Sarepta Hit With Call to Drop Duchenne Drug Costs

Sarepta Therapeutics Inc. (SRPT) is under fire from patient groups that backed the Food and Drug Administration approval of its Duchenne muscular dystrophy drug eteplirsen.

The groups on Thursday, April 5, sent a letter to the Department of Health and Human Services asking the agency to drop the price of eteplirsen because the company failed to disclose federal funding contributed to the creation of the drug in paperwork for five patents. The drug is expensive, ranging in cost from $300,000 to $1.5 million a year, according to the letter, and Sarepta's failure to mention the federal funding in the patent documents is a violation of federal law.

In the letter the groups asked HHS to take title to the patents because discovery of the company's intellectual property was paid in part with public funds.

The groups who signed the letter include Social Security Works, Patients for Affordable Drugs, Knowledge Ecology International, Universities Allied for Essential Medicines, People of Faith for Access to Medicines and Health GAP.

Sarepta did not respond to a request for comment on the letter and the loss of the support from groups that stood behind it with the FDA.

Sarepta shares on Friday afternoon were down 1.2% to $71.97 but have gained 29.4% in 2018.

Duchenne is a rare genetic disease that causes progressive muscle degeneration because of an absence or shortage of dystrophin, a protein that helps keep muscle cells intact. It almost always affects boys with symptoms usually appearing between ages 3 and 5. It eventually makes balance and walking impossible. The heart and respiratory muscles are also affected, although advancements have made survival into the early 30s more common.

The groups called for HHS Secretary Alex Azar to lower the price of the medication by using the Bayh-Dole Act, a 1980 law that gives the government the ability to penalize companies that have violated regulations tied to obtaining patents.

"The attached memorandum titled, 'Undisclosed NIH funding for patents on eteplirsen (brand name: Exondys 51),' identifies five patents that failed to disclose NIH funding, including three patents listed in the FDA Orange Book for Exondys 51. This failure would represent a violation of the Bayh-Dole Act, attendant regulations and HHS guidance," the groups wrote.

This is not the first time that groups have petitioned the government to step in on behalf of patients. Similar efforts were mounted against pharma companies Novartis AG (NVS) , Gilead Sciences Inc. (GILD) and Vertex Pharmaceuticals Inc. (VRTX) and the patents were left undisturbed.

The group knows it's playing with long odds. "In the past, the federal government has, on several occasions, asked recipients of federal grants and contracts to correct failures to disclose federal funding of the inventions but has not exercised its rights to take the title of such patents for purposes of influencing drug prices. In this respect, we recognize that we are asking HHS to do something new."

In a Friday note to investors, Leerink Partners LLC analysts who cover Sarepta said the groups were fighting an uphill battle and that even if the feds were to bow to the pressure, the impact would not hit other rare-disease companies.

The groups also have asked for a meeting on the subject with HHS staff.

The loss of support from patient groups has to be bittersweet for Sarepta after its difficult path to an FDA approval for eteplirsen. The company was turned down by the FDA in April 2016 after the agency said the drug failed to demonstrate "substantial evidence of efficacy." Sarepta also was turned down for an accelerated approval.

The hearing of the FDA advisory committee was an emotional meeting, with the testimony of wheelchair bound-patients making a case for the drug's approval. A group of parents from England declared support for approving the drug, saying they were willing to move to the U.S. so that their children could receive the treatment.

But the FDA had a change of heart five months later when, over the objections of its own staff, the agency green-lighted the drug for use by a limited patient population and it called for more testing.

The approval allowed Sarepta to go into commercialization mode as well as secure more financing to pay for the rollout. In November 2017 the company sold $570 million in convertible debt, with JP Morgan Chase & Co., Goldman, Sachs & Co. and Credit Suisse backing the sale.

The company now plans on submitting a New Drug Application to the FDA for an accelerated approval for a second Duchenne drug, golodirsen, by the end of the year.

Sarepta has made fairly regular use of the private-investment-in-public-equities market, according to PrivateRaise, TheStreet's data service that tracks private placements larger than $1 million. The company has tapped it in 15 transactions since June 2001, raising $1 billion.

Current investors include Vanguard Group Inc. with 7.6%, BlackRock Fund Advisors at 6.7% and Fidelity Management & Research Co. with 5.6%, according to FactSet Research.

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