As the Senate begins debate on a tax reform bill, the clinical research industry hopes that attention will be given to a small but substantive issue—updating a tax code provision that has had strong bipartisan support for more than 30 years.

In 1981 Congress created the research and development (R&D) tax credit with the intention of spurring economic and employment growth. The credit has been wonderfully successful, driving US leadership in new patents and intellectual property and creating high-skilled research jobs here at home. But in the biomedical research sector the R&D credit needs to be updated to accommodate changes in how new drugs, biologics and medical devices are developed today.

When the R&D credit was enacted, a majority of clinical trials were conducted either in-house by pharmaceutical companies, or in academic medical centers. When the pharmas did the work themselves they could claim 100 percent of eligible expenses—typically their spending on research employees—for the R&D credit. In instances where research was contracted out to a tax-exempt academic organization, biopharma companies could claim 65 percent of expenses eligible for the R&D credit. The remaining 35% would simply disappear.

Today, contract research organizations (CROs)—with over 110,000 employees in the United States—employ more research and development professionals than the pharmaceutical industry and perform the majority of clinical trials research that drives medical innovation in our country. But CROs are excluded from claiming the R&D credit. Because of this changed environment, the R&D tax credit is in desperate need of modernization if we want the US to maintain its leadership in biomedical research.

An amendment to the Senate bill filed by Senators Carper, Brown, Stabenow and Menendez recognizes the essential role that CROs and other contractors play in research and development today and would enable companies conducting contract research across industries to claim a portion of the R&D tax credit that is now abandoned when a research sponsor, seeking greater efficiency, employs a contract research organization.

Modernization of the R&D tax credit is essential for guaranteeing that we keep important research jobs here in the United States. Many other countries such as Canada, the United Kingdom, France and Singapore offer incentives in the form of tax credits to companies to place clinical trials in their countries. To ensure we remain competitive in biomedical research, we need to level the playing field and update the R&D tax credit so that it continues to encourage innovation in the U.S.

“U.S. research companies believe that corporate tax reform is genuinely overdue,” said ACRO Chairman John Hubbard, President and CEO of Bioclinica. “We think that adjusting the R&D tax credit to incentivize U.S. innovation and the conduct of clinical trials research in the United States is also overdue, and ACRO urges the Senate to adopt a proposal that will continue to fuel the development of the medical breakthroughs that patients need, and further strengthen U.S. leadership in research innovation.”