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Details Issued Today on $1 Billion in Biotech Tax Credits and Grants
Date:5/21/2010

WASHINGTON, May 21 /PRNewswire/ -- The federal government is expected to publish details today on $1 billion in biotech-related tax credits and grants provided by the healthcare reform bill—and small- to mid-sized firms should act now if they wish to compete for these helpful incentives, urged attorney Michael P. Drzal, a member of LeClairRyan's BioPharma and Life Sciences Industry Team.

"Competition will likely be intense for these important tax credits and grants, which are available for qualified life-science investments as part of the Secretary of the Treasury's program to promote so-called 'therapeutic discovery projects,'" explained Drzal, a Blacksburg, Virginia-based shareholder in the firm who serves as general counsel to a number of biotech and other emerging companies. "Upon publication of the guidelines, those who are interested in qualifying for these credits will be able to submit their applications. They should do so quickly."

The Secretary, Drzal added, is required to approve or deny each application within 30 days of receipt. The tax credits and grants are available for small to mid-sized biotech companies defined as those with 250 or fewer employees. The incentives are equal to 50% of firms' investments in qualified therapeutic discovery projects for 2009 and 2010. "Under the Internal Revenue Code Section 48D, a biotech company with a tax liability can qualify for a tax credit and a company that has no tax liability can qualify for a non-taxable grant," Drzal said. "Therefore, if your company makes a qualified investment of $1 million, it could receive either a $500,000 tax credit or non-taxable grant, depending on its tax liability."

The Treasury Secretary defines a "qualifying therapeutic discovery project" as one that is designed to:

  • 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 approval from the FDA;
  • diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; or
  • develop a product, process, or technology to further the delivery or administration of therapeutics.

Expenses that qualify include costs paid or incurred that are directly related to the conduct of a qualifying therapeutic discovery project, Drzal noted. "Costs that do not qualify include compensation paid to the CEO and certain other officers, interest expenses, facility maintenance expenses such as rents and insurance, and indirect costs such as general and administrative costs," he explained.

In considering the applications, the Secretary is required to take into consideration only those projects that show a "reasonable potential" to result in new therapies to treat areas of unmet medical need, or to prevent, detect or treat chronic or acute diseases and conditions. Projects that could reduce long-term health care costs in the United States or significantly advance the goal of curing cancer within 30 years will also be considered.

"Under the healthcare reform bill, highest consideration for these credits and grants will be afforded those projects that have the 'greatest potential' to create and sustain high-quality, high-paying jobs in the United States," Drzal noted, "as well as those that might advance the United States' competitiveness in the fields of life, biological and medical sciences."

Given the expected popularity of the program, in addition to moving forward with their applications as soon as possible, biotech companies "should also think carefully about the most compelling and persuasive arguments for why their programs meet the selection criteria," Drzal concluded.

About LeClairRyan

Founded in 1988, LeClairRyan provides business counsel and client representation in corporate law and high-stakes litigation. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm has more than 300 attorneys representing a wide variety of clients throughout the nation. For more information about LeClairRyan, visit www.leclairryan.com.


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