Orphan Drug Credit


DEFINITION of 'Orphan Drug Credit'

A federal tax credit that provides an incentive for pharmaceutical companies to seek treatments and cures for rare diseases affecting Americans. Normally, companies may not be motivated to make a drug for a small population because sales may be insufficient to justify the research and development costs of creating the drug. The Orphan Drug Credit provides a credit of 50% of clinical drug testing costs for drugs being tested under section 505(i) of the Federal Food, Drug and Cosmetic Act.

BREAKING DOWN 'Orphan Drug Credit'

The credit can be applied whether the clinical tests are performed directly by the pharmaceutical company or are contracted out to a third party. In general, the testing must be conducted within the United States. Orphan drug credits allow pharmaceutical companies to create orphan drugs that target rare conditions.

  1. Research Activities Credit

    A nonrefundable federal tax credit implemented in 1981 as an ...
  2. Unified Tax Credit

    A tax credit that is afforded to every man, woman and child in ...
  3. Work Opportunity Tax Credit

    A separate, nonrefundable credit that is part of the general ...
  4. Tax Deduction

    A deduction from gross income that arises due to various types ...
  5. Section 1341 Credit

    A tax credit available for taxpayers who are repaid in a later ...
  6. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
Related Articles
  1. Investing

    Using DCF In Biotech Valuation

    Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential.
  2. Fundamental Analysis

    Evaluating Pharmaceutical Companies

    Learn how to find a healthy pharmaceutical investment in a market full of weak drugs.
  3. Markets

    A Primer On The Biotech Sector

    Investing in the biotech sector can involve both huge losses and major gains.
  4. Fundamental Analysis

    Pharma Patent Trolls: Cheap Drugs At A Steep Price

    Though patent trolls can help patients achieve cheaper medication in the short-term, everyone pays for it in the long term.
  5. Insurance

    Pharmaceutical Phenoms: America's Best-Selling Medicines

    These three drugs were the winners of their day. Find out what winning pharmaceuticals have in common.
  6. Mutual Funds & ETFs

    Investing In The Healthcare Sector

    Perform a thorough checkup to uncover a medical stock with a clean bill of health.
  7. Investing

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  8. Investing

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  9. Professionals

    Advisors: Warn Clients About These Audit Triggers

    There are several factors that may increase the risk of an audit, especially with high-net-worth clients.
  10. Entrepreneurship

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  1. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  2. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  3. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Calculating personal income tax correctly involves understanding two important tax terms: adjusted gross income (AGI) and ... Read Full Answer >>
  4. What is the difference between a regressive tax versus a progressive tax?

    A progressive tax is one that increases along with an individual's ability to pay the tax, while a regressive tax doesn't ... Read Full Answer >>
  5. What are some ways to minimize tax liability?

    Minimizing tax liability is one of the most important financial planning aspects for business owners and individuals each ... Read Full Answer >>
  6. What deductions, credits and exemptions depend on gross income calculations?

    The greatest challenge in determining your total tax liability stems from an incomplete understanding of what income figure ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  2. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  3. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  4. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  5. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!