By Mary Vanac
A tax credit created by healthcare reform law to speed new therapies to market could present significant financial opportunities for small biotechnology companies.
The 50 percent Investment Credit for Qualifying Therapeutic Discovery Projects would “encourage investments in new breakthrough medical therapies to prevent, diagnose, and treat acute and chronic diseases,” according to a Biotechnology Industry Organization statement in October 2009.
That’s when Sen. Robert Menendez (D-N.J.) proposed the tax credit in an amendment to reform legislation under consideration by the Senate Finance Committee.
“Senator Menendez’s amendment will advance the key goal of healthcare reform: That all Americans have access to quality healthcare, including innovative, high-quality therapies,” BIO President and CEO Jim Greenwood said in the October press release.
“Pioneering, research-intensive small businesses would gain critical support through this amendment to continue their cutting-edge projects to develop advanced medicines and, ultimately, cures for the world’s most debilitating diseases,” Greenwood said at the time.
The credit would reimburse small biotech companies — those with 250 employees or fewer — for 50 percent of their qualifying therapeutic development activities, including hiring scientists and conducting clinical studies, according to the release.
“This is a new credit designed specifically to encourage investment in new therapies relating to diseases,” said Mark Sims, partner at Cincinnati law firm Keating Muething & Klekamp and co-author of a legal alert on the tax credit.
Little isn’t certain yet about what qualifies as a covered “investment” or project, or how biotech companies can qualify for the credits.
“This is brand new, so we’re all trying to work through this at the same time,” Sims said. “There will be regulations issued by the Treasury Department on this, and I expect that those regulations will go into a lot more detail as to the type of expenditures that are covered and also the whole procedure for applying for qualifying for the credit.”
According to a technical explanation by the Joint Committee on Taxation, the Treasury secretary would consider only projects that “result in new therapies to treat areas of unmet medical need or to prevent, detect, or treat chronic or acute disease and conditions; reduce long-term health care costs in the United States; or significantly advance the goal of curing cancer within a 30-year period.”
The secretary also would consider a project’s potential to create or sustain “high-quality, high-paying jobs in the United States, and advance the United States’ competitiveness in the fields of life, biological, and medical sciences.”
What is certain is the credit would be available for biotech company expenditures in 2009 and 2010. The credit would not cover salaries for certain highly compensated employees, interest expenses, facility maintenance expenses, certain general and administrative costs, or “other expenses” to be determined by the Treasury secretary, Sims said.
Also a certainty: Funds for the tax credit are limited to $1 billion for both 2009 and 2010. The Treasury secretary and the Dept. of Health and Human Services have until May 21 to figure out a procedure for applying for the credits, Sims said. Considering it’s a tax credit, Sims expects an announcement, regulation or revenue procedure from the Internal Revenue Service around that time.
About all a tax-credit hopeful can do now is document expenses on projects that might qualify for the credit and start thinking about why the expenses and project qualify, he said.