April 20, 2010 in ATDC News

Therapeutic Discovery Tax Credit/Cash Grant

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When the Health Care Reform Bill (H.R. 3590) was passed on March 23, 2010 it included a Tax Credit or Cash Grant for qualifying small businesses developing therapeutics, molecular diagnostics or delivery vehicles.  This tax credit will reimburse eligible companies for 50% of all expenditures spent on a Qualifying Therapeutic Discovery Project during calendar year 2009 and 2010 or fiscal year 2010 or 2011.

The most compelling part of this legislation is the ability to exchange the tax credit for a cash grant.  Many small biotech and pharma companies do not have a tax liability and would not benefit from a tax credit. The cash grant option will allow more companies to receive an immediate return.

For example, a $1 million qualified investment will lead to either a $500,00 tax credit or $500,000 check.

The program solicitation will be released by the Department of Treasury, IRS on or before May 21st, 2010.  Applications will be be due within 30 days and funds disseminated beginning mid-June.

While the mechanics of the program will be described by the IRS, qualified projects will selected by the Department of Health and Human Services.  All eligible companies should receive some assistance, but it is currently not clear how the proposals will be judged and selected, and whether there will be a maximum allocation per project and/or per company.

What we do know:

A Qualifying Therapeutic Discovery Project (Sec 9023 or H.R.3590) includes:

  1. Therapeutics designed to treat or prevent diseases or conditions (investments made in R&D to further a 505(b) or 351(a) application to the FDA).
  2. Molecular diagnostic products to be used in direct diagnosis, or in determining molecular factors related to the disease.
  3. Therapeutic delivery or administration vehicles.

Specifically excluded from this legislation are projects for the development of medical devices.  However, we will not know until May 21st whether a medical device used in the delivery or administration of a therapeutic would be considered a qualifying project.

In addition to the above qualifying criteria, selected projects will also result in new therapies, reduce long-term healthcare costs or advance the cure for cancer AND have the greatest potential to result in high-paying job creation and retention, and advance the competitiveness of the U.S. in the fields of life, biological, and medical sciences.

The legislation was modeled after a similar program distributed by the Advanced Energy Manufacturing Credit distributed by the Department of Energy.  We anticipate that a similar process will  be followed which could include:

  1. A 1 page preliminary application due within 30 days of the solicitation release.
  2. A final application due within 60 days of solicitation including an executive summary, scientific eligibility criteria, selection criteria including job creation/retention and U.S. competitiveness, as well as a spreadsheet detailing costs incurred.

If you are attending the 2010 BIO International Convention, a session held on May 5th from 2:00 to 3:30 will provide additional information.

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