Author: Stewart Lyman

Stewart Lyman wrote:

The rules regarding the Qualifying Therapeutic Discovery Project Credit have now been released by the Treasury Department. You can read the fact sheet, and detailed description of the legislation yourself, but here are 10 key points I came away with after reading them.

1. The first thing that everyone can do is relax. In contrast to rumors that have been floating around, the program is not set up on a “first come, first served” basis, and nobody needs to get these applications in on Monday to push theirs to the top of heap. The Formal IRS applications (Form 8942) will not be available until June 21st or thereabouts. Those who had lined up their staffs to work this entire weekend should send them home early today with instructions to enjoy the weekend!

2. The application period opens on June 21 and ends on July 21. The postmark on the application is deemed to be the date of delivery. Preliminary review of the applications is to be completed by Sept. 30; this is to ensure that applicants are eligible taxpayers and that their applications are complete. Applicants will receive determinations as to whether or not they qualify for credits and/or grants, and how much they will receive, by Oct. 29. Note: there is no conference or appeals process for these grants and credits. If you don’t get one, or you are not happy with the amount awarded, there is no way to change the decision. Separate applications are required for each project that you wish to apply for.

3. The maximum credit or grant that any one company can obtain is $5 million, based on certification of $10 million in qualified investments, since the credit or grants are funded at a 50 percent rate. I read a report of one company that had planned on asking for $42 million in credits. Not going to happen. The government wants to spread the money around, hence the $5 million cap. The money is likely to be spread around geographically as well.

4. The total amount to be spent by the government $1 billion. Applicants can request grants or credits for project spending that already occurred in 2009, during 2010, or for projects that spanned both years. It is not known if more money will be added at a later date (that is a political decision).

5. Though not explicitly stated, it appears that all projects will be ranked and the money allotted to the highest ranking applications first. According to the published materials “the service determines that the taxpayers project is among the projects that have the greatest potential…..”.

6. Applications will require a DUNS number (available for free from Dun and Bradstreet) and must register with the Central Contractor Registration.

7. Winning companies will have their applications and amounts awarded subject to public disclosure (see the above attached documents for how this works, and how proprietary information is handled).

8. The government has estimated that the average time that applicants will spend on the applications to be about 12 hours and seven minutes. The government expects about 1,200 applications!

9. Brochures, DVDs, and other types of presentations are NOT permitted as part of the application. No additional information can be incorporated by reference.

10. The applications do not appear to be very lengthy. There are some yes and no questions, as well as certain Project Information Memoranda. A project overview is required with a 250-word limit, and there are three additional questions that also have 250-word limits. A few of the questions will allow for the inclusion of five literature citations. Those of you that have written up thousands of words to document your case are going to have to do some serious editing once the applications come out.

Comments | Reprints | Share:  

 
 
 

UNDERWRITERS AND PARTNERS

Stewart Lyman wrote:

The biotech industry won a major victory last month when President Obama signed healthcare reform into law. Biologic drugs, those developed through genetic engineering techniques and incubated in living cells, will now be granted a 12-year period of data exclusivity on the market, to protect them from cheaper copycat competitors. That will allow the innovative companies to recoup their long investment in R&D.

But that’s not the only significant benefit for biotech tucked into this piece of legislation.

In a recent Xconomy op-ed piece I mentioned the Therapeutic Tax Credit, details of which have now been spilling out. This portion of the legislation, now officially called the Qualifying Therapeutic Discovery Project Credit, looks like another big win for the biotechnology industry in general and its research efforts in particular. Indeed, this legislation was backed by the Biotechnology Industry Organization and is especially favorable to startups and small companies. Dean Zerbe provided a detailed description of this program in a recent posting on Forbes.com. People running the tax and finance departments of biotech companies employing less than 250 workers (i.e. the vast majority of them) should evaluate this program to see if they qualify for this tax credit. Here are the highlights of the program, according to the Forbes article:

If your biotech company has a tax liability, you can get a 50 percent tax credit; if you have no tax liability, you can get a grant in the same amount that is tax-free. The credit covers qualified investments in “therapeutic discovery projects.” What defines this? In order to receive the tax credit, the research program must fulfill at least one of the following three criteria:

1) It is designed to treat diseases via preclinical research or clinical studies for the purpose of getting FDA approval of the treatment.

