The R&D Tax Aspects of Precision Medicine

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        In his recent State of the Union Address, President Obama called upon the United States to lead a new era of medicine, “one that delivers the right treatment at the right time”. To this end, he launched the Precision Medicine Initiative, designed to “bring us closer to curing diseases like cancer and diabetes, and to give all of us access to the personalized information we need to keep ourselves and our families healthier”.

        This article will discuss the underlying principles behind precision medicine, its potential, and the role it has to play in the future of healthcare. It will further present an overview of the recently launched initiative as well as the federal tax credit opportunity available for companies investing in precision medicine innovation.

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 19, 2014, President Obama signed the bill extending the R&D tax credit for the 2014 tax year.

A New Medical Program

        Precision medicine can be defined as an innovative approach to the prevention and treatment of diseases that takes into consideration individual differences in patients’ genes, environments, and lifestyles.

        It is the basis for the emergence of a new taxonomy of diseases that would no longer be defined by physical signs and symptoms, but rather by their molecular and environmental causes.  The idea behind this approach is to overcome the notions of the “average patient”, or “one size fits all medicine” and to acknowledge the complexity and uniqueness of the mechanisms underlying a patient’s condition.

        Precision medicine aims at developing tools to better understand such mechanisms and ultimately being able to predict which treatments will be most effective for which patients.
        This line of research would also help us better understand why diseases progress differently in different people. As a result, it would no longer make sense to lump together, for instance, the Type 2 diabetes that causes the loss of a limb and diabetes that is easily controlled with diet.

Mass Medicine Precision Medicine
Average patient Each patient is unique
One size fits all medicine Targeted treatments
Prominence of physical signs and symptoms Attention to molecular and environmental causes
(molecular diagnosis)

Initial Successes and Outstanding Challenges

        The potential for precision medicine to enable the development of new, targeted treatments is major. Initial successes include cancer treatments that take into consideration patients’ genetic makeup and the genetic profile of tumors.  

        In cases of breast, lung, and colorectal cancers, melanomas, and leukemia, routine patient care increasingly involves molecular diagnosis, which has proven to guide physicians in choosing treatments that enhance chances of survival and reduce side effects.
        Using advanced sequencing technology, doctors can identify genes that drive a tumor’s growth and prescribe drugs aimed at such genes.

        Even though there have been advances in certain types of cancer, there is still a long way to go when it comes to applying precision medicine to other diseases, such as Alzheimer’s and diabetes.

        In the case of diabetes, a condition that reaches more than 8 percent of the American population, there is still no concrete molecular information available to customize treatments.  According to a 2011 report from a National Academy of Sciences expert committee, a diabetes diagnosis “gives little insight into the specific molecular pathophysiology of the disease and its complications.”  

        Significant R&D efforts will be necessary to fill this gap and enable the development of tailored treatments for diabetes and other deadly conditions.

The Issue of Data

        Despite its exciting potential, there are significant obstacles to the advancement of precision medicine. The ability to gather and analyze massive volumes of patient data as well as the privacy concerns involved stand out among them.  

        Precision medicine presumes that every disease has its molecular underpinnings. The massive accumulation of genetic and clinical data from as many patients as possible is critical in understanding these unique characteristics as well as the genetic features that predispose people to certain conditions and why.

        In this context, electronic health records can serve as an unparalleled source of data. Not only do they provide longitudinal information that extends throughout a patient’s life, but they also document real world clinical manifestations of both common and rare molecular variations.

        The U.S. has experience an accelerated transition to electronic medical records, having already crossed the 60 percent online conversion rate.   The medical data software industry should play a central role in enabling the use of such valuable data for precision medicine applications. Major challenges include the integration of heterogeneous systems and the development of user-friendly tools for extracting, transforming, and analyzing information.

        Besides the technical challenges involved , the transmission, storage, and analysis of sensitive personal information raise major regulatory and security concerns.

        Extensive precision medicine research will depend critically upon the exchange of information over the internet and cell phone networks. Thus, the creation of effective means for ensuring the administrative and technical safeguarding of confidential data is vital.

        As pointed out in a recent report by the National Institutes of Health, “cyberthreats are real, pervasive, and will continue to evolve over the duration of any longitudinal study, so data and communications security will be an essential ongoing component of such an activity.”  

The Precision Medicine Initiative

        The recently launched Precision Medicine Initiative aims to pioneer a new model of patient-powered research that promises to accelerate biomedical discoveries and provide clinicians with new tools, knowledge, and therapies to select which treatments will work best for which patients.

        The initiative will work through collaborative public and private efforts aimed at leveraging advances in genomics; exploring new methods for managing and analyzing large data sets while protecting privacy; and developing health information technology to accelerate biomedical discoveries.

        The said efforts will be directed towards four objectives:

I.    More and better treatments for cancer: The National Cancer Institute will accelerate the design and testing of innovative, personalized treatments for cancer by expanding genetically based clinical trials, exploring fundamental aspects of cancer biology, and establishing a national “cancer knowledge network”.

