Imagine being told you’ll never walk again due to a brain or spinal cord injury. Now imagine a treatment that could reverse your paralysis. This isn’t science fiction — it’s cutting-edge neuroscience research happening in labs right now.
Scientists at Yale University discovered how to regrow damaged neural connections in the central nervous system. This breakthrough led to the founding of ReNetX Bio to translate this preclinical work into a therapy for patients. Our recent clinical trial showed promising signs of neural plasticity in spinal cord injury patients — a hint that repair might be possible.
We’re not alone in our pursuit. Other companies are working on drug candidates to treat spinal cord injuries and enhance nerve repair and functional recovery.
But as we stand on the brink of life-changing advances, we face an unexpected threat — from shortsighted policies in Washington. Recent shifts in tax law and patent regulations could derail these promising treatments before they can reach those who need them.
Consider a recent alteration of Section 174 of the tax code. The change forces biotech startups to spread deductions for research expenses over five years instead of claiming them in year one. In many cases, including for companies that have yet to bring in revenue, the result is a new and unexpected tax burden.
Government grants are treated as taxable income. That’s not a problem if companies can deduct research expenses as they occur. It becomes a big problem if companies have to spread the deductions over a five-year period. Grants meant to fund lifesaving research and development are instead getting eaten up in taxes. The government gives seed money through avenues like the Small Business Innovation Research program at the National Institutes of Health — then demands a portion back in taxes without allowing the full R&D deduction to offset them.
This makes investors wary. They want their capital to advance revolutionary therapies, not pay the tax collector. Taxing early-stage grants without an offsetting deduction threatens to choke off the investment pipeline that fuels medical innovation and gets new businesses to the next stage.
Another looming peril for biotech startups is the government’s threat to invoke so-called “march-in rights” on some drug patents. Based on new proposed guidelines from the National Institute of Standards and Technology, government agencies would be able to revoke the patents on any technology that has ever received a federal grant — even after private companies have invested heavily.
For biotech startups, this would be devastating. Many companies — including ReNetX — have licensed patents on university research that once received government funds. Venture investors then fund a long and costly process of development — one that often ends in failure.
Investors tolerate the risk because of patents. They know that if a product succeeds, its developer will have exclusive rights to sell it for a limited period of time. That’s the period in which it’s possible to recoup R&D expenditures and generate a return.
There is some hope. Legislators have introduced a bipartisan bill, the American Innovation and R&D Competitiveness Act, to repeal the Section 174 changes. It needs to pass quickly if we want to prevent further damage to American biotech. As for march-in rights, policymakers need to understand the chilling effect they could have on private investment in early-stage research.
The path from scientific breakthrough to approved treatment is long and fraught. At our company, we’re tackling one of neuroscience’s greatest challenges. To reach that goal, we need policies that foster innovation, not short-sighted changes that threaten to derail our progress.
Erika Smith is the chief executive officer of ReNetX Bio. This article originally appeared in the Hartford Courant.
The above article was prepared by the author in his/her own personal capacity. The opinions expressed in the article are the author’s own and do not necessarily reflect the views of Cascade Business News or of Cascade Publications Inc.
