BIO Wins Major Vote on Stimulus for Biotech Companies
On April 4th, the U.S. Senate passed by a vote of 76 to 2 an amendment offered by Senators George Voinovich (R-OH) and Debbie Stabenow (D-MI) that would benefit many emerging biotechnology companies that are not-yet-profitable but have accumulated federal Research & Development (R&D) tax credits. The amendment would improve the investment climate for the large majority of biotechnology companies that have not yet attained profitability, companies that currently cannot take advantage of the investment incentives passed into law earlier this year as part of the “Economic Stimulus Act of 2008.”
“The Voinovich-Stabenow amendment is proof that in its efforts to stimulate the economy, Congress is committed to a plan that will benefit all sectors of our economy, not only those sectors currently in the black,” noted BIO President and CEO Jim Greenwood. “It is during an economic downturn when companies in highly capital-intensive industries like biotechnology most need assistance investing in the new technologies necessary to conduct cutting-edge medical research.”
Specifically, the amendment allows loss companies, who cannot benefit from the bonus depreciation provision passed into law as part of the economic stimulus legislation, to elect to utilize their accumulated R&D and/or AMT credits in an amount equal to the benefit the company would have otherwise received under bonus depreciation.
According to BIO staff, passage of the Voinovich-Stabenow amendment is an important victory in two respects. First, based on feedback from a number of emerging biotech companies, the provision, if enacted, would provide a cash infusion for biotech companies, particularly those that are making major new capital investments, such as those companies in late-stage clinical trials and/or those gearing up for a product launch. Second, and perhaps more fundamentally, passage of the amendment represents an important tax policy victory, in that it represents the willingness of the Senate to allow loss companies to “monetize” or make use of their accumulated credits, despite the fact that they do not have the taxable income against which to claim the credits.
Allowing the opportunity to obtain refunds of tax credits, as the Voinovich-Stabenow provision would provide for, is an important step toward improving the capital formation environment for the vast majority of America’s biotechnology companies that are not profitable but which do have accumulated R&D credits due to the research-intensive nature of the industry. The ability to use R&D credits is doubly beneficial for the bioscience industry because the tax code generally requires a company to use its accumulated Net Operating Losses (NOLs) before its tax credits can be claimed. As a result, R&D credits will sometimes expire before they can be utilized. The Voinovich-Stabenow provision not only allows companies to accelerate the date when they can claim their R&D credits, it allows companies to claim credits that might otherwise expire and thus never be claimed under existing tax law.