II.    Creation of a voluntary national research cohort: The National Institutes of Health will launch a national, patient-powered research cohort of over one million Americans who will voluntarily contribute with their health information to enable the emergence of a new era of data-based, precise medical treatment.

    The cohort will be broadly accessible to qualified researchers and will have the potential to inspire scientists from multiple disciplines to join the effort and apply their creative thinking to generate new insights. In this context, the Office of the National Coordinator for Health Information Technology will develop interoperability standards and requirements to address privacy issues and ensure secure data exchange.

III.    Commitment to protecting privacy: The White House will work together with the Department of Health and Human Services along with other federal agencies in order to identify and address legal and technical issues related to patient privacy in the context of precision medicine. This will be done with the input from patient groups, bioethicists, privacy, and civil liberties advocates, technologists, and other experts.

IV.    Regulatory modernization: In an effort to determine which changes will be necessary to support the development of precision medicine, the initiative will promote a review of the current regulatory environment. For instance, the Food and Drug Administration will develop a new approach for evaluating Next Generation Sequencing technologies in order to foster genetic sequencing innovation while ensuring accuracy and reliability.

        President Obama’s 2016 Budget will allocate $215 million to support the Precision Medicine Initiative, including $130 million for the National Institutes of Health; $70 million for the National Cancer Institute; $10 million for the Food and Drug Administration; and $5 million for the Office of the National Coordinator for Health Information Technology.

University Research

        A growing number of American universities and research institutions are engaged in precision medicine research. The following paragraphs give an overview of recent efforts.

        Columbia University: In March 2014, Columbia announced the creation of a University-wide task force on personalized medicine. By enabling synergies between specialists at the Columbia University Medical Center (CUMC) and other faculty members, the effort hopes to define the medical, legal, policy, and economic implications anticipated from the applications of precision medicine.

        Scientists at CUMC have pioneered a method that recreates an individual’s immune system in a mouse, allowing unprecedented, customized analysis of autoimmune diseases such as type 1 diabetes. The tool may also be useful to analyze a patient’s response to existing treatments or to develop new therapies.

        Future plans for precision medicine research include a comprehensive biological repository that will store and allow analysis of 100,000 patient specimens to enable translational researchers to develop new therapies.

        Duke University: Created in 2010, the Duke Center for Personalized and Precision Medicine (CPPM) aims to optimize and deliver personalized medicine strategies for mainstream healthcare. A combined effort between the Duke University Health System and the Duke Institute for Genome Sciences & Policy, the Center develops novel tools, predictive models, and care paradigms to improve the efficacy, safety, effectiveness, and economics of medical care.

        Ongoing research in the area of personalized medicine includes the implementation of a family health history tool that streamlines the collection of an individual’s family health history and provides clinical decision support to primary care providers, based on that history.

        Another ongoing effort investigates the clinical utility of a genetic test for type 2 diabetes risk based on four genes in combination with a standardized risk assessment compared with a standardized risk assessment alone.

        Developing genetically tailored statin therapies for cholesterol reduction and assessing its impact on medication adherence is yet another CPPM-funded effort.  

        University of California: Researchers from the UC San Diego School of Medicine and UC San Francisco recently launched the Cancer Cell Map Initiative (CCMI) with the objective of studying how the components of a cancer cell interact.

        Even though genome-sequencing technology has enabled the characterization of various mutations found in patients’ tumors, scientists remain mostly in the dark when it comes to determining how these mutations give rise to cancer or indicate the most effective treatments to pursue.

        In order to better interpret cancer genomic data, the initiative aims to draw a complete diagram of a cancer cell, detailing the connections between normal and mutated genes and proteins. This effort would help understand how mutations found in each patient, which are almost always different from each other, can lead to the same kind of cancer.

        By understanding how genetic changes subvert normal cellular functions, the CCMI aims to accelerate the development of personalized therapies.

        At UC Los Angeles, the Institute for Quantitative and Computation Biosciences is also engaged in advancing precision medicine. Its objective is to understand how our genes interact to ensure health or produce disease — and the roles played by factors such as food, environmental stresses, infectious agents, and pharmaceuticals.

        In order to understand such complex interactions, the Institute will partner with UCLA mathematicians who will create mathematical models to help them make sense of the tsunami of biological data. UCLA is also planning new programs through which computational scientists will train clinicians so they can understand how to work with large sets of data and apply the insights they gain into treating patients.

        Cornell University: In partnership with the New York-Presbyterian Hospital, the Weill Cornell Medical College has established the Institute for Precision Medicine.

        Physician-scientists at the institute seek to identify the genetic influencers of a patient's specific illness - such as cancer, cardiovascular disease, neurodegenerative disease, and others - and use this information to design more effective treatments that target those specific contributing factors.

