New VP for BIO State Government Relations Announced

The Biotechnology Industry Organization (BIO) announced yesterday that Fritz Bittenbender has been hired to serve as Vice President, Alliance Development and State Government Relations. Bittenbender brings extensive experience in government affairs and alliance development, most recently serving as Vice President of Public Affairs at Cephalon and as President of the CephalonCares Foundation.

Bittenbender will spearhead BIO’s engagement in and support of state-level legislative and regulatory issues while promoting the responsible development of the bioscience industry and better understanding of policy issues critical to the industry. He also will lead BIO's engagement with stakeholder organizations, including patient and disease advocacy groups.

“We are extremely excited to welcome Fritz Bittenbender to our team,” said BIO President and CEO Jim Greenwood. “His considerable experience in public policy and deep understanding of the biotechnology industry will be a tremendous asset for our members. Fritz's specific experience and expertise with state level public policy and regulatory issues will help us continue to advocate for public policies that enable our members to develop breakthrough technologies to cure disease, protect against bio-terrorism, feed the hungry, and clean our environment.”

Previously, Bittenbender held cabinet level positions in the offices of Pennsylvania Governors Tom Ridge and Mark Schweiker. Additionally, Bittenbender served as president of Pennsylvania Bio, an affiliated organization to BIO.

“I have known and respected Fritz as a fellow public servant to the Commonwealth of Pennsylvania for many years. Furthermore, his leadership and organizational support for the 2005 BIO International Convention, held in Philadelphia, were instrumental to the success and importance of the industry's biggest annual event,” said Greenwood.

5 Tips From an Accidental Entrepreneur

Nice article in Inc. on Hampton Roads based Joe Hill, President of Aeir BioLogic who spoke at our Biotech at the Beach Luncheon last August.

In 2010 Hill lost his job with a biotech firm, so he took what he calls “the first job available” as a financial planner. “My new boss told me to find a market to focus on,” he says, “and since my two sons were diagnosed with autism, I decided the market I really understood was parents of kids with special needs.”

After a presentation one potential client said, “I really appreciate you talking to me about financial planning, but what I really need are affordable tools that can help my autistic son learn.” Specialized equipment costs thousands of dollars, and software runs $300 or more.
“Her comment really struck a chord,” Hill says. “My boys loved Angry Birds. They like touching objects on the TV to try and make them move, too. I knew if they could tap on words or pictures and hear them, they could learn more easily. Plus they wouldn’t stop playing with my iPhone until the battery ran out, so I knew there was something there, especially since autistic kids typically won’t sit still for long.”

He set out to develop an application that could make learning words simple and fun, and in November launched Aeir Talk, a $19.99 iPad app that lets parents create an unlimited amount of cards customized with personally recorded voices and pictures they take.

So what did Hill, a first-time entrepreneur, learn about starting a business?

If your idea doesn’t provide long-term benefits, you need a new idea. Everyone downloads what seem like cool apps they only end up using for a day. Hill changed his product a number of times during the development stage to avoid that. For example, the decision to make the app fully customizable was especially tough to make, but he realized that if a kid sees his mom’s picture he expects to hear his mom’s voice. Hill did what was necessary to ensure the app has lasting value, allowing parents and kids to really make it their own. The development cycle would absolutely have been a lot faster and a lot less expensive, but the app would also have been far less beneficial.

Think about solving broader problems. Children with special needs don’t just speak English and live in the U.S. Hill made the app language independent so if a parent wants her child to learn Spanish they simply record Spanish words. The app doesn’t care. In the end Hill built an app to help kids with special needs, but it can help any child learn. Definitely focus on a specific audience, says Hill, but never stop thinking about broader applications and markets for your product.

Always look for serendipitous relationships. Hill pitched his idea to everyone. Most people loved it but no one wanted to become an investor. Then he talked to Zack Miller at We Are Titans, a product development and consulting firm, and we struck an equity deal. Not only are they great developers but Miller is also great at making contacts and leveraging relationships. Good teams are made up of people who are different. Be open and don’t look in the normal places for partners.

You don’t know what you don’t know, and that’s okay. If you need help, the best thing you can say to someone is, “I don’t know what I’m doing. Can you help me?” People naturally like to help people. Be honest, be humble, and ask for help. When you’re willing to admit you don’t have all the answers, people respond.

No matter what you’re doing, never be ashamed of it. Hill took a job in the morning scrubbing warehouse floors and another at night carrying bags and scrubbing floors at a hotel. (He wanted jobs that allowed flexible hours so he could start his company.) Every chance he got he told people about what he was doing. Many had relatives with kids with needs. Do whatever you have to do to keep rolling, and never be ashamed of what you do. The end justifies the humble means.

By: Jeff Haden
Inc.

Washington Times: McDonnell aims to lure biotech jobs to Virginia

RICHMOND — Virginia Gov. Bob McDonnell said Wednesday he is seeking nearly $37 million in his biennial budget to lure businesses and jobs to the commonwealth, putting much of the focus on life sciences and biotechnology — sectors that are staples of the economy of neighboring Maryland.

