Building On A Firm Foundation

A new R&D tax credit, among other programs and projects, could help Virginia reach the upper echelon of life sciences states.

All across the Commonwealth of Virginia, biomedical innovators are pursuing a shared passion to help their fellow citizens live longer, healthier lives. These dedicated researchers, in nearly 200 biotechnology and medical device firms clustered around research universities such as the University of Virginia, Virginia Commonwealth University, George Mason University and Virginia Tech, are expanding the frontiers of modern medicine. They are pioneering new drugs, more effective therapeutics and life-saving medical devices. According to a new study by Miami-based Archstone Consulting, there were more than 1,500 active clinical trails conducted last year by Virginia researchers on new drugs, including those targeting cancer, diabetes, HIV/AIDS, mental health disorders and respiratory diseases.

In addition to the National Science Foundation (NSF) and biopharma companies with facilities in Virginia such as Pfizer, Merck, Novozymes, Abbott Laboratories, Boehringer Ingelheim, Teva Pharmaceuticals, ATCC and SRI International, the Commonwealth is also home to one of the most advanced bioscience research institutes in the world. The Janelia Farm Research Campus of the Howard Hughes Medical Institute (HHMI) opened in October 2006. Located on a 689-acre (279-hectare) property in Northern Virginia, the unique, world-class biomedical research complex represents a $500-million investment by HHMI, one of the largest biomedical research philanthropies in the world. Several hundred of the world's top researchers from diverse disciplines use emerging and innovative technologies to pursue biology's most challenging problems.

Clearly, biotechnology has asserted itself as a vital contributor to Virginia's economic growth.

According to the Battelle/BIO State Biosciences Initiatives 2010 report, from 2001 to 2008, bioscience employment in Virginia grew by 23 percent, compared to 6-percent total growth statewide and 3.5-percent across all sectors in the U.S. Between 2001 and 2008, the number of Virginia bioscience companies grew by 55 percent, in contrast to 18-percent growth in the private sector statewide, and 14 percent across the U.S.

In Virginia, bioscience organizations directly employ more than 20,000 people. Indirectly — through biomedical suppliers, vendors and services-related companies — more than 80,000 jobs are dependent on Virginia's life science industry. All told, Virginia's biopharmaceutical and device sector generated products and services valued at more than $13 billion in 2008.

New Tools Help, But Stronger Educational Focus Will Help Keep Up With the Neighbors

Founded in 1607 by a venture-backed company in London, Virginia has always been a welcoming home for entrepreneurs and start-up companies. That continues today as private investors recognize the long-term value of Virginia's robust biotechnology industry. Between 2004 and 2009, Virginia biotechnology companies attracted $405 million worth of venture capital. That puts Virginia in the top 20 nationally (19th).

Underlying this hopeful news are some potentially worrisome issues. Like many states, Virginia's educational requirements need to be reviewed, particularly to get more students prepared for careers in the science, technology, engineering and mathematics (STEM) fields. A state's concentration of STEM graduates generally is considered to be a bellwether of its future ability to compete for jobs and economic growth, especially in the global economy. In fact, a recent study notes that Virginia is one of only 17 states without a biology requirement for high school graduation (biology is one of three laboratory options).

Indeed, bioscience research provides fertile soil to nurture ideas from seedlings to useful products and services. And on the surface, Virginia's biotech sector seems to match up well in terms of the percentage of research-and-development activity taking place at state academic institutions. In fiscal year 2008, Virginia ranked 17th in the nation in the amount of academic research and development dollars spent on biosciences. Of the $70.55 billion in academic funding, more than $550 million was allocated to biosciences research in Virginia.

That's good enough to place Virginia in the top 20, but it also indicates how far the Commonwealth has to go. Virginia is bookended by two states — North Carolina and Maryland — that rank fifth and sixth in the nation, respectively. In short, state policy-makers and the research community must take action now to gain full advantage of future growth in the life sciences industry.

Seeking to capitalize on the growing nucleus of innovative research-based companies, Virginia Gov. Robert F. McDonnell earlier this year signed into law the Virginia Refundable Research & Development Tax Credit, which recognizes the enormous upfront expenses emerging advanced technology companies typically absorb during the arduous journey of bringing cutting-edge products and services to market. Virginia is now one of only a handful of states that provides a refundable credit that gives cash-strapped bioscience companies more elbow room to pursue their innovative ideas, without having to worry quite as much about meeting expenses before revenue comes rolling in. These "pre-profitable" biotech firms are eligible for up to a 15-percent tax credit or refund of their "qualified" R&D expenses, and up to 20 percent if they partner with Virginia's public or private universities.

The new legislation complements the Virginia Innovation Investment Act, enacted by the General Assembly in 2010. That initiative rewards Virginians who invest in advanced technology companies with a 100-percent exclusion from capital-gains taxes if an investment is made in the next three years.

And that is not all. Virginia also matches SBIR awards, provides aggressive tax credits for angel investors, has a state-funded seed-stage investment program and a stable corporate tax rate of only 6 percent. All of this in a state that consistently ranks first or second as the best place for business in America.

Virginians themselves have plenty of cause for optimism about the impact of biotechnology on their lives. Those sanguine sentiments go far beyond new tax policies and investment, as pivotal as those elements continue to be. Biotechnology-driven advances are saving lives or managing debilitating diseases everyday for millions around the world.

Like their counterparts nationally, these are the ideals that animate the ambitious, innovative and driven people who are the face of Virginia's burgeoning life sciences cluster.

Mark A. Herzog
The Site Selection Life Sciences Report