuticals International Inc. According to Credence Research, these new products will boost the IBS drugs market, which is expected to grow at a compound annual growth rate of 13.89 percent between 2016 and 2022, reaching $1,115.06 million by the end of that period.  

        Besides medications, the dietary approach to treating IBS is also expanding. The University of Michigan, University of Chicago, and Stanford University have all adopted the so-called “Low Fodmap” diet as an option for patients. The innovative diet limits the ingestion of certain kinds of sugars and other food ingredients that are hard to digest. A study at Baylor College of Medicine in Houston verified a reduction in abdominal pain for those following the Low Fodmap diet as compared to those in a traditional American diet.

        Despite the positive results in patients embracing the new diet, further research is necessary to assess how the proposed dietary changes affect the microbe population in the gut. Preliminary studies have pointed to a possible reduction in the abundance bacteria, which could lead to long-term health implications.  

II.    Gastroesophageal Reflux Disease (GERD)
        GERD is a chronic disorder that affects the muscle between the esophagus and the stomach, causing heartburn and indigestion. Some cases of GERD are linked to hiatal hernia, which occurs when an opening in the diaphragm allows part of the stomach to move up into the chest thus facilitating reflux.

        St. Louis, Missouri-based startup EndoStim has created an innovative electrical stimulation therapy for GERD management. Using a minimally invasive device, which is implanted laparoscopically, the treatment delivers low-energy neurostimulation to the lower esophageal sphincter. Recently announced results from a one-year multicenter trial have confirmed that EndoStim’s therapy can significantly improve esophageal acid exposure and overall quality of life in GERD patients that are only partially responsive to traditional treatments. The treatment was also found safe and well tolerated.  

III.    Crohn’s Disease
        Crohn’s disease is a chronic condition that causes inflammation of the bowel tissue, often leading to abdominal pain, severe diarrhea, fatigue, weight loss, and malnutrition. In some cases, Crohn’s disease can have life-threatening complications.

        A recent study by researchers at Harvard Medical School revealed that children with Crohn’s disease have differences in brain structure when compared to their healthy counterparts. These differences were found to correlate positively with steroid use and the severity of inflammation. Gastroenterology & Endoscopy News reported, in June 2016, that “[when] compared with controls, patients with Crohn’s disease had thinner cortices in posterior brain regions, reduced subcortical volume and lower white matter density, as well as poorer memory and cognition.”

        For now, there are still various unanswered questions regarding how steroid use and underlying pathways in Crohn’s disease may change the brain on a cellular and molecular level. Since participants were measured only once, further studies will be necessary to assess how the disease might change the brain over time. This important line of research may help shed light on the psychological dysfunctions that often affect pediatric patients with Crohn’s disease.

        In May 2016, pharmaceutical company AbbVie announced that a recently licensed drug candidate was successful in a phase-two trial of Crohn’s disease. The drug, called risankizumab, is part of a novel group of biologic products that target interleukins, small proteins that associate with inflammation. After 12 weeks of treatment, 24 to 37 percent of participants were symptom-free and in remission, while only 15 percent of those in the placebo group were in the same conditions. The treated group also presented fewer adverse events. These results are considered promising, particularly for patients who have failed to respond to other treatments.

IV.    Ulcerative Colitis (UC)
        UC is a type of autoimmune disease characterized by an over activation of immune cells in the lining of the gut, which causes inflammation and leads to chronic, painful bowel movements and long-lasting ulcers in the digestive tract. Symptoms usually develop over time leading to debilitating and, in some cases, even life-threatening complications.

        A new study presented at the Digestive Disease Week 2016 demonstrates that fecal microbiota transplantation can help patients suffering from UC. In a multi-centered trial, researchers from the University of New South Wales, Australia found that 44 percent of patients who were resistant to conventional UC therapies reported their symptoms gone after the transplantation. 27 percent had healing or substantial improvements in their digestive tracts verified through endoscopic examination.
        By recognizing the role of gut microbiota in health and disease, researchers aim to use the transplantation as a means to treat the underlying causes of UC, as opposed to targeting its symptoms, as most of the available therapies do.

        Headquartered in Horsham, Pennsylvania, Janssen Biotech has recently published a study according to which monocle antibody Simponi (golimumab), which has been traditionally recommended for treating moderate to severe rheumatoid arthritis, active psoriatic arthritis, and active ankylosing spondylitis, is also effective as therapy for UC. According to interim results, presented in March 2016, Simponi induced clinical response in more than two-thirds of patients participating in the so-called GO-COLITIS trial. This innovative use of the drug has led to “significant improvements in generic quality of life (QoL) and disease-specific QoL, including bowel symptoms, emotional function, systemic symptoms and social function,” as reported by the participants.