Some $10 million will fund a life-sciences package that could go toward supporting research at colleges or businesses.

Lt. Gov. Bill Bolling, the state's chief jobs-creation officer, said Virginia has completed 671 business deals since the start of the administration. But life sciences and biotechnology — Maryland's bread and butter — are areas where the state intends to step up its efforts.

"There, frankly, are a lot of states around the country over the course of the past several years who have been a lot more aggressive in the area of biotechnology and life sciences than we've been," he said. "Places like Massachusetts and Texas and Pennsylvania, even Maryland has been much more — well, I shouldn't say 'even' Maryland."

"Maryland," the governor chimed in.

"Maryland has been much more aggressive in some of these biotechnology, life sciences areas," Mr. Bolling said.

The quality of Virginia's health care facilities, its universities and pharmaceutical companies make it primed to expand in those field, Mr. Bolling said.

"We believe this is a sector we can compete in more effectively than we have in the past," he said. "Some of these new and emerging biotechnology and life-sciences companies that we've had a hard time tracking, frankly, we're going to get in the game on those, because it is a growing area of the economy."

Mr. McDonnell, who has consistently said he wants Virginia to be the "Energy Capital of the East Coast," also proposed $500,000 to go toward offshore wind-energy development — another of Maryland Gov. Martin O'Malley's legislative priorities in the coming General Assembly session.

The largely friendly regional rivalry between Maryland and Virginia took a sharper political edge last year, when Mr. McDonnell and Mr. O'Malley took the reins as chairmen of their parties' respective governors associations.

Virginia famously beat out Maryland, as well as the District, to lure defense contractor Northrop Grumman's headquarters in 2010, thanks in part to an incentives package worth between $12 million and $14 million. Last year, engineering giant Bechtel announced it was moving its corporate headquarters from Frederick to Fairfax, bringing with it 625 jobs and an $18 million investment.

And in a now-infamous series of events, Montgomery County backed off a nonbinding resolution calling for Congress to spend less on defense and more on social programs. The county council got pushback from defense giant Lockheed Martin, which is based in Bethesda, as well as Mr. O'Malley's office. Virginia officials reportedly contacted Lockheed in the interim to gauge its interest in moving south of the Potomac River.

Maryland officials responded Wednesday by saying that, even with competition from Virginia, the state will remain a national leader in the biotech and life-sciences industries. They also disputed the perception that Virginia is the more business-friendly state, contending Maryland created more than twice as many jobs as Virginia last year.

"It's always nice to have competitive neighbors to strengthen our abilities," said Takirra Winfield, spokeswoman for Mr. O'Malley, a Democrat. "But there is no concern with Maryland's ability to compete and win in the new economy."

Maryland's life-sciences industry employs more than 71,000 people and each year drives $17.6 billion in direct and indirect economic activity, while generating about $500 million in income- and sales-tax revenue, according to the state.

The Virginia Biotechnology Association lauded Mr. McDonnell for his efforts in promoting the business sector. The VBA estimated that, all told, the governor's proposed budget includes more than $47 million in economic-development money that will directly boost the state's bioscience and advanced-technology industries. That includes $15 million for a refundable research-and-development tax credit, $12 million for the Commonwealth Research Commercialization Fund, which goes toward science and technology-based development, and $10 million for an "angel" investor tax credit.

"Governor McDonnell and Lieutenant Governor Bolling are to be commended for their strong support of these proven technology-based economic-development programs," VBA Executive Director Mark A. Herzog said in a statement. "Bioscience jobs pay approximately $40,000 above the average annual salary. These initiatives will create more job opportunities in many regions across Virginia."

http://p.washingtontimes.com/news/2012/jan/4/mcdonnell-aims-to-lure-biotech-jobs-to-virginia/print/

McDonnell outlines Va job creation initiatives; biotech funding

From the Washington Examiner:

McDonnell outlines Va job creation initiatives
By: MICHAEL FELBERBAUM | 01/04/12 12:37 PM
AP Business Writer
Gov. Bob McDonnell on Wednesday outlined several initiatives totaling nearly $37 million in additional funding in his proposed two-year state budget aimed at spurring economic development and creating jobs in Virginia.

McDonnell's legislative agenda for the upcoming General Assembly session includes tax credits for small businesses and increased coordination between state departments that work in economic development in hopes of attracting new businesses and growing existing ones.

"Jobs is still job one for our administration," McDonnell said during a news conference in Richmond. "We believe the more people we have working, and contributing and innovating and taking care of their families through the private sector, the less cost and expense and burden there is on the taxpayer. ... The more that we can do at the state level to advocate the support of free enterprise and economic development, the better off Virginia is going to be."

McDonnell said the legislative and budget initiatives build on previous programs aimed at economic development, including opening international trade offices, business tax incentives and funding to promote Virginia industries. Since taking office, the state's unemployment rate has dropped from 7.2 percent to 6.2 percent.

