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12:00 AM
Mar 29, 2010
 |  BioCentury  |  Politics, Policy & Law

Splitting up the $1B R&D tax credit

Hundreds of biotechs likely to vie for new $1B R&D tax credits and grants

Hundreds of biotech companies stand to benefit from the $1 billion R&D tax credit provided by the Qualifying Therapeutics Discovery Project Credit amendment to the healthcare reform legislation signed into law last week. But how it will work, what projects will qualify and how fast the money will be forthcoming remain to be worked out.

Under the provision, which was sponsored by Sen. Robert Menendez (D-N.J.) and backed by the Biotechnology Industry Organization (BIO), the Treasury will provide $1 billion over two years in tax credits or grants for 50% of R&D expenses for drugs, diagnostics or delivery devices to companies employing 250 or fewer employees.

The provision applies to tax years 2009 and 2010. For 2009, an amended income tax return would need to be filed and then approved by the Internal Revenue Service (IRS) if a credit is awarded.

Based on an analysis by Ernst & Young, the 303 public U.S. biotechs with fewer than 250 employees spent $5.5 billion in R&D in 2008.

The figure is clearly higher when privately-held companies are included. BIO estimates about 600 of its R&D-intensive core members, which consists mainly of U.S.-based private and public companies developing therapeutics, drug delivery technologies or diagnostics, have fewer than 250 employees.

Dean Zerbe, national managing director at tax services provider alliantgroup L.P., estimated that eight of 10 public and private biotech companies are unable to take advantage of available R&D tax credits because they don't have taxable income or have other tax issues.

Zerbe is a former senior counsel and tax counsel for the Senate Finance Committee.


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