        To this end, the institute brings together state-of-the-art sequencing technology, an expansive biobank of patient specimens and tissue samples, and dedicated bioinformaticians who analyze patient data, searching for genetic mutations and other abnormalities to identify and target with treatment.

        Preventive precision medicine is also a key aspect of the institute’s work. The idea is to identify a patient's risk of diseases and take necessary steps to aid in its prevention through medical treatment and lifestyle modification.

        The Joint Center for Cancer Precision Medicine: A combined initiative among the Dana-Farber Cancer Institute, Brigham and Women’s Hospital, Boston Children’s Hospital, and the Broad Institute of MIT and Harvard, the Joint Center for Cancer Precision Medicine is an important example of collaboration in the field of precision medicine.

        It has been established to create new treatment pathways for patients with advanced cancers and to speed the development of personalized therapies. Its ultimate objective is to understand which genetic and other molecular alterations predict how tumors respond to targeted drugs, why some patients become resistant to drugs, and what that means about the treatments that should be tried next.

        An important activity at the center is obtaining and characterizing biopsies of patients’ tumors during their treatments. Scientists study the DNA, RNA, and protein in the biopsy samples to understand how cancers respond or become resistant to drugs. In addition, some of the specimens are used to generate cancer cell lines in the laboratory, which enable further research.

        Because genome sequencing produces a massive amount of data, the center has a group of biologists, bioinformaticians, and software engineers working on new algorithms for processing and interpreting the information gathered.

The Precision Medicine Market

        Throughout the country, innovative companies are pioneering the precision medicine market. From big pharmaceutical businesses to biotechnology startups and diagnostics firms, their R&D activities aim at developing technologies that will support the emerging precision medicine approach.

        Based in Seattle, Washington, Adaptive Biotechnologies is at the forefront of immune-based discoveries and diagnostics. The clinical stage diagnostics company leverages Next Generation Sequencing to profile the adaptive immune system at a high level of detail.

        Adaptive’s scientists have invented a patent-pending technology that combines advances in high-throughput sequencing with state-of-the-art computer infrastructure to provide the first in-depth analysis of the T-cell receptor (TCR) repertoire, a specific and important part of the immune system.

        Where once scientists could only catalog the exact makeup of approximately 30,000 unique TCRs out of more than 100 million, Adaptive’s immunoSEQ identifies 10–15 million unique TCRs in one individual.

        When incorporated into clinical trials and other drug development efforts, the immunoSEQ helps monitor response to drugs and discover new prognostic and diagnostic biomarkers. Researchers at Columbia University have recently used Adaptive’s immune sequencing technology to describe a mechanism responsible for kidney transplant tolerance.

        Headquartered in Cambridge, Massachusetts, Foundation Medicine, Inc. has also been a pioneer of precision medicine technologies. The company provides two types of genomic tests for cancer patients – FoundationOne for solid tumors, and FoundationOne Heme for hematologic malignancies and sarcomas.

        These innovative solutions analyze all genes known to be relevant in human cancers, and find all classes of alterations that are driving the growth of a patient’s tumor, helping physicians to precisely and confidently identify targeted treatment options.

        As of the end of 2013, Foundation Medicine had tested over ten thousand people. The company runs a molecular information platform that gathers data for pharmaceutical and clinical use. It currently collaborates with more than twenty biotech and pharmaceutical companies to accelerate the development of new targeted therapies.

        Traditional pharmaceutical players are also investing in precision medicine R&D. Abbott Molecular, a division of Abbott Laboratories, is a leader in molecular diagnosis and the analysis of DNA, RNA, and proteins at the molecular level.

        With over 350 products available in the areas of infectious disease, oncology, genetics, and automation, Abbott Molecular has developed innovative tests and technologies designed to detect subtle but key changes in human genes and chromosomes that can aid in the earlier detection or diagnosis of disease, influence the selection of appropriate therapies, and improve monitoring of disease recurrence.

        When it comes to precision medicine drug development, AstraZeneca’s efforts stand out. In December 2014, the pharmaceutical giant filled a New Drug Application for Iressa, a targeted monotherapy for the first-line treatment of certain lung cancer patients.

        The innovative drug targets patients with advanced or metastatic non-small cell lung cancer (NSCLC) who test positive for an epidermal growth factor receptor mutation (EGFRm). AstraZeneca is working with Dutch provider of sample and assay technologies, Qiagen, to develop a companion diagnostic test to guide the use of this targeted therapy.

        Iressa has become the first EGFR tyrosine kinase inhibitor to have a European label allowing the use of circulating tumor DNA (ctDNA), obtained from blood samples, for the assessment of EGFR mutation status in those patients where a tumor sample is not viable.


        Precision medicine promises to revolutionize how we improve health and treat disease. The recently launched Precision Medicine Initiative creates unique momentum for the development of innovative, personalized therapies along with correlated bioinformatics and diagnostics technologies. Companies investing in precision medicine R&D should take advantage of the federal and state tax credits available.  

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.

Andrea Albanese is a Manager with R&D Tax Savers.

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