The governor's top proposals for his biennial spending blueprint include $10 million for life sciences initiatives to develop Virginia's biotechnology industry by partnering public education with the private sector, as well as $4 million for improvements at the Wallops Island launch site on the Eastern Shore to support the growing commercial space industry. There's also additional funding of $2 million for workforce training programs at community colleges.

"This is Virginia's future — investing in those things where we tie university and academic research with the commercialization process and the job creating process," McDonnell said.

Additional allocations also are being proposed for growing advanced manufacturing, tourism, film, agriculture, technology and offshore wind energy.

McDonnell's proposed budget takes millions largely from inflation adjustments for health care and school support programs; guts the prekindergarten program established by McDonnell's predecessor; and reassigns money to Virginia's underfunded public pension plan, higher education and economic development.

The spending blueprint for the 24 months beginning July 1 prescribes no tax increases. It totals nearly $85 billion in combined appropriations, up from about $80.7 billion for the biennium that ends June 30.

Read more at the Washington Examiner: http://washingtonexaminer.com/news/2012/01/mcdonnell-outlines-va-job-creation-initiatives/2060961#ixzz1iWGYxNdu

Russian Biopharma Conference Features VABIO

VABIO Executive Director Mark Herzog promoted the Virginia bioscience community in a presentation at the 2nd International Forum on Innovative Drug R&D in Russia, last month in Moscow. The conference featured industry leaders from across the Russian Federation as well as scores of international pharmaceutical company representatives.

"My presentation was focused on the dynamic companies we have in Virginia and the policies we have advanced in the last couple years encouraging technology transfer, entrepreneurship and access to capital for start-ups," said Mr. Herzog. "Most of the attendees that sought me out following the presentation were intrigued by the opportunities for partnerships and strategic alliances."

The conference, held at the Renaissance Monarch Centre Hotel in Moscow, November 21 and 22, was organized by London-based Adam Smith Conferences, attracted more than 300 attendees from numerous European countries as well as the United States. The Mid-Atlantic- Russia Business Council was instrumental in organizing the participation by VABIO.

For more information about the conference, please visit: http://www.adamsmithconferences.com/en/drug-research-development-russia.

‘Beer and Biotech’ fosters better relationships

While in some industries the “buttoned down” approach still holds sway, that’s apparently not the case in bioscience, as the success of the new “Beer and Biotech” series created by the Virginia Biotechnology Association (VABIO) clearly attests.

“We’d been doing a lot of events that were pretty standard — people would pay for a ticket, come to a reception, and we’d get CEOs and directors of business development,” recalls Mark Herzog, executive director of the non-profit trade association, whose members include bioscience and device organizations, as well as universities and TTOs. “One CEO of a member company in Charlottesville said there were a whole lot more companies and more people engaged in biosciences, and it would be really beneficial if they got together more frequently and even more people came.”

So, the idea was hatched for VABIO to “throw a party,” in the belief it would generate higher attendance and get more industry players involved. The first event, co-sponsored by oncology drug developer Tau Therapeutics, LLC, drew 65 people.

The concept is simple: No tickets are sold; attendees just show up. The event features kegs of beer, appetizer on a few tables, but no bartenders. “It is meant to be very relaxed and purely social; there are no speakers — it’s not a ‘think and drink,’” says Herzog.

This “non-sales-ey” approach has clearly caught on. Two months ago 160 attendees showed up to an event that featured a live band, as well as some curious elected officials who came by to see what all the fuss was about. “Now they take place all over the state,” says Herzog. A detailed article on this approach appears in the December 2011 issue of Intellectual Property Marketing Advisor.

By Steve Lewis
IP Marketing Advisor

Lab expansion in BioTech Park bringing 653 new jobs

Richmond Mayor Dwight C. Jones announced today a planned expansion by Health Diagnostics Laboratory Inc. that would bring $68.5 million in capital investment and 653 new jobs to the Virginia BioTechnology Research Park.

The health-management company started in 2009 and has experienced such rapid growth that it realized in September that it would need to relocate or expand its 30,000 square-foot presence in the downtown research park, said Tonya Mallory, the company's president and chief executive officer. The company decided to remain in Richmond at the BioTech park in light of its proximity and existing relationships with VCU Medical Center.

The Jones administration said it had followed the company's growth and worked aggressively to support the two-phase expansion when it learned other locations were being considered.

"This has been a company that's been on our radar for a long time," said Peter H. Chapman, the city's deputy chief administrative officer for economic and community development.

Pending approvals by City Council, including a 10-year, $1.35 million performance-based grant, site work will begin early next year to demolish two buildings and replace them with a pair of six-story buildings along Jackson Street near Fifth Street, across from Altria's massive research facility.

The two-year expansion of Health Diagnostics Laboratory will represent the largest investment in the 16-year-old BioTech park behind Altria's, said Robert T. Skunda, president and chief executive officer of the park.

