Throwing Biotech Another Tax-Credit Bone

Can Jonathan Cohen do it again? The Maryland diagnostics CEO helped push through his state's biotech tax credit, which has proved popular enough to bring executives to an all-night camp-out in Baltimore two years in a row to grab a piece of the annual $6 million “tax credit-palooza,” as we like to call it.

Now Cohen is part of an effort to win a federal tax credit for investors in biotechs that have received grants from Uncle Sam's Small Business Innovation and Research program.

Wait a second, wasn't there just a biotech tax credit embedded in the health care reform bill? Indeed there was, but the $1 billion tabbed for the Therapeutic Discovery Project Credit will likely be stretched thin, as “The Pink Sheet” reports, even if the IRS sets an individual cap on awards when it issues regulations later this month.

So the recently-hatched Small Biotech Business Coalition, of which Cohen is a member (he's also CEO of diagnostic device firm 20/20 Gene Systems), is working behind the scenes to get the SBIR-related federal tax credit onto the books, and Rep. Chris Van Hollen (D-MD) reportedly is about to introduce a such a bill.

As outlined on the SBBC Web site, the proposal would establish a 25% credit limited to private equity investments in companies that have received SBIR awards and would be limited to one-half of the SBIR grant awarded. For example, a company with a $500,000 Phase II grant could attract up to $1 million in investment, for which the investors would receive $250,000 in income tax credits.

Cohen tells us the federal program would be modeled on state credits available in Maryland, Wisconsin and Virginia and be investor-based, not company-based like the therapeutic discovery credit. Cohen says the state programs have been effective in luring individual and angel investors to back small, local companies.

SBBC claims to be the only organization “focused on increasing the NIH SBIR set-aside beyond the present 2.8%.” Linking the pending Van Hollen proposal to SBIR is crucial, Cohen says. “That way, the federal government has already given some due diligence to the company and the technology. This would be a way to move the technology past where the government funding ends, basically through the valley of death.”

But wait: SBBC wants more. The group is lobbying to increase to 35% the credit for the development of drugs and devices regulated by FDA, “to account for the increased costs, risks and timelines associated with clinical trials.”

No word yet if the 35% plum is baked into the Van Hollen legislation. ­ -- Joseph Haas


Photo courtesy of flickr user EduardoZ.

Maryland First, Then The World?

Two recent stories in the Washington Post and Baltimore Sun about an overnight camp-out for Maryland state biotech tax credits caught our eye. We were curious. Did CEOs of the local companies wear pajamas on the street? Did you lose your place in line if Mother Nature called? Were any deals signed on hot dog wrappers at 4 am?

The Post and Sun suggested the scene recalled camping out for concert tickets. May we suggest another image: bread lines in the great depression.

After all, what we are talking about here is a $6 million tax subsidy. That's better than a punch in the nose, but worth lining up for? Well, in today's financing climate, it most definitely is. And expect to hear more pleas for new tax credits on the federal level soon.

Jonathan Cohen, president and CEO of Rockville, Md. diagnostic device firm 20/20 GeneSystems, tells us that he is part of an “an ad hoc coalition of small biotech companies” trying to get legislation introduced in Congress to establish a federal tax credit for biotechs. Cohen was the driving force behind Maryland’s Biotechnology Tax Credit, now in its third year and apparently more popular than ever.

Cohen says the goal is for a bill to drop this year, although that would be just the start of a much longer process. For now, he is mum on the details, other than to say the credit would be different in design from Maryland's. When there is more to report, we will.

While you wait, check out “The Pink Sheet” DAILY’s take on the spectacle of CEOs and other staff from about 14 biotechs lining up overnight outside the Baltimore offices of the state Department of Business and Economic Development.

--Joseph Haas