Biotech Values

[bladerunner1717]

Health care reform and biotech tax credits (from Forbes):


Personal Finance
Health Reform Will Set Off Biotech Tax Credit Rush
Dean Zerbe, 03.26.10, 05:25 PM EDT
New research credit, capped at $1 billion, should be a bonanza for some small and medium-sized firms and their investors.



Dean Zerbe Buried in the recently passed health reform package is a provision that provides an unusual and tremendous benefit to small and mid-sized (under 250 employees) biotech firms and their investors. This extraordinary gift from Congress (courtesy of a push by Sens. Robert Menendez, D-N.J.; Maria Cantwell, D-Wash.; and John Kerry, D-Mass.) provides a 50% tax credit for qualified biotech investments for tax years 2009 and 2010, or a grant for the same amount tax-free.

Thus a biotech company that has a tax liability can see its tax bill slashed and a business that has no tax liability can receive a nontaxable grant for the same amount. Bottom line: With this new provision a biotech business can look to put big money in its pocket immediately. Your business makes a qualified investment of $1 million and it gets a $500,000 tax credit or a $500,000 check from Uncle Sam. Wow.

This benefit is available for pass-through entities, such as partnerships and S corps, as well as traditional C corporations. (Pass-throughs pass on their taxable income and tax credits to their individual investors' tax returns.). Readers may have heard me complain about how the individual AMT keeps these business owners from taking advantage of business tax benefits, such as the typical research and development tax credit. Not so here. (However, a pass-through partner that is a government agency and certain tax-exempt entities will not receive the benefit.)

The grant part of the new biotech credit is important, given what I have found in working with numerous firms across the country: A significant number of biotech firms that are doing work that would otherwise qualify for the regular R&D tax credit don't get any value from it because they do not have a tax liability or are denied immediate benefits from it by the AMT. Innovative firms that might need R&D help the most don't get it, because they're not yet producing a taxable profit. But neither the requirement of a tax liability nor the AMT are at issue here, and we expect hundreds of companies that didn't qualify for the R&D Tax Credit will qualify for this new credit or grant.

While it's called a grant, the biotech credit is a variation of what Congress has been doing with individuals: Using the tax code and the Internal Revenue Service to deliver benefits it considers socially desirable in the form of refundable tax credits. For example, the child credit, the earned income tax credit and the American Opportunity college tax credit, all transfer cash, in some cases, to families who don't owe any individual income tax.)

Here's a quick question-and-answer briefing on the requirements for the new biotech credit/grant, technically called the "Qualifying Therapeutic Discovery Project Credit."


What does the credit cover?

The credit/grant covers research in tax years beginning in 2009 and 2010. The taxpayer is provided a 50% credit/grant for qualified investments in "qualifying therapeutic discovery projects." What expenses count as qualified investments? The aggregate amount of costs paid or incurred in the taxable year for expenses necessary for and directly related to the conduct of a qualifying discovery project. What doesn't count? The pay of employees covered by 162(m)(3) of the tax code--think CEOs--doesn't count. Other excluded items: interest expenses; facility maintenance expenses (e.g. mortgage or rent payments, insurance, utility and maintenance and costs of employment of maintenance personnel); and certain indirect costs (basically general and administrative costs) as defined in the Treasury Regulations at 1.263A-1(e)(4).




According to the legislation, it's a project designed to do one of three things:

--Treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials and clinical studies, or carrying out research protocols for the purpose of securing federal government approval by the FDA.

Diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions.

--Develop a product, process or technology to further the delivery or administration of therapeutics.

Finally, to qualify, a venture may not have more than 250 employees in all businesses of the taxpayer--meaning a small biotech project at a big company wouldn't qualify.

Which biotech companies might benefit?

Those that are investing significant resources in pre-clinical or clinical studies, which may take years to come to fruition to ultimately satisfy FDA requirements, could now recoup a significant portion of their expenses. Additionally, biotech start-ups focusing on the development of diagnostic assays or applications to advance therapeutics and treatments can also benefit. Finally, companies currently engaged in basic or applied research which may ultimately contribute to curing caner within the next 30 years may also be excellent candidates. Along these lines, companies studying signal transduction pathways, gene therapy and stem cell research seem like prime candidates.


http://www.forbes.com/2010/03/26/health-reform-biotech-tax-credit-personal-finance-dean-zerbe_2.html



Bladerunner