Health care reform has produced a new tax credit and grant program for inventive small to mid-sized companies with R&D in therapeutics. Federal tax credits and grants will be awarded up to a national total of $1 billion for tax years 2009 and 2010 for winning, qualifying biotech projects.
Companies with 250 or fewer employees are eligible, if they have a “qualifying therapeutic discovery project” designed to do any of the following:
- treat or prevent diseases or conditions through pre-clinical activities, or clinical trials or studies (or carrying out research protocols) aimed at securing approval of a drug or biologic;
- diagnose diseases or conditions or determine molecular factors concerning disease or conditions through molecular diagnostics or drugs to guide therapeutic decisions; or
- develop process, technologies or products to further therapeutic administration or delivery.
Regulations and application forms will be issued in mid-May. Companies should start preparing now, as early submittals are most likely to receive awards. The IRS will select winning applications and distribute funds in the form of tax credits or cash grants.
The tax credit or grant is available for “qualified investments” made in the 2009 and 2010 tax years. The qualified investment for a tax year is the aggregate amount of costs paid or incurred in that tax year for expenses necessary for and directly related to conducting the project. The amount of credit or grant a business can receive is equal to 50% of the qualified investment in the project.
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. With this new provision a biotech business can look to put big money in its pocket immediately. If your company makes a qualified investment of $1 million, it gets a $500,000 tax credit or a $500,000 check. What’s not to like?
Favored projects will include those that show reasonable potential to help cure cancer, create new therapies in the area of unmet medical need, treat chronic or acute disease, or reduce long-term health care costs in the United States. Projects that have high U.S. job-creation potential and will advance U.S. competitiveness will also have an advantage.
Because this is a competition, careful preparation of the applications required is essential.