By Will Jones
Richmond Times-Dispatch

Tracking Horse Health Wirelessly

Check out this video on technology developed by Charlottesville company Empirical Technologies.

VABIO Welcomes 9 New Members So Far in October

The VABIO team is thrilled to welcome nine new members so far this October! The enthusiasm in the Virginia bioscience community is truly contagious! Companies joining this month include: Greenbrier Wealth Management of Raymond James; NIH Federal Credit Union; Kilpatrick Townsend and Stockton LLP; AIBiotech; SNBL Clinical Pharmacology Center; Zansors LLC; Extinction Pharmaceuticals; Bode Technology; and Williams Mullin Clark and Dobbins.

There is still a few days left to join in October!

November 8 will have an Impact on Bioscience Companies

Every four years, all 140 seats in the Virginia General Assembly are up for election at the same time. Every ten years, the district lines change after the decennial United States census. The election coming up on Tuesday, November 8th is just such an occasion and members of the Virginia House and Senate are all trying to get to know their new constituents, fend off challengers, and get reelected to their seats.

These final two weeks before Election Day are a great time to talk with your life science colleagues in your office and around your community about how critical good public policies are for the growth of the bioscience industry in Virginia. Volunteers from member companies of VABIO have been working hard over the last several years to pass legislation to help emerging technology companies grow in the Commonwealth.

For example, in the last three years, VABIO (along with partners such as the NVTC) successfully lobbied for the passage of Virginia’s Refundable R&D Tax Credit, $2 Million in state matching funds for SBIR awards, a 100% capital gains tax exclusion on investments in bioscience companies in Virginia, the $4 Million CRCF fund for commercialization, $8 Million for clinical trials at UVA and VCU, as well as an overhaul of the state’s “Angel Investor Tax Credit” that provides a 50% credit on a bioscience investment up to $50,000.

These are huge victories for the bioscience industry in Virginia and never would have occurred without the active help of individuals, working in the industry, who took a few minutes to make a call to a legislator, sent an email or walked the halls of the legislature with the VABIO staff.

If you would like to see these programs continue or be expanded, now is a great time to let your Delegate or Senator know. Take a moment and tell them who you are, what you care about, and that you will be voting on November 8th. Encourage your co-workers to do the same.

Here are links to help you identify your legislators:
Who are my legislators? http://conview.state.va.us/whosmy.nsf/main?openform
VABIO Public Policy Page: http://VaBIO.org/public-policy

If you have any questions or want to get more involved, please contact the VABIO staff at 804-643-6360.

Eric Cantor To Host Jobs Panel Thursday at Biotech Park in Richmond

RICHMOND, VA – On Thursday, October 20th at 10:00 a.m. Congressman Eric Cantor (VA-07) will host a roundtable with representatives of the Virginia BioTechnology Research Park to discuss ways to create jobs and spur economic growth through innovation and entrepreneurship. Following the roundtable, Congressman Cantor will hold a brief press availability and then tour the Health Diagnostic Laboratory, Inc.

WHO: Congressman Eric Cantor (VA-07)

WHAT: Hosts Jobs Roundtable & Tours Health Diagnostic Laboratory, Inc.

WHEN: Thursday, October 20, 2011
10:00 AM – Roundtable
11:15 AM – Tour

WHERE: Virginia BioTechnology Research Park
Biotech Center – Atrium
800 East Leigh Street
Richmond, VA

Rough Day on Wall Street for Former VA Biotech Companies

It has been a tough day on Wall Street for two former Virginia bioscience companies. Details from BusinessWeek:

Allos Therapeutics Inc. (ALTH US) slumped 17 percent, the third-most in the Russell 2000 Index, to $1.46. The cancer drug developer said an anonymous bidder has withdrawn a takeover offer of $2.20 a share in cash and stock. Amag Pharmaceuticals Inc. (AMAG US), which is also vying to acquire Allos, gained 2.4 percent to $13.49.

Insmed Inc. (INSM US) fell the most in the Russell 2000, plunging 31 percent to $3.01. The maker of drugs for endocrine disorders said the U.S. Food and Drug Administration is continuing a clinical hold on its phase 3 trials for Arikace in cystic fibrosis patients with lung disease.

Both of these firms started out in Richmond, Virginia. Hang in there! It is always darkest before the dawn.

If you’re a scientist looking to build a startup, good management is key

Check out the article regarding the VaBIO Greater Richmond Bioscience Luncheon that took place yesterday.

Research officers at Virginia’s universities grapple with a difficult task every day: helping scientists turn laboratory inventions into marketable products.

The trick, according to a group of bio-technology experts who gathered for a luncheon Thursday at the Virginia Biotechnology Research Park, is helping highly-trained scientists hone their business skills. The lunch was part of a monthly series organized by the Virginia Biotechnology Association.

“At the end of the day, if you’re looking to raise money, you’re in a sales mode,” said Mike Drzal, an attorney at LeClairRyan. “If you don’t have the basic sales tools nailed down, you are in for a rough ride.”

