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Biotech firms see tax credit as boon to research

Friday, July 9, 2010

Business First of Buffalo - by Tracey Drury

Keeping track of patients’ health can be a time-consuming and costly endeavor.

A local life sciences firm has developed software and hardware that allows remote monitoring, enabling nurses to record everything from vital signs and weight to medications taken.
Advantage Home Telehealth Inc. is working on selling its wireless remote monitoring systems to home health-care agencies and third-party insurance payors around the country. Incorporated in 2008 and operational since May, the company has found startup financing tough to come by.

“We have people waiting for it and we’ve got customers queued up. Now we have to make sure we can deliver on those prospective contracts,” says Deborah O’Shea, in-house counsel. “When you’re a small business, having cash ahead of time always helps.”

A new federal tax credit could be a big help: Advantage Home Telehealth is among thousands of local and national biotech firms expected to file for a new tax credit and grant created as part of the health-care reform law. But the application window is extremely limited: Companies had a one-month window – ending July 21 – in which to apply for certification with the Internal Revenue Service.
The federal government will award $1 billion in Qualifying Therapeutic Discovery tax credits and grants to projects that show significant potential to produce new therapies, reduce long-term health-care costs or significantly advance the goal of curing cancer within 30 years.

The tax credits or grants cover up to 50 percent of the cost of qualifying biomedical research, up to $5 million per company. The qualifying investments must have been made in 2009 or 2010, and businesses must have 250 or fewer employees in order to be eligible. The Department of Health and Human Services will evaluate each project’s potential and decide which should be certified, with the IRS issuing certifications by the end of October.

A Cooley LP survey of 67 biotech and medical device executives nationwide found that 90 percent plan to apply for the grant, and 40 percent will submit multiple applications. More than half of these firms plan to create one to 10 additional positions if their applications are fully funded, and 28 percent plan to hire more than 11 new people.

SmartPill Corp. is hoping to get as much as $2.5 million to fund additional clinical trials for its diagnostic pill product. David Barthel, president and CEO, says the program could be extremely valuable for small medical device manufacturers such as his 7-year-old firm.

“We’re actively pursuing it,” he says, pointing to the opportunity to get cash grants rather than reimbursement on expenses. “This is the first time I’ve ever seen (that opportunity). It’s a great, great program.”

There’s no reason for companies that are potentially eligible not to apply, says Michael Grimaldi, senior tax manager at Kane Firm CPA P.C.

“I think it’s going to be something everyone’s going to be looking at in biotech, life sciences and medical devices,” he says. “Everyone’s taking a shot at it.”

What makes the program unique is that companies have the option of receiving a credit or grant, and there’s no fee to apply.

“Typically, startups in these industries are entitled to their research credit, but it’s a credit, and when you’re a startup company you have losses for years and can’t use the credit,” he says. “This is a refundable program, and you actually get cash.”

Grimaldi is working with close to 20 companies to fine-tune paperwork to both the IRS and HHS and make sure they’re not disqualified for the wrong reasons. Answering a question on the certification paperwork with a yes instead of a no could be enough to knock the company out of contention for available funds, he says.

Another biotechnology firm hoping to benefit is 22nd Century Ltd. LLC, a 12-year-old Clarence business that develops low-nicotine tobacco products for use in smoking cessation.

“R&D costs are significant for clinical trials for smoking-cessation products,” says Michael Moynihan, vice president for research and development. “We are going to spend quite a bit of money in 2010 which would be eligible, so it would be very helpful.”