Policy Issues Supported by MOBIO

I. Overview

Biotechnology is what information technologies were twenty years ago, and all states want a piece of this high growth, high wage industry. States are aggressive and creative in devising economic incentives to draw biotechnology companies to them, offering massive tax credits, low interest loans, and research grants. Missouri has identified biotechnology as a target industry, and in order for the state to become a leader in biotechnology, it must be even more aggressive and creative in its effort to lure biotechnology companies here.

II. Economic Incentives Provided in Thriving Biotechnology Corridors

Biotechnology companies require certain and predictable policies to be in place before locating or relocating in a community. However, economic incentives alone are not enough to attract new companies to Missouri and maintain the existing industry.

It has been suggested that the most important location criteria for biotechnology companies is access to research institutions with liberal technology transfer policies. The most successful biotechnology companies and incubators tend to be located close to such universities. The close proximity of biotechnology startups and academic institutions provides the necessary avenues for communication and collaboration, in addition to an educated work force without which a fledgling private enterprise cannot operate.

In addition to universities attracting biotechnology firms, large public and private research institutions and pharmaceutical companies also provide opportunities for startup biotechnology companies. For example, La Jolla has become a major biotechnology hub not only because of the liberal technology transfer policy of the U.C. Regents and UCSD, but because Scripps Research Institute and Salk Institute provide similar opportunities. Maryland and New Jersey are also good examples with the National Institute of Health in Bethesda and the large number of pharmaceutical companies in New Jersey providing a concentration of scientists, technicians, students and academics who may spin-off or start-up a new company most easily in the same location.

Other factors important to biotechnology companies include reasonable state environmental regulations, an extremely pure and reliable water source, good sewage facilities and reliable power. Biotechnology companies cannot risk power outages since living organisms are instrumental to their research. A change in environment due to a power outage, even a short one, could be disastrous.

The workforce for biotechnology includes highly educated, younger workers with young families and many women. Therefore, areas that have a good quality of life will attract biotechnology companies and employees.

III. BIO Best Practices

MOBIO is affiliated with the Biotechnology Industry Organization (BIO), which promotes ten policies to provide states a greater chance of enhancing their respective biotechnology industries.  As a sister organization, MoBIO has adopted the following list of policies that we believe should be enacted and adopted by the Missouri legislature, our academic and research and development entities, and by individual biotechnology companies:

1. Capital Access Funds - Numerous states have either enacted or have pending legislation to encourage states to invest in or support the creation of venture funds to invest in biotechnology. Investment funds can be created through a variety of different mechanisms that will allow a state to support the industry with little or no expense to the state taxpayer.

2. Pension Fund Investment - Targeted investment of a very small portion of state pension funds in the biotechnology industry can provide a pool of much needed capital. We urge the Missouri legislature to remove barriers and restrictions to state pension fund investment in biotechnology. Missouri should encourage pension fund managers to make investments in high-tech industries located in Missouri.

3. Capital Gains Tax Cut - We urge the Missouri legislature to enact a targeted capital gains tax cut for corporations, institutions and individuals who make venture capital investments. Cutting the state tax rate for individual investors would provide a powerful incentive for investors to support biotechnology companies. MoBIO recommends that 75 percent of the gain be excluded from taxable income for investors who hold the stock for at least five years. A roll over provision would allow the investor to defer tax if he or she sells the stock and invests in another qualifying company for at least one year.

4. Net Operating Loss (NOL) - We urge the Missouri legislature to enact a 15-year carryforward provision for NOLs. MOBIO urges the legislature to allow the heavily regulated R&D intensive biotechnology industry to carryforward 100% of their net operating losses for 15 years as an offset against future taxable income.

5. Tax Loss Transferability - We urge the Missouri legislature to allow biotechnology firms to transfer unused tax credits to other state taxpayers in exchange for funds to be used to expand in-state research or manufacturing facilities or to fund R&D activities. Biotechnology firms need a steady source of capital until they complete the lengthy product approval process and can generate revenue from product sales. Tax loss transferability will generate considerable capital and facilitate technology investment in Missouri.