2) It is designed to diagnose diseases or find molecular factors (e.g. biomarkers) related to diseases by developing diagnostics that can be used to make therapeutic decisions.

3) It is designed to develop some methodology that would advance the delivery or administration of therapeutics (e.g. technologies that are being developed to deliver siRNA).

By my reckoning, a very large percentage of biotechnology companies would qualify to apply for these tax credits. However, there are some additional criteria that will also be used to judge the research applications:

The research should have direct or indirect medical benefits. The emphasis here will be to finance programs that “will treat areas of unmet medical needs or prevent, detect or treat chronic or acute diseases or conditions.” Programs that will cut long-term health care costs are also favored, as are …Next Page »

Comments | Reprints | Share:  

 
 
 

UNDERWRITERS AND PARTNERS

Stewart Lyman wrote:

Research is the lifeblood of the biotech and pharmaceuticals business. The pharma and biotech industry spent some $65 billion dollars on R & D in 2008, according to the Pharmaceutical Research and Manufacturers Association. That’s a tremendous amount of money considering that the FDA only approved 24 new drugs (21 new molecular entities and 3 biologics) that same year. If the PhRMA numbers are true, this would imply that it cost about $2.7 billion/drug to win FDA approval, a very poor return on investment since few drugs would ever be able to recoup that expense.

These numbers suggest that drug makers need to find a more efficient way of developing medicines. A recent report from financial analysts at Morgan Stanley recommended that large pharma companies abandon their own early stage drug development programs, and switch to a less costly licensing model. Rather than try to discover drugs, Big Pharma should simply buy them from smaller, more nimble and innovative biotech companies. It was claimed that such an approach, as reported in the Financial Times, “would boost success rates, lower costs, and triple returns”. This scheme would certainly fit into the plans of most venture capital (VC) firms, who could cash out large profits if Big Pharma acquires the biotech startups that they have invested in.

Even before the Morgan Stanley report came out, Big Pharma had embarked on a major job shedding binge, eliminating positions duplicated as a result of mergers and a number of research programs. Merck is eliminating 16,000 jobs after buying Schering-Plough, Pfizer around 19,500 positions after acquiring Wyeth, and Roche about 1,500 jobs after purchasing the remainder of Genentech. Layoffs, however, were not confined to companies making acquisitions. To stay competitive, Johnson & Johnson is cutting 8,000 jobs this year, Eli Lilly is axing 5,500, and GlaxoSmithKline around 6,000 positions.

In seeking additional resources to fill holes in their drug development programs, many Big Pharma companies have partnered with academic institutions. Pfizer and Genentech have both partnered with UCSF, GlaxoSmithKline with the Immune Disease Institute, Solvay Pharmaceuticals with Emory University, and Janssen Pharmaceutica with Vanderbilt University. These alliances provide money to academic investigators, usually in exchange for licensing rights that arise from any discoveries made. Grant pressure on academic investigators (80 to 90 percent of applications to the NIH do not currently get funded) makes them willing partners to help solve Big Pharma’s empty pipeline problem.

These academic collaborations, though quite helpful to Big Pharma, are not a substitute for real drug discovery and development work. If Big Pharma ramps down its research efforts, can smaller companies ramp up their research programs to compensate? I have no doubt that some of these organizations could provide a true fountain of research innovation that the larger companies can drink from. But are these companies sufficiently productive to shoulder a much larger share of the responsibility for the industry?

I believe the answer is no. Many of the smaller companies will not be up to the challenge. Tight finances have caused numerous companies to reduce or even eliminate their research staffs. Here in Seattle, two of the oldest and most established biotech companies, ZymoGenetics and …Next Page »

Comments (3) | Reprints | Share: