Biotech Leaders Say Tax Credit Could Miss The Mark
When William Caldwell, president and CEO of Advanced Cell Technologies in Worcester heard about a plan from President Barak Obama to expand and make permanent a research and development tax credit, he was fairly skeptical.
“Everyone’s got their own political opinions about this,” Caldwell said. “But from our perspective, this idea has been put out there, but I’m not sure if it will help all biotech companies.”
The Obama administration is attempting to put forth a series of economic initiatives before the November mid-term elections in an effort to stimulate the economy.
But leaders of small- and mid-sized biotech companies say one of Obama’s plans to revamp an R&D tax credit may be missing the mark for their businesses.
Economic Stimulus
The proposal is to invest $1 billion over the next 10 years in the R&D tax credit, which was established as a temporary incentive in 1981 and has been renewed 13 times since then. Obama wants to increase the amount of the credit from 14 to 17 percent and make it permanent. The plan must still pass Congress.
And while R&D is the bread and butter of the biotech sector, some of those in the industry say they’re not convinced this program will benefit them. That’s because the tax credit would only be good for companies that are bringing in substantial revenues, which isn’t the case for the vast majority of biotech startups.
Eric von Hofe, president of Worcester-based Antigen Express Inc., a small seven-person biopharmaceutical company, said his firm isn’t eligible for the tax cut.
“We don’t really have any revenues we’re incurring tax burdens on yet,” said von Hofe. “I don’t see how it can benefit us in any significant way.”
A better way to help small- and mid-size, pre-sales biotech companies, he said, is to offer grants and more inclusive tax credits, he said.
For example, earlier this year the administration had a therapeutic discovery program through the Internal Revenue Service which, unlike the R&D tax credit, gave money directly to companies.
Antigen, as well as Caldwell’s ACT, both applied for the program, which provides funding for companies that are working on novel vaccine programs to offset research and development costs. Unlike the newest tax credit program, this one is targeted at small biotech startups that are still developing products. Von Hofe said those types of programs that give money rather than tax breaks to companies can be “water in the middle of a desert.”
“So much of early-stage biotechnology is constantly raising money and finding that next source of funding to support your research,” he said. When the government can help supply money for companies it’s a big help, he said. The IRS is expected next month to announce which businesses will receive part of the possible $1 billion that could be available from the therapeutic discovery program.
Not all biotech leaders are pessimistic about the Obama tax credit proposal, however.
Kevin Hrusovsky, president and CEO of Caliper Life Sciences in Hopkinton, said he doesn’t expect the R&D tax credit expansion would impact his company directly, but it could possibly have positive trickle-down effects.
Caliper’s customers — some of whom are larger biotech and high-tech companies — may be able to take advantage of the credit, which in turn would make them more likely to invest in Caliper products and services. Caliper makes custom biotech solutions for other companies.
“We have customers that are very profitable and some of those businesses would increase their R&D spending if they have confidence and assurance that they get that 17-percent recovery,” Hrusovksy said. “That, I think, would certainly spur on some demand.”
The tax credit for selected R&D expenses the Obama administration is pushing, according to Andre Mayer, senior vice president for research at the Associated Industries of Massachusetts, would most positively impact profitable companies that already have sales. AIM supports the plan to expand the tax credit, but Mayer admitted that not all companies will be able to benefit from it.
“If you’re thinking about this as a stimulus, sure it will get some tax breaks out there, but you’re at a point where a tax credit program will have less of an impact than it would during a boom time,” he said. “There are just fewer taxes being paid to credit against.”
Beneficiaries
For larger, profitable companies, however, the move is welcome.
A company like Waltham-based Raytheon, the government defense contractor, could stand to benefit from making the tax credit permanent. Raytheon has more than 1,000 employees in Marlborough.
“Raytheon strongly supports the administration’s proposal to enhance and make more valuable the simplified research and experiment tax credit,” said Raytheon spokesperson Jon Kasle. “We view it as a plan to support our entire industry.”
About half of the company’s 75,000 employees around the world are engineers, most of whom work in original and applied research capacities.
So while many high-tech and other profitable companies may benefit from the program, even national biotech leaders are skeptical about the plan’s impact on the life sciences sector. In fact, Ellen Dadisman, spokesperson for the biotechnology industry organization BIO in Washington, D.C., said she’s not even sure this legislation will pass.
“It’s an election year,” she said. “Politicians are being very careful.”
Plus, she said she’s worried about how the administration will pay for the credit. According to a description of the R&D tax credit proposal, the administration has proposed paying for about $300 billion worth of the tax credit through “loophole closures,” among other reforms in Obama’s budget.
“One man’s loophole is another man’s bread and butter,” she said.
WBJ Web Partners
Most Recent
Most Recent
0 Comments