Article preview from "The Pink Sheet" DAILY November 19, 2008
Find out why Tax law changes that enable biotechnology companies to invest in job-producing research should be part of an economic stimulus package...
Article preview from "The Pink Sheet" DAILY November 19, 2008
BIO Says Tax Revisions Would Relax Tight Money For Biotechs
Tax law changes that enable biotechnology companies to invest in job-producing research should be part of an economic stimulus package, GlycoMimetics CEO Rachel King told the House Energy and Commerce Health Subcommittee Nov. 13.
Because of the high risk and long-term nature of biotechnology ventures, she explained, there has been little investment in the industry for more than a year as the financial crisis deepened. Many emerging firms are cutting staff and postponing drug development to conserve cash.
To provide firms with money to pay for research projects, King suggested several options for refunding tax credits to eligible companies. Her proposals, made on behalf of the Biotechnology Industry Organization, were detailed in written testimony and summarized during hearings by the health panel on using biomedical research funds and federal money for Medicaid to stimulate the economy.
Congress is likely to consider a stimulus package during a lame duck session, but the scope of the bill may be small (see 1related story).
A provision in a housing recovery bill enacted in July allows companies to claim a refund of R&D and alternative minimum tax credits in 2008 in lieu of bonus depreciation. This provision helped a number of biotech companies, King said, and should be extended to 2009 and 2010 and expanded to permit the refund in lieu of qualified research expenses. This would give emerging biotechs a "much needed capital infusion" that could be used to invest in U.S. workers and lab supplies, she noted.
Other BIO tax proposals would:
Temporarily allow firms to receive a refund of net operating losses (NOLs), at a discounted rate, to offset qualified research expenses and in lieu of claiming other tax benefits for those expenses.
At least temporarily, allow Code Section 382 limits on using NOLs to not be triggered by successive rounds of equity financings or a business-driven merger. The Treasury Department recently provided this relief for the financial industry, King pointed out.
Over the short term, institute a zero capital gains rate, capital gains rollover, or reduced capital gains for funds invested in the biotech industry.
Explaining the need for a quick infusion of capital into the sector, King noted that tight credit markets during the past 14 months have caused a slowdown in some parts of the economy, but "biotechnology has seen a near-freeze."
The financial crisis has impacted big pharma, but has been especially unkind to biotech firms.
According to BIO figures: initial public offerings in the biotech sector during the first nine months of 2008 declined by 96 percent compared to 2007, and follow-on/secondary offerings fell by 50 percent. Ninety-nine public U.S. biotech firms are operating with less than six months of cash. During October, more than 20 biotech companies publicly announced layoffs. Private investment has slowed, and total capital raised by the industry has fallen by 56 percent during the last year.
-Cathy Dombrowski
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Companies Mentioned
GlycoMimetics
The Treasury Department