Drzal, who represents life-science entrepreneurs, said there are three key tools: an executive summary about your business idea, a business plan and a slide deck that explains your product. Drzal said he’s amazed how many would-be startups prepare for meetings with potential investors without a formal business plan. He said he always tries to stop them and make sure they’ve got well-designed plan.

Erika Smith, CEO of BioTherapeutics, has spent time on both sides of the investing scene. After years of working for small life-science companies, she now works as an angel investor. She said entrepreneurs should be sure to understand what drives different investors.

“What motivates angels can vary,” she said. “There’s some interest in [return on investment], of course, but there are other reasons for why people want to give their time, money and energy.”

One angel investor might have a special interest in funding companies pursuing cancer drugs or treatments, she noted. The interest in that sector may be motivated by personal experiences, such as losing a family member to cancer.

Mark Crowell is executive director for innovation partnerships at the University of Virginia. He said that when his office is working to help one of the school’s researchers, it prefers to back products that have “multiple applications across multiple markets.” But it’s even more important, he said, to find scientists who can be effective partners with investors and business executives, people who are “teachable” and willing to admit their ability to decode a genetic sequence may exceed their ability to prepare a balance sheet.

Smith, the angel investor, said the mantra of venture capitalists and other investors is “management, management, management. That’s what it all comes down to.”

Drzal said investors are looking for a “bankable” CEO, someone with proven business experience who can help guide the inventor. Not many people, he noted, can handle both tasks, especially if the person is continuing with other teaching and research duties.

“The other thing we look for is the King’s English,” Drzal said. “I see 50 presentations a year, and if I can’t understand it, an investor who doesn’t see that many of these definitely can’t figure it out. Don’t forget the importance of communicating effectively.”

Ken Carter, CEO of Nobel Life Sciences, says the inventor must understand that everybody has to win and get a return on the product for it to really grow and succeed.

“I tell folks that instead of owning 100 percent of a grape, you and the world will be better off if you own 10 percent of a big, juicy watermelon.

Drzal urged the scientists in the audience to “spend your time on what you know” and let other professionals handle the nitty-gritty details surrounding accounting, incorporation structures and other business issues.

“I often tell my clients, ‘I won’t be a biophysicist if you won’t practice law,’” he said.

Written by: Jacob Geiger
WorkItRichmond

Ceres Nanosciences' scientist awarded Popular Science's "Brilliant 10"

When Alessandra Luchini was a girl growing up in Italy, she visited the Museo Galileo in Florence, where she saw the telescope that Galileo Galilei had invented four centuries before, in 1610. She was struck by its simplicity. with a just a couple of pieces of curved glass, anyone could see whole new worlds.

In 2005, Luchini, now an engineer at George Mason University, came to the U.S. on a grant from the Italian National Health Service to study ways to detect molecular signs of cancer. Some diseases, early on, release faint hints of their presence into our bodily fluids. These “biomarkers” are ephemeral—our enzymes chew them up within minutes, so they’re undetectable in most lab tests. If doctors had a way to catch and stabilize those biomarkers, they could detect diseases more quickly and begin treatment at a stage when the chances of recovery were much higher.

Luchini’s solution was to build a nanoparticle trap. The concept, like Galileo’s telescope, is simple: “It’s like a net for catching very small fishes,” Luchini says. The spherical nanoparticle, which took two years to perfect, uses hydrogel as its backbone. Inside, a crisscrossing polymer net holds bait, such as acid or dye, which chemically attracts various biomarkers. when lab technicians mix the nanoparticle in with a fresh blood sample, it traps the biomarkers and protects them from enzymes. The sample can then be tested at leisure. So far, Luchini has used nanoparticle traps to produce an early diagnosis of infectious diseases such as Lyme disease and tuberculosis. (The traps can also reveal the presence of human growth hormone in urine, and thus offer a novel way to reveal illegal doping by athletes.) She and her team are also working on nanotraps to find the skin-cancer biomarkers that exist in a person’s sweat.

Luchini’s next step is to modify the nanoparticles so they can trap biomarkers in a body, giving doctors a realtime view of what’s going on inside their patients.

By Madhumita Venkataramanan
Popular Science

VABIO Entrepreneurship Event 9/8 to be Streamed on the Web

The Virginia Biotechnology Association (VABIO) is pleased to offer an opportunity to view the sold out Greater Richmond Bioscience Luncheon live on the web through our new LiveStream channel. The program will take place tomorrow, Thursday, September 8, from 12:00-1:30 p.m., program details are below. The program is called “Entrepreneurship Failures and Successes: The Perspective of Entrepreneurial Faculty.”

Tune in to our blog (http://vabio.blogspot.com/) at noon and the program will begin shortly thereafter.

We are testing this new technology with the intent of making our valuable program available to those that are unable to attend this sold out event. Please bear with us if we experience any technical difficulties, we will work through them as quickly as possible.