        Immunotherapy, an emerging line of treatment that regulates immune responses, is also a promising alternative for UC. Researchers at University of California San Diego School of Medicine have recently demonstrated that Ozanimod, an experimental immunotherapy drug, may be effective in treating the condition. The new drug prevents white blood cells from leaving the lymph nodes and reaching the gut, where they cause inflammation. Preliminary results of the ongoing clinical trial have shown that the innovative treatment can induce remission, reduce rectal bleeding, and heal the mucosal lining of the intestine. Contrary to conventional inflammatory bowel disease drugs, Ozanimod does not suppress the immune system to the point of making patients more vulnerable to infection or cancer, which is considered a major advancement.

V.    Stomach Cancer
        According to the latest data by the World Health Organization, stomach cancer is the third leading cause of cancer deaths worldwide.  The American Cancer Society estimates that over 26 thousand new stomach cancer diagnoses and more than 10 thousand stomach cancer deaths will occur in 2016 in the U.S.     

        Recent advancements in cancer immunotherapy are a source of renewed hope in the face of such devastating condition. Designed to harness the body’s own immune system to combat disease, immunotherapy is arguably the most promising and rapidly evolving alternative for treating cancer.

        In a study presented on June 5 at the annual meeting of the American Society of Clinical Oncology, German drug maker Ganymed Pharmaceutical reported the success of an experimental immunotherapy treatment in helping increase the life expectancy of stomach cancer patients.  Using an antibody called IMAB362, the therapy trains the immune system to identify a specific protein found on the surface of gastric tumors and to recognize them as a threat.  

        In addition to developing new treatment options, it is crucial to understand why treatment responses vary so widely among patients and thus improve the ability to identify the best approach to each individual case. In an effort to advance this personalized view of gastric cancer, researchers at the Institute of Cancer Research in London recently discovered that the measurements of copies of a single gene circulating in the bloodstream are good predictors of a patient’s likelihood to respond to treatment. The FGFR2 gene is a protein that allows for cancerous cells to grow. In a clinical trial, high levels of FGFR2 correlated with a greater efficacy of FGFR inhibitor AZ4547.  

VI.    Colorectal Cancer
        Cancers that start in the colon or rectum are the third most common type of cancer affecting both men and women in the U.S. According to The National Institutes of Health there were over 1.17 million people living with colorectal cancer in the country in 2013. More than 134 thousand new diagnoses are expected to occur in 2016.   

        A collaboration between researchers at the Gibbs Cancer Center & Research Institute in Spartanburg, South Carolina and the Moffitt Cancer Center in Tampa, Florida has revealed the prognostic role of Adenomatous Polyposis Coli (APC) in colorectal cancers. Due to its tumor-suppressing role, APC has long been referred to as the “gatekeeper” in the offset of colon cancer. APC mutation is verified in more than 70 percent of cases.

        DNA sequencing from one of the world’s largest colon cancer database has showed that, in addition to the participation in the development of cancer, APC can have a prognostic effect and serve as a predictor of long-term outcomes. For instance, the study revealed that tumors with no APC mutation along with those containing two mutated genes are the ones to produce the worst outcomes. The research also demonstrated the prognostic capabilities of the locations, types, and numbers of mutations within the APC gene.

        Researchers believe that APC sequencing can be the basis of a new, personalized approach to colon cancer, in which medical decisions are tailored to each patient’s needs.  The ongoing collaboration aims to continue to analyze DNA sequencing from APC and other genes in an effort to establish new clinical applications, such as the prediction of drug responses.

        Genetic analysis is also at the basis of a new study at the University of Colorado Cancer Center. The initiative aims to address the increasing prevalence of colorectal cancer in patients under 50, which has increased by 11.4 percent between 2004 and 2013 – in contrast, cases in patients over 50 decreased by 2.5 percent during the same period.   

        According to the study, the remarkably aggressive nature of young-onset cases may be explained by alterations in genes involved in the so-called WNT signaling pathway, which is responsible for driving growth, survival, and proliferation of cancer stem cells. These mutations are more frequently found in patients under 50 and can thus be linked to the aggressiveness of colorectal cancer among this population. Researchers at the University of Colorado Cancer Center, who have also been working on clinical trials testing WNT inhibitors, intend to use these recent findings to identify the best treatment options for younger patients.  

VII.    Liver Cancer
        Lawrenceville, New Jersey-based oncology company Celsion Corporation recently announced a potentially curative treatment for primary liver cancer. The new therapy is based on Celsion’s proprietary ThermoDox, a heat-activated encapsulation of cancer drug doxorubicin. Designed to be used in combination with hyperthermic treatments, such as radiofrequency thermal ablation (RFA), microwave hyperthermia, and high- intensity focused ultrasound (HIFU), ThermoDox is delivered by intravenous infusion. When exposed to a certain temperature, it changes in structure and creates openings through which the drug is delivered directly into the targeted tumor.

