Big News About BioTech Tax Credits
Congress Has Re-Authorized The SBIR & STTR Programs Through 2017 With The 2012 Defense Authorization Act
Daszkal Bolton would like to help you stay informed about the federal government’s current efforts to expand funding and programs that promote emerging technologies. Recently, Congress passed an extension of the Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer (STTR) Grants which provide assistance to start-up companies having an innovative technology. In addition, there is currently debate about extending and enhancing the popular Qualifying Therapeutic Discovery Program (QTDP), a tax credit designed to promote the development of new Biotech projects.
SBIR & STTR Extension Approved
A key challenge many emerging biotechnology and life science companies face is identifying sources of the funding they need to cover the costs of turning their idea or technology into a successful commercial product. Management teams face funding challenges to cover many costs including those of research, development, and deployment. These programs are designed to provide start-up companies a source of consistent funding to enable them to determine the feasibility of their idea. Funded by a series of temporary extensions since 2008, the SBIR/STTR program was a stone’s throw from being laid to rest in 2011. SBIR/STTR has now been reauthorized for a period of 6 years, ending September 30, 2017, and that includes what was the Commercialization Pilot Program (CPP). Is now permanent and will be known as the Commercialization Readiness Program (CRP).
There are welcome changes in the level of funding for the SBIR/STTR programs. By 2017, there will be a 24% net increase in SBIR funding compared to 2011, and a 50% increase in STTR funding, compared to FY 2011 amounts.
What are SBIR & STTR Grants and the CRP?
The federal government offers the Small Business Innovation Research (SBIR) grant to provide start-up companies having an innovative technology with a source of funding of $150,000 to $750,000 per year to further research and bring their product to market. SBIR grants are awarded during two business growth phases, but may also be used to facilitate continued research and help fund business expansion.
Small Business Technology Transfer (STTR) Grants support in-depth development of cooperative R&D projects between small business concerns and research institutions, limited in time and amount, whose feasibility has been established in Phase I and that have potential for commercialization. Awards are made to small business concerns only, and can be $150,000 to $750,000 per year.
The Commercialization Readiness Program (CRP) assists Phase 3 Companies in technical transition. The head of each participating Federal agency is authorized to allocate not more than 10 % of the funds allocated to the SBIR/STTR program:
• For awards for technology development, testing, evaluation, and commercialization assistance for SBIR and STTR Phase 2 technologies; or
• To support the progress of research, research and development, and commercialization conducted under the SBIR or STTR programs to Phase 3.
MAXIMUM AMOUNT OF AWARD- 3 times the dollar amounts generally established for Phase 2 awards for technology development, testing, evaluation, and commercialization assistance for SBIR and STTR Phase II technologies, or to support the progress of research, research and development, and commercialization conducted under the SBIR or STTR programs to Phase 3.
Some additional interesting provisions in the SBIR/STTR reauthorization:
• Agencies are no longer allowed to use an “invitation only” process for selecting Phase 2 applicants.
• Agencies are not to exceed the $150k Phase 1 and $1 million Phase 2 “guidelines” by more than 50%. Therefore, Phase 1 awards are really capped at $225k and Phase 2 awards at $1.5 million (with annual provisions for increases in the cost of living). Phase 1 SBIR winners can receive Phase 2 funding through the STTR program, and Phase 1 STTR winners can get SBIR Phase 2 awards. This gives you greater flexibility if you want to switch from one program to the other between phases.
Qualifying Therapeutic Discovery Project Tax Credit Extension Proposed
A Qualifying Therapeutic Discovery Project (QTDP) is a project that is designed to:
(1) treat or prevent diseases by conducting pre-clinical activities, clinical trials, and clinical studies, or by carrying out research projects to approve new drugs or other biologic products;
(2) diagnose diseases or conditions to determine molecular factors related to diseases or conditions;
(3) develop a product, process, or technology to further the delivery or administration of therapeutics.
The Qualifying Therapeutic Discovery Project Tax Credit Extension Act of 2011:
• amends the Internal Revenue Code to extend for an additional five-year period the authority to invest in and allocate credit amounts for a QTDP
• extends for an additional five-year period the authority of the Secretary of the Treasury to award grants for investment in a qualifying therapeutic discovery project in lieu of a tax credit and the funding for such grants.
The Davis-Schwartz bill mentioned above provides a $1 billion credit for each fiscal year 2011 through 2017 and allows qualified investments from 2009 through 2015. Applicants will be required to have their research projects certified as eligible for the credit or grant.
The credit or grant will cover up to 50% of the cost of qualifying biomedical research, up to a maximum credit of $5 million per firm and $1 billion overall, and is only available to firms with no more than 250 employees. Firms can opt to receive a grant instead of a tax credit, so start ups that are not yet profitable can benefit as well. This bill is still in the legislative process; it was referred to the House Energy and Commerce Committee on May 25, 2011, and the House Subcommittee on Health June 3, 2011.
It is essential to understand how government policies will affect the biotech industry and to be prepared should additional tax credits and other incentives become available. If you are unsure how legislative actions will impact your company, or if you would like assistance in determining if your company qualifies for an SBIR/STTR grant, need help in applying for a grant, or have questions about the tax implications of grants, please contact Quinn Bailey, CPA, Manager-in-Charge of Technology Services at 561.367.1040, or email Quinn at [email protected] In a brief consultation he can assess your company’s situation and determine not only your qualification status for funding, but the structuring, tax planning, and business process advisory services you may need as well.