Charity Funded by #Pharma Draws IRS Probe | Pharmaguy's Insights Into Drug Industry News |

The U.S. Internal Revenue Service has opened a probe into the tax-exempt status of a charity funded by pharmaceutical companies, threatening a lifeline the industry uses to help patients buy expensive drugs for cancer, multiple sclerosis and other diseases.


The agency is exploring whether the Chronic Disease Fund, a patient-assistance charity funded largely by drugmakers, gave “impermissible” benefits to its corporate donors, according to federal court filings. An IRS analysis found that 95 percent of the $129.3 million the charity spent on co-payment support in its public programs in 2011 went to patients taking drugs made by the very companies that had donated the money, according to court papers.


Donations from drug companies “are nearly all returned to those same pharmaceutical manufacturers as payments for the drugs they make,” attorneys for the IRS said in papers filed in federal courts in California, Pennsylvania and other states, seeking information related to the probe. “In effect, CDF is serving as a conduit for its pharmaceutical manufacturer ‘donors,’” government lawyers said.


The IRS has sent summonses to Roche Holding AG’s Genentech unit, Biogen Inc., Johnson & Johnson, Teva Pharmaceutical Industries Ltd., Novartis AG and Bayer AG, seeking information on donations to CDF. Biogen, Novartis and Bayer said they’re cooperating with the IRS summonses, and Teva declined to comment. J&J said it has no control over how co-pay charities operate. Roche declined to comment on ongoing legal matters.


The IRS probe adds to the growing scrutiny of charities that help poor patients pay for expensive drugs. As prices have soared, pharmaceutical companies’ contributions to patient-assistance charities have sparked accusations that the donations are, in effect, a profitable form of marketing subsidized by U.S. taxpayers. The seven biggest co-pay charities, which cover scores of diseases, reported combined contributions of $1.1 billion in 2014 -- more than double their 2010 figures.


In 19 of 24 disease-specific funds managed by the Chronic Disease Fund that received drug company funding in 2011, 90 percent of the spending ended up going to patients taking the primary donor companies’ drugs, according to an analysis by an IRS agent contained in court filings. The vast majority of the funds had just a single corporate donor, according to the IRS analysis.


Genentech, the biggest funder of CDF in 2011 according to the IRS analysis, donated more than $70 million for at least nine disease funds that year. In seven of the disease funds Genentech supported, almost all the co-pay assistance ended up going to patients taking Genentech drugs, the IRS said.


Another big donor was Celgene Corp., which gave $48.8 million in 2011 to support a fund for multiple myeloma patients, according to the IRS analysis. It was the only drug company donor to the fund and 98 percent of the money CDF spent in that fund went to patients taking drugs from Celgene, the IRS said. Celgene declined to comment.