Health Reform Delivers Cash to 3,000 Biotech/Healthcare Firms; Big Winner Is Immunomedics

Maximum single award was less than $250,000; the number of applications kept individual award levels down.

Nearly 3,000 biotech and health care companies nationwide will receive the first round of federal grant or tax credit awards under a provision of the Patient Protection & Affordable Care Act, federal officials announced Nov. 3.

The health care reform law set aside $1 billion for therapeutic discovery when it was passed in March 2010 (Also see "Health Reform 101: Cashing In On Hidden Financial Aid Provisions" - Pink Sheet, 5 Apr, 2010.). Though geared as a tax credit to help sustain small companies' research projects, the program also offers cash grants since many qualifying companies would have little taxable income to offset with credits.

Somewhat ironically perhaps, federal officials unveiled the business credit awards on the same day when many election analysts predicted that numerous other health care provisions will come under close congressional scrutiny - and pushback - as a result of the Republican election gains.

In a conference call Nov. 3, National Institutes of Health Director Francis Collins said 4,606 programs, known as Qualifying Therapeutic Discovery Projects under the new law, were funded from about 5,600 submitted project applications. The funds went to 2,923 companies in 47 states plus the District of Columbia, with many organizations receiving more than one award.

The awards are intended to defray up to 50% of the cost of novel research performed by small companies with fewer than 250 employees. Collins noted that for the NIH to recommend an award, a project had to fulfill at least one of three criteria: aim to produce a new therapy that addresses an unmet medical need or treats a chronic condition; reduce long-term healthcare costs, or aim to cure cancer within 30 years. Those criteria are set forth in the health reform statutes.

Some Companies Won Multiple Grants

Because so many applicants applied, the maximum award was $244,479.25, but some companies received grants for more than a dozen projects.

Oncology drug specialist Immunomedics Inc. of Morris Plains, N.J., reaped $2.9 million in federal money for 12 projects, which was the largest amount awarded to any one organization. The legislation specified a maximum award to any one company of $5 million, but Collins said that the overwhelming number of applications kept anyone from approaching that number.

Two grantees spotlighted in the conference call, vaccine developer Ligocyte Pharmaceuticals Inc. of Bozeman, Mont., and pain drug developer Hydra Biosciences Inc., are privately held, venture-backed companies, but more mature post-IPO companies such as Immunomedics were eligible as well. Among those were Achillion Pharmaceuticals Inc., Alnylam Pharmaceuticals Inc., Pain Therapeutics Inc., Rigel Pharmaceuticals Inc. and Theravance Inc., each of which received funding for eight or more projects.

California companies took the largest share, with more than $281 million. Massachusetts accounted for almost $127 million, while Maryland, New Jersey, New York, North Carolina, Pennsylvania, Texas and Washington, each received more than $30 million.

Permanent Tax Credits To Protect Small Businesses?

On the conference call, Health and Human Services Secretary Kathleen Sebelius stressed that the tax credits were designed to provide incentives to keep innovators from looking for opportunities outside the U.S. A recent survey conducted by the Biotechnology Industry Organization revealed that 54% of CEOs of companies eligible for the grant had been encouraged to move research and development operations offshore, and 67% said the availability of tax incentives or grants would compel them to keep operations in the U.S. (Also see "Biomedical Research Tax Credit: As Treasury Prepares First Awards, BIO Prepares Renewal Campaign" - Pink Sheet, 1 Nov, 2010.).

Treasury Secretary Tim Geithner added that the credits are part of a larger Obama administration strategy intended to protect small businesses and innovators in general, including legislation that waives capital gains taxes on investment in small businesses for a fixed period. Geithner said President Obama is working toward permanent tax credits for innovative small businesses as well, although Collins said no provision is yet in place for anything more than a one-time allocation. Both Sebelius and Geithner said the funds could be used for staff, facilities and supplies as well as ongoing research, and could create jobs or arrest job losses.

The allocation comes amid a period of contraction for the venture capital industry, which has made funding scarcer than usual for innovative startups (Also see "In the Midst Of A Shakeout, Biotech VCs Must Embrace New Partners, New Math" - Scrip, 1 Sep, 2010.). As a result, non-dilutive sources of capital have become more valuable to drug developers weathering the downturn and its aftereffects.

The vast majority of awards took the form of grants, intended for companies that are not yet profitable. Less than $20 million total was issued in tax credits for 2009 and 2010 combined, with the remaining money disbursed as grants. The Internal Revenue Service will oversee the payment of the awards.

Companies seeking an award had to submit an application between June 21 and July 21. The IRS issued its certifications for credits and grants on October 29 (Also see "Health Reform 101: Cashing In On Hidden Financial Aid Provisions" - Pink Sheet, 5 Apr, 2010.).

The full list of grantees is on the Internal Review Service website.

- Paul Bonanos ( [email protected] )