        In an article published on June 21, Celsion presented the results of a comprehensive clinical evaluation according to which ThermoDox, when used in combination with RFA standardized to a minimum dwell time of 45 minutes, may increase the overall survival (OS) of primary liver cancer patients. In its latest study, the company verified an average 58 percent improvement in OS for patients treat with ThermoDox plus standardized RFA as compared to those exposed to RFA alone, which translates into a 25.4-month survival benefit.

        In order to test and confirm these results, Celsion has launched the OPTIMA study, which is expected to involve 550 patients at up to 75 different locations in North America, Europe, and Asia.  

Microbiome Research

        The immense community of microbes residing in and on the human body is known as the microbiome, or microbiota.   The microbes in our bodies perform crucial tasks, such as 1) contributing to metabolic functions; 2) protecting against pathogens; and 3) educating the immune system. Gut bacteria are interesting examples of the symbiotic, mutually beneficial relationship between host and microbiome. They are integral to the digestion process due to their ability to generate nutrients from materials that would be otherwise indigestible.

        Research has shown, however, that the role of gut microbiome goes far beyond the digestive processes. In fact, changes in the gut microbiota have been linked to a wide range of health conditions, including diabetes, autism, autoimmune diseases, and a variety of disorders affecting the digestive system, such as irritable bowel syndrome, inflammatory bowel disease, and Clostridium difficile infection. Recent findings regarding the role of the microbiome in human health have opened the way to a fast-paced race to develop new treatments and diagnostic tools based on microbes.

        Located in Cambridge, Massachusetts, Seres Therapeutics aims to pioneer the world of “revolutionary microbiome-based therapeutics.” According to the MIT Technology Review, Seres has two experimental drugs currently in clinical trials - one for ulcerative colitis and the other for Clostridium difficile. Sophisticated genetic analysis of microbes and human cells in the gut has allowed the company to identify “keystone organisms” that help restore the healthy microbiome after disruptions caused by each of the diseases. These organisms are at the basis of the innovative medications.   

        In a recently announced partnership, Massachusetts General Hospital of the Harvard Medical School and Seres will work together in the development of microbiome-based therapeutics for obesity and related metabolic disorders.

        Three-year-old startup Synlogic is also engaged in creating innovative treatments based on the microbiome. Also located in Cambridge, Massachusetts, the company uses bacteria native to the human gut to develop genetically engineered organisms that, once introduced to the patient’s body, perform therapeutic functions, such as “removing unwanted substances the body is retaining as the result of a metabolic disorder”. The combination of synthetic biology and microbiome research promises to shed light on groundbreaking new avenues of treatment for a variety of diseases.  

Information Technology

        Health information technology can transform the practice of gastroenterology. Big data analytics, mobile health applications, and wearable technologies are three particularly promising areas that can help refine treatments and enhance patient engagement.  Examples of innovative mobile applications include MyGiHealth, designed by academic teams at Cedars-Sinai Medical Center, the University of Michigan and the University of California, Los Angeles. The app uses evidence-based tools to allow patients to assess, track, and compare symptoms to benchmarks. It also offers “education prescriptions”, which are customized educational information based on each user’s symptoms.

        Founded in 2014 and headquartered in Phoenix, Arizona, Smart Clinic is also an example of mobile application designed to enhance patient compliance and to facilitate communication with healthcare providers. In addition to providing secure messaging between doctors and patients, Smart Clinic educates patients about their treatments and remotely sends preparation instructions for a variety of endoscopic procedures.

        When it comes to wearable technology, biosensors promise to revolutionize patient monitoring. Cleared by the FDA in 2015, Abstats is a system of sensors and signal processing analytics invented at UCLA to provide data-driven, cost-effective insight into the best protocols for patients recovering from gastrointestinal surgery. The solution includes a pair of sensors placed on the abdomen, which continuously detect and analyze the vibrational waves produced by intestinal muscular motion. The collected data helps doctors determine the pace of digestive recovery and take well-informed post-surgical decisions. Prior to the use of sensors, doctors had to rely on stethoscope or simply on the patient’s reports of discomfort, which can be remarkably inaccurate.  

Imaging Technology

        Technological advancements in gastroenterology also include innovation in medical devices, particularly imaging technology that helps detect and monitor a variety of gastrointestinal disorders. Recent developments include high-definition white-light endoscopy, which allows for a detailed view of the colonic mucosa, full-spectrum endoscopy, which provides wider views of the colon lumen, along with virtual chromoendoscopy systems that enhance visibility by using specific light wavelengths.

        Based in San Jose, California, Avantis Medical Systems has been at the forefront of digital imaging innovation. The company has recently launched the Third Eye Panoramic, which can be attached to any standard colonoscope to provide two additional video cameras, generating a 330 degrees panoramic view.


        From the development of new therapies to the use of advanced information and imaging technology, innovative efforts can significantly improve the lives of those suffering from gastrointestinal disorders. R&D tax credits are available to help support and stimulate companies engaged in gastroenterology research.

Article Citation List



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

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

Tricia Genova is a Tax Analyst with R&D Tax Savers.