UPDATE: Biotech Race for $1B in Government Money Begins Monday
Small, unprofitable biotech companies are about to get a big boost from healthcare reform.
The drug industry in general is expected to benefit from healthcare reform in the long term thanks to an estimated 32 million Americans who will gain insurance coverage. But for now, Big Biotech and Big Pharma have been taking it in the shorts, slashing revenue projections by hundreds of millions of dollars and taking a hit on Medicaid discounts. Meanwhile the small, developmental-stage companies have been largely unaffected -- but that's about to change.
Starting Monday, drug companies with no more than 250 employees can apply for their share of $1 billion in tax credits or cash grants to help cover the costs of research and development work done in 2009 and 2010.
The program is similar to an energy tax credit passed last year. It is open not only to biotech companies, but to those in related fields such as medical devices and diagnostics, as long as their research is aiming to treat, prevent or diagnose diseases or develop something that supports the administration of treatment. Profitable companies will get tax credits; unprofitable companies will get cold, hard cash.
This is by far the best near-term benefit biotech will get from healthcare reform, but there's not expected to be enough to go around. Companies can't collect more than $5 million each, but even assuming that