“Entrepreneurship Failures and Successes: The Perspective of Entrepreneurial Faculty.” The panel will lead a frank discussion about the risks and rewards of commercialization activities in a university environment. What aspects about university “culture” either encourage or discourage commercialization activities by faculty? The panel will cover topics such as tenure, wealth creation, equity, royalties, managing conflicts of interest, and raising money (angels, grants and venture capital).

Speakers: Mike Grisham, CEO of GPB Scientific, Richmond (Moderator); Dr. Curt Civin, Dean, University of Maryland School of Medicine and Director of Regenerative Medicine; Dr. Martin Chapman, CEO of Indoor Biotechnologies, Charlottesville (former tenured UVA faculty); Dr. Chip Petricoin, Co-Director of the Applied Proteomics Center at GMU (and serial entrepreneur); Dr. Jim Bennett, Chair of Department of Neurology at VCU; and Dr. Gordon Archer, Associate Dean for Research and Training at VCU.

VA Business Mag: Virginia's Refundable R&D Credit Makes News

Great article on Virginia's R&D Tax Credit in Virginia Business:

Check’s in the mail
Virginia joins a handful of states to offer tax rebates for tech-based R&D

September 01, 2011 6:00 AM
by Garry Kranz
Virginia’s high-tech companies no longer are among the have-nots. This year state lawmakers created a refundable income tax credit designed to help startup companies defray the costs of research and development.

Before the move, Virginia was one of 12 states that did not offer a tax credit for R&D expenses. That had put Virginia at a disadvantage — especially since competing neighbors Maryland, North Carolina, Pennsylvania and West Virginia offered similar breaks, say state economic leaders.

The initial investment is capped at $5 million. Despite the modest sum, business leaders say it marks an important step in helping Virginia compete in an increasingly innovation-driven economy. “Technology companies create high-paying jobs, and we want to make sure those jobs are created here,” says Mark A. Herzog, executive director of the Virginia Biotechnology Association.

The new law also shifts Virginia into another, albeit more desirable, minority: one of only seven states to offer a tax credit in the form of a cash refund.
As a result, Virginia companies that perform “qualified research and development” could be eligible to claim a tax credit equal to 15 percent of the first $167,000 of research expenses they incur during the taxable year. If the company has yet to turn a profit, it could receive a state refund check for the equivalent amount, worth up to $25,000.

Also, companies pursuing research in tandem with a state college or university can claim up to 20 percent on the first $175,000 of R&D expenses, or a refund check worth as much as $35,000. The slightly higher amounts reflect a push to promote greater collaboration between academic and private-sector researchers, state officials say.

“The refundable aspect is what makes it special,” Herzog says. “Without that element, the credit has zero value to the vast majority of Virginia’s advanced technology companies.”

In dollar terms, the total amount of tax credits available to qualified businesses in Virginia is capped at $5 million for each fiscal year from 2012 through 2016. The money will come from the state’s general fund.

Technology-based companies typically absorb the full costs of research but may have to wait years for a product to hit the market and begin generating sales revenue. The tax credit softens the financial blow a bit, says state Sen. Mark R. Herring (D-Loudoun), who co-sponsored the bill with Del. Ben Cline (R-Rockbridge).

Although the amount per company is modest, it’s sufficient to help pay for research equipment costs, lab space, supplies and similar items, Herring says. It will “incentivize companies to invest in the research and development” needed to commercialize products and, ultimately, spur job creation and economic growth across Virginia.

The Northern Virginia Technology Council and the Virginia Biotechnology Association led an intense lobbying effort to get lawmakers to approve the R&D tax credit, which Gov. Bob McDonnell swiftly signed into law.

Virginia’s law piggybacks on a federal R&D tax credit signed into law by President Reagan in 1981. But the tax break is not a handout, says Josh Levi, vice president of policy for NVTC. “Think of it like a rebate on expenditures already made,” which companies recover if their current-year’s research expenditures eclipse the previous year.

Virginia’s approach is a different direction than that taken by most states. Giving a company cash to reinvest sends a much stronger message than simply letting them carry forward expenses year to year on a balance sheet, says Jay Langston, senior project support manager with the Virginia Economic Development Partnership.

“It’s not a huge sum of money, but if it helps a company pay for a piece of equipment, it’s a positive in their mind,” says Langston. Plus, it reinforces Virginia’s pro-business stance.

Should the applied-for tax credits exceed $5 million, the Virginia Department of Taxation would pro-rate the credits and assign them on a pro-rata basis. The idea is to prevent a handful of companies from quickly exhausting the available funds, Herring says. Conversely, the legislation allows companies to apply for an additional tax credit if the $5 million is not consumed, although officials concede that seems unlikely to happen.

