Monday, March 23, 2009

Burrill Report: VA "Road Map" for Biotech Econ Dev Policy in Downturn

Great article from Burrill on the VaBIO bills passing the VA Legislature.

A Boost for Biotech

March 20, 2009

Legislative approach by Virginia Biotechnology Association may offer roadmap for others.

The Virginia General Assembly has given a boost to the state’s life sciences industry by passing a bioscience bill that provides tax credits, grants, and loans that could help expand the industry there. The bill, which now goes to Governor Tim Kaine for his signature, will initially offer modest funding—a potential $4 million in the current fiscal year—but could be worth several times that once the economy improves.

Despite the modest investment the legislation represents, industry representatives view its passage as a significant victory given the current recession. The legislature passed the bill in the face of a $4-billion deficit. It also comes as several other states, such as Maryland and Massachusetts, are seeing recent economic development initiatives aimed at stimulating growth of the life sciences sector being threatened as they scramble to find ways to close budget gaps during the economic downturn.

“While Virginia in the grand scheme of things was not a giant sum of money, it was a clear indication from a legislature in a very challenging fiscal situation that the biotech and bioscience community is a key growth industry for that state,” says Patrick Kelly, vice president of state government relations for the Biotechnology Industry Organization. “That being said, obviously Virginia like many other states is facing significant fiscal challenges. Some states are actually looking at rescinding previously enacted legislation to try to close budget gaps. That’s something that obviously we are very concerned about.”

The Virginia Biotechnology Association, which pushed for the legislation, followed a strategy that emerged at a meeting in the Fall of the Council of State Biosciences Associations, an organization of state-level biotechnology trade groups. The group sought to determine how best to work with state legislatures in the down economy and struck upon the idea of focusing on existing programs already on the books and refining them to better promote the life sciences.

“The key is we were not asking for any new, additional state resources,” says Mark Herzog, executive director of the Virginia Biotechnology Association. “What we did was we took existing programs and made the case that in this difficult economy it is important to truly hone those resources so that they produce the best results for twenty first century economic development.”

In reality, Virginia is not allocating new funds to the bioscience industry, but instead taking existing programs and given them a greater focus for the benefit of the biotechnology industry. The legislation calls for a bioscience investment tax credit, which limits the state’s existing angel investor tax credit to bioscience and other advanced technology start-ups. It also reserves up to half of the available credit to start-ups created with technology spun out of the state’s universities.

In addition, the legislation provides matching funds for Small Business Innovation Research grants and Small Business Technology Transfer awards. To be eligible, companies must employ fewer than 12 full-time employees (more than half must be in Virginia) and more than half of the applicant’s property must also be located in the Commonwealth. Last, provides a construction loan program for facilities used in commercializing qualified research, such as wet labs in research parks or at universities. Both of those programs will be funded out of the state’s existing Commonwealth Technology Research Fund.

Mitch Horowitz, vice president and managing director of Battelle Technology Partnership Practice, a non profit R&D organization that in conjunction with the trade group BIO produces a regular report on state bioscience initiatives, says states are slowing down their investments. “Commitments are still there,” he says, “I just think it takes a longer time for these commitments to play out.”

But others are concerned that the downturn will do more than just slow or undo state commitments to spur growth of the industry. They fear officials will take more draconian steps to close state budget gaps that hurt the broader business environment and harm the growth of the industry. Matt Gardner, president and CEO of the Northern California biotechnology association BayBio, says with more than a $40-billion budget gap in the Golden State, across-the-board cuts are likely to spread the pain. But he’s worried about “knee-jerk reactions” to impose fees and taxes that hurt the industry, particularly at a time where many companies are at a point of commercializing their pipelines and making decision about long-term investment in facilities.

“When a state goes through something like this and changes its business taxation or increases fees, it is a turn for the worse,” says Gardner. “Some of those opportunities to capture downstream investment for some companies that have been here for three decades are only going to come once. If we miss them now, we may not get them back.”

For the most part, the trade group BIO sees the current year as one which the industry will be playing defense. Rather than worry about winning new economic incentives for the industry, the organization says it expects to spend much of its time protecting what has been won in recent years.

“What Virginia did may well be a model, but I think from BIO’s perspective, we don’t expect to go into many of state legislatures and expect a whole lot of help on the economic development front,” says BIO’s Kelly. “We’re trying to make sure we preserve the commitments that have been made in the last several years.”

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