A Novato biotech company celebrated federal approval this week of its first drug that will treat an ultra-rare disease, just as a new tax reform bill clouded the future for development of such drugs.
The U.S. Food and Drug Administration on Wednesday gave Ultragenyx Pharmaceutical approval to begin marketing the drug Mepsevii to treat an enzyme deficiency that stunts growth.
The approval came the day before Republicans in the House of Representatives passed a tax reform bill that would eliminate a key tax credit for the development of such drugs. If a final tax bill is ratified by both the House and the Senate, it is uncertain if the provision will remain in the bill.
Loss of the tax credit would be a major blow to biotech companies that specialize in developing treatments for rare diseases. Marin County’s largest employer, BioMarin, is one such company, along with Ultragenyx. San Rafael-based BioMarin has approximately 1,700 employees in Marin County and more than 2,400 employees globally. Ultragenyx, which is Marin’s second-largest biotech company, has more than 450 employees, most of whom work in Marin.
Under the 1983 Orphan Drug Act, companies that create drugs to treat rare diseases are eligible for a tax credit equal to half the cost of their clinical trials and all of their costs during regulatory review.
“The House proposal to reform the orphan drug tax credit is bad for patients with rare diseases,” said Debra Charlesworth, a BioMarin spokeswoman. “The total elimination of the credit proposed by the House will likely stifle innovation and the development of rare disease therapies.”
In 2016, BioMarin received $57.3 million in federal and state of California tax credits, of which the orphan drug tax credit made up the majority, she said. Last year, BioMarin reported a net loss of $630 million and spent about $662 million on research and development.
Eric Davis, the executive vice president and general counsel of BioMarin Pharmaceutical, told the New York Times earlier this month that the tax credit “is really critical to helping us get over the hump with our investment decisions, and I think that’s true for a lot of companies in our space.”
Marin County has built its economic development model around making Marin a biotech hub. The Marin Economic Forum has teamed with the city of Novato, the Buck Institute and other regional organizations to form the North Bay Life Sciences Alliance to promote biotech development in Marin, Napa, Solano and Sonoma counties.
Robert Eyler, chief economist of the Marin Economic Forum, said elimination of the tax credit “could change the trajectory of businesses starting out and/or the research agendas of current businesses, for sure.
“What I don’t know is how much their business plan depends on that tax deductibility,” Eyler said. “My guess is that it certainly depends on it some.”
Emil Kakkis, CEO and president of Ultragenyx, said his company will survive even if the tax credit is eliminated.
“Ultragenyx will be here,” Kakkis said, “It will just make it financially tighter and harder, and it might cause us to think twice about ultra-rares like MPS VII.”
MPS VII, or mucopolysaccharidosis type VII, is the disorder that Ultragenyx’s newly approved drug, Mepsevii, is designed to treat. MPS VII causes an enzyme deficiency that can stunt growth and affect tissue and organs, including the heart. Kakkis said Ultragenyx spent many millions of dollars to develop Mepsevii even though there are only an estimated 200 MPS VII sufferers in the developed world.
Mepsevii will be available to patients in the United States later this month. Patients will need to take the drug on an ongoing basis. Kakkis estimates the annual cost for the average patient will be $375,000.
The prices charged by so-called “orphan” drug manufacturers, such as Ultragenyx and BioMarin, have drawn criticism. In addition to the tax credit, orphan drug manufacturers are granted the exclusive right to sell their drugs without competition for seven years, allowing them to charge virtually whatever they want.
Kakkis said even at the price Ultragenyx will be charging for Mepsevii, it will take many years for the company to recoup its investment. So far, Kakkis said Ultragenyx has been unable to benefit from the federal tax credit because the company has had no earnings.
Ultragenyx reported a net loss of $245 million in 2016 after spending $183 million on research and development. Eventually, however, the company expects to earn a profit and when it does the tax credit will provide an additional boost.
The FDA is scheduled to decide in April whether to grant Ultragenyx approval to market a second drug, to treat X-linked hypophosphatemia, an inherited disorder. Symptoms include: arthritis; a decreased ability to move; bone, joint and muscle pain; abnormalities where the ligaments and tendons attach to the bone; fractures; and softening of the bones. There are an estimated 3,000 pediatric and 9,000 adult patients in the U.S.
Ultragenyx’s stock, which trades on NASDAQ under the ticker symbol RARE, is down about 30 percent since the beginning of the year and closed at $48.11 per share on Friday. Earlier this year, the company gave up on a drug after it failed phase three trials.
But David Nierengarten, an analyst with Wedbush Securities, sees a bright future for Ultragenyx despite the obstacles.
“The tax credit is nice to have but it isn’t a need to have for these type of companies to have viable and profitable businesses,” Nierengarten said. “It shouldn’t totally disrupt the business model.”