6. Biotechnology Sales and Use Tax Exemption and/or Deferral - MOBIO supports programs to provide additional sources of R&D capital by exempting or limiting the applicable sales and use taxes paid on purchases of R&D and manufacturing materials. As an alternative, the exemption could be restricted to purchases made from in-state vendors, and/or defer sales taxes only until the company's biotechnology product has been approved by the FDA and is marketable.

7. Research and Development (R&D) Tax Credit - Missouri should encourage R&D expenditures by allowing firms to take R&D tax credits. We urge the Missouri legislature to enact an R&D tax credit modeled on the Federal credit with a rate of 50% of the incremental increase in expenditures as compared to the firm's gross receipts. R&D tax credits should have a fifteen year carryforward provision.

8. Investment Tax Credit - We urge the Missouri legislature to provide an investment tax credit (ITC) for the purchase of equipment for research as well as manufacturing. ITC's are more helpful than depreciation deductions or the ability to expense the cost of the equipment. MOBIO suggests that existing and new TC's are defined to cover biotechnology industry needs.

9. Incubators/Shared Research Manufacturing Facilities - Emerging biotechnology companies need access to ready-made, early stage manufacturing facilities. As facility costs are among the most significant expenses a young biotechnology company encounters, state-initiated or state or local supported incubators have been successful in helping biotech companies through the difficult early phases of product development. MOBIO encourages the Missouri legislature to assist biotechnology firms access incubators and/or shared manufactured facilities.

10. Clinical Trial Loan Program - Biotechnology companies invest an enormous amount of time and expense in taking products through product clinical trials. MOBIO supports state programs that assist these "mid-stage" companies during their FDA approval process. Providing a low-interest loan program to help fund "in state" trials in hospitals and other third party organizations would provide necessary support to the emerging biotechnology industry as well as provide support and high-paying jobs in state medical institutions.

IV. Legislative Agenda

MOBIO supports public policies that foster the growth of medical technology and biotechnology industries in the state of Missouri. MOBIO advocates legislation that supports medical and agricultural research and facilitates the spin-off of research discoveries that advance the health and welfare of the general public.

V. Missouri Incentives

The Missouri legislature has enacted a number of statutes to facilitate the growth of individual firms within the biotechnology industry.  These incentives include:

• Research tax credits offered to qualified corporations or individuals. The current carryforward provision is for 5 years.

• Tax credits for R&D equipment.

• Exemption of state or local sales or use tax exemption for life science companies.

• The Missouri Department of Economic Development (MoDED) provides funding for the Center for Emerging Technologies incubator. A second incubator is in planning stages. There are a total of 5 incubators in the state.

• Tax credits are available for investors in start-up companies.

• Missouri MoDED provides tax credits for companies that locate in enterprise zones.

• CAPCO's provide venture capital funding for biotechnology companies.

• The New Enterprise Creation Act will allocate $20 million in tax credits over the next four years to contributors to seed capital and start- up capital funds. Contributors will be awarded a tax credit equal to 100% of their contribution.

While these incentives provide a good foundation, it is likely that firms within the dynamic biotechnology industry will be attracted to locating in states with a progressive legal and policy plan.  So many states are competing for firms to relocate that we may quickly be displaced by smaller states offering generous incentive packages tailored to individual biotechnology company requirements.  Therefore, to grow the industry within Missouri, and to stay ahead of states competing for a limited number firms, we need to adopt more aggressive measures to to build upon the strong foundation our predecessors have created over the past century.

The following links provide lists of economic incentives enacted by the top ten biotechnology states:

1. California
   
   
2. Texas
   
   
3. Pennsylvania
   
   
4. New Jersey
   
   
5. North Carolina
   
   
6. Georgia
   
   
7. New York
   
   
8. Florida
   
   
9. Minnesota
   
   
10. Wisconsin