Ex-Congressman Gephardt Lobbies for Medical Innovation Czar, Federal Help for VCs

Now a pharma industry lobbyist, Gephardt's group is calling for federal tax credits and more NIH and FDA funding even as deficit hawks begin to circle the Obama administration.

Citing fears that the U.S. is losing its decades-long leadership position in new medical and technological development, retired U.S. Congressman and current chairman of the Council for American Medical Innovation Dick Gephardt recommended the White House create a position for oversight of medical innovation.

Now a lobbyist, Gephardt spoke Thursday, June 10 on a conference call to introduce a study that his group, which is affiliated with the trade association Pharmaceutical Research and Manufacturers of America, commissioned from The Battelle Technology Partnership Practice to suggest ways to stimulate innovation in publicly funded institutions and the private sector, as well as build partnerships between the two.

Gephardt and other CAMI members painted a picture of American innovation in crisis, as the U.S. share of newly issued patents worldwide declines and European and Asian nations overtake American leadership in development of new medical technologies.

The institute recommended investment incentives that include a permanent research and development tax credit. It also asked for renewed investment in the Food and Drug Administration to resolve perceived inconsistencies in its regulatory policy for new medical products, new structures intended to bridge the so-called "valley of death" between laboratory innovation and commercial product development, and an educational and immigration policy intended to strengthen a workforce trained in advanced sciences.

Gephardt, a Democrat who served in the U.S. House of Representatives from 1977 to 2005 and held the post of majority leader for six years, said a Federal position within the White House could centralize authority over innovation. He said he had not yet concluded where in the hierarchy of Federal departments such an office would lie. "Bottom line is, we need responsibility placed somewhere in the executive branch to collaborate with different groups and move this agenda forward," he said.

Kelly Slone, the director of the National Venture Capital Association's medical industry group, added that while multiple issues including tax policy, FDA regulation and the public markets are under discussion, "nobody is paying attention to the cumulative effect on innovation."

The Obama administration has already voiced support for creating a permanent R&D tax credit. As part of this year's healthcare reform bill, the Therapeutic Discovery Project Credit supplied $1 billion to reimburse qualifying life sciences companies for as much as 50% of their R&D expenditures during 2009 and 2010 (Also see "Biotech Tax Credit Guidelines Clarify That All Qualifiers Will Receive An Award" - Pink Sheet, 21 May, 2010.). Battelle vice president Mitch Horowitz pointed to a Milken Institute analysis suggesting that a 25% increase in the currently existing R&D tax credit would act as a job generator that could reduce the federal deficit by $22.7 billion by 2019, net of money invested in the credit.

What's more, the study suggested tax credits would encourage fund managers to invest in early-stage innovators rather than continuing to fund later-stage companies that are struggling with a frozen IPO window. One such method cited by Battelle is an angel investment tax credit, with federal matching incentives.

Venture investors are also trying to defeat Congressional legislation that would tax fund managers' carried interest - their share of the profits from successful investments - as ordinary income rather than at the lower capital gains rate. A bill with such a provision has already passed the House, but a similar Senate proposal featuring a compromise that includes a percentage split between the two methods of taxation is still under debate.

Life-science venture investing has shrunk rapidly since 2008, as have most categories of venture investment. During the first quarter of 2010, money invested dipped 26 percent compared to the previous quarter. Limited partners have expressed doubts about the venture capital asset class, and ten-year fund returns have been disappointing (Also see "Biotech Backers Are Learning to Live with Exit-by-Earn-out " - Scrip, 1 Mar, 2010.).

The calls come as the Obama administration has begun talking about deficit reduction after two years of stimulus spending. Federal Reserve chairman Ben Bernanke added his own voice to the chorus this week on Capitol Hill, saying "the federal budget appears to be on an unsustainable path." If the administration, chastened perhaps by upcoming midterm elections, turns seriously toward deficit reduction, it remains to be seen if the calls for tax credits and budget increases, even when promoted by former Congressional powerbrokers such as Gephardt, will gain traction.

The 2009 stimulus bill represented a big boost to science funding. The National Institutes of Health received a $10 billion budget bump, a 33 percent increase, largely credited to the work of Sen. Arlen Specter. The Battelle study released Thursday recommends a boost to NIH funding as a means of closing the gap between laboratory innovation and commercialization, with specific focus on applied research rather than basic research. The report also cited international examples of success in bridging the "valley of death" via the government Office of the Chief Scientist in Israel and well-funded research parks in Singapore.

Gephardt also advocated redoubled support for K-12 education in science, technology, engineering and mathematics, while the report said a "streamlined green-card application process" could help attract and retain foreign students seeking to earn graduate degrees inside the U.S. - Paul Bonanos ([email protected])