The R&D tax credit generated the biggest headlines, but state technology companies have other news to celebrate as well. Lawmakers added $4 million to the Commonwealth Research and Commercialization Fund. It also provided $4 million for the Center for Innovative Technology’s “Gap” Fund, which provides seed funding to promising startups, and $2 million in matching funds for companies that win federal Small Business Innovative Research grants.

http://www.virginiabusiness.com/index.php/news/article/checks-in-the-mail/313978/

Audit Requirement for Commercial Enterprises Receiving STTR/SBIR Grants

Guest authored by Robert Tobey, CPA, Keiter Stephens

Commercial enterprises (i.e., for profit organizations) which expend at least $500,000 in STTR or SBIR funds during an enterprise’s fiscal year are required to have audits conducted in accordance with Office of Management and Budget (OMB) Circular No. 133, “Audits of States, Local Governments and Non-Profit Organizations”. However, commercial enterprises are provided two options regarding the type of audit which will satisfy this requirement.

To read the complete article, click here.

VABIO Presents Award to Va House Speaker Bill Howell

The Virginia Biotechnology Association (VABIO) announced that the Speaker of the Virginia House of Delegates, William J. Howell (R-Stafford) received the Virginia Bioscience Legislative Leadership Award on August 23^rd for his outstanding efforts on behalf of the bioscience industry during the 2011 Session of the Virginia General Assembly. The Virginia Biotechnology Association has only recognized a handful of state legislators with this special distinction.

“I have had the privilege of knowing the Speaker for nearly twenty years,” said Mark A. Herzog, executive director of VABIO. “He has always been a stalwart supporter of small businesses in Virginia and that continues today with his enthusiastic efforts to ensure that the Commonwealth can compete for 21^st Century, advanced technology jobs.”

Previous recipients of the award include: Delegate Scott Lingamfelter of Prince William; Delegate Steve Landes of Weyer’s Cave; Delegate Mark Sickles of Fairfax; Delegate John O’Bannon of Henrico; former Delegate Sam Nixon of Chesterfield, Delegate Joe May of Loudoun; and Senator Mark Herring, also from Loudoun.

Speaker Howell played an instrumental role in supporting the 2008 joint legislative subcommittee to review the Commonwealth’s policies to advance the growth of the life science industry in Virginia. The recommendations from that group were incorporated into the first legislation in many years to accelerate the growth of the biosciences in Virginia. Most recently, in 2011, the Speaker strongly advocated for the passage of the Virginia Refundable Research and Development Tax Credit, a key recommendation of the Governor’s Economic Development and Jobs Commission.

“The Speaker is a good friend to the bioscience industry and we are grateful to him for his public service and commitment to ensuring that future generations of Virginians have access to the knowledge-economy jobs of tomorrow,” said Mr. Herzog.

The Virginia Biotechnology Association (VABIO) is the statewide non-profit organization that promotes the scientific and economic impact of the life sciences industry in the Commonwealth of Virginia. Approximately 200 biotechnology, pharmaceutical and medical device companies are based in Virginia, mainly clustered around universities in Blacksburg, Charlottesville, Richmond, Norfolk and Northern Virginia. For more information about the impact of the bioscience industry in Virginia, please visit www.vabio.org

Qualified Small Business Stock Changes Explained

An explanation of the recent IRS changes impacting qualified small business stock.

Guest written by: Robert Tobey, Keiter Stephens

In an effort to stimulate the economy and to help innovation economy companies grow, Internal Revenue Code (IRC) §1202 provides an incentive to investors who risk their funds to finance these businesses.

A BRIEF HISTORY
For qualified small business stock (QSB) acquired after August 10, 1993 and before February 18, 2009 and held for a minimum of five years, non-corporate investors may exclude 50% of the gain realized from the disposition this stock. As part of the American Recovery and Reinvestment Tax Act of 2009, in order to stimulate the economy, the exclusion percentage was raised to 75% for QSB stock acquired after February 17 and before September 28, 2010 and held for a minimum of years. The Creating Small Business Jobs Act of 2010 further amended IRC §1202 to exclude 100% of gain from QSB stock acquired after September 27, 2010 and before January 1, 2011. Finally, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extended the deadline to QSB stock acquired before January 1, 2012. The President’s 2012 budget proposes to make this exclusion permanent.

IN NON-TECHNICAL TAX TERMS, WHAT DOES THIS ALL MEAN?

COMPANY CONSIDERATIONS

How does corporate stock qualify as QSB stock?
Corporate stock is treated as QSB stock only if it satisfies all of the following conditions:
1. the stock was originally issued after August 10, 1993, the original enactment date of IRC §1202;
2. the corporation issuing the stock is a domestic C corporation (i.e.: S corporations, partnerships, and LLC’s taxed as partnerships do not qualify);
3. the stock satisfies the original issuance requirement (i.e.: stock is issued by the corporation to the shareholder directly or through an underwriter);
4. the corporation issuing the stock meets the QSB requirements; and
5. the corporation issuing the stock satisfies the active business requirements.

How does a domestic C corporation qualify as a QSB?
In order to qualify as a QSB, a domestic C corporation must meet the following tests:
1. The corporation’s aggregate assets must not exceed $50 million at any time on or after August 10, 1993 and before the issuance of the stock for which IRC §1202 treatment is sought.
2. Immediately after the issuance of the stock for which IRC §1202 treatment is sought, the corporation’s gross assets, including amounts received for the stock, must continue to be no more than $50 million.

Describe the active business requirement.
A corporation meets this test if it uses at least 80% of the value of its assets in the active conduct of a qualified trade or business. As of this writing guidance has not been issued regarding when and how the 80% of assets determination is made.

What is a qualified trade or business?
A qualified trade of business is one other than:
1. A heath care provider; law, engineering, architecture, or accounting firms; actuarial or brokerage services, or any trade or business where the principal asset of such trade or business is the reputation of skill of one or more of its employees.
2. Any banking, insurance, financing, leasing, investing or similar business.
3. Any farming business
4. Any business involving the production or extraction of products subject to depletion.
5. Any hotel, motel, restaurant or similar business.

Will a corporation meet the active conduct of a qualified trade or business if it is only conducting
research and development activities with the hopes of producing a product (i.e.: start-up phase)?
Yes, if assets are used in start-up activities, activities resulting in the payment or incurring expenditures which qualify as IRC §174 research and experimental (R&E) expenditures, or activities with respect to in house research expenditures described in IRC §41(b)(4) assets used in these activities shall be treated a used in active conduct of a qualified trade or business. This determination is made without regard to whether or not the corporation has earned any income from its intended trade or business.

Are options or warrants to acquire QSB stock considered QSB stock?
No.

Can the QSB gain exclusion be preserved in tax-free reorganizations and in contributions to controlled corporations?
Yes in certain circumstances. A discussion of these circumstances is beyond the scope of this summary. If you would like more information about this, please telephone me.

Are there any types of transactions between shareholders and the corporation which would make the gain on the QSB stock ineligible for the exclusion?
Yes.
If the issuing corporation purchases any of its stock directly or indirectly from the taxpayer or a person related to the taxpayer within a four year period commencing two years before the stock was issued, the taxpayer cannot qualify for the exclusion. There is a safe-harbor de minimis amount which will not disqualify the gain from exclusion.

Stock will not qualify for the exclusion if the issuing corporation engages in a significant redemption. A redemption is significant if the corporation, within a two year period beginning one year before issuance of the stock, redeems stock with an aggregate value exceeding 5% of the aggregate value of all of the corporation’s stock. There is a de minimis exception for this also.

SHAREHOLDER CONSIDERATIONS

What are the dollar limits on the exclusion?
The amount of gain is subject to a per-issuer limitation. The cumulative per issuer limit is the greater of $10 million or 10 times the adjusted basis (i.e.: what you paid for the stock) of all qualified stock of the issuer that the taxpayer disposed during the year. Additions to basis are disregarded. This limitation can severely restrict the tax benefit of IRC §1202 in the event of a truly substantial windfall. These are shareholder by shareholder limitations. Taxpayers filing married separately split the $10 million limitation.

How is any gain in excess of the exclusion taxed?
As mid-term capital gain income taxed at 28%

How long do I have to hold (i.e.: own) the stock in order to qualify for the exclusion?
For more than five years.

When does my holding period start if I acquired the stock my converting notes or exercising warrants or options?

The holding period starts the date the note is converted or the date the options or warrants
are exercised.

How is the holding period measured if I exchange one type of QSB stock for another (e.g.:
convert preferred into common)?
The holding period of the old stock tacks on to the new stock. So the holding period commences when you first acquire QSB stock.

How is the holding period measured if QSB stock is acquired by gift or inheritance?
If QSB stock is acquired by gift or inheritance, the beneficiary’s holding period includes the period the QSB stock is held prior to the gift or bequest.

How is the holding period measured if the QSB stock is received from a partnership?
If a partner receives QSB stock from a partnership in which the partner held an interest when the partnership acquired QSB stock, a partner’s holding period generally includes the period the QSB stock is held by the partnership.

How is the holding period measured if the QSB stock is received in a tax free reorganization or
in return for a contribution to a controlled corporation?
The holding period of the QSB stock received in either of these transactions apparently does not include the holding period of QSB stock surrendered in the transaction.

How is the excluded gain treated for AMT purposes?
It depends on when the gain is realized. Effective with a taxpayer’s 2003 tax year, the fraction of excluded gain treated as a preference is 7%. This percentage is applicable for stock sales occurring on or after May 6, 2003. The 7% preference is scheduled to sunset at December 31, 2012. Unless this changes, for tax years 2012 and after, the preference will be 28% for QSB stock with a holding period beginning after December 31, 2000, 42% for other stock. For QSB stock acquired between September 28 and December 31, 2011, none of the gain excluded under IRC §1202 is a preference for purposes of calculation AMT income.

A detailed write-up, including examples, explaining the provisions of IRC §1202 is available by sending a request to rtobey@kshgs.com or ring me at 434.220.2800.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction(s) or tax-related matter(s) addressed herein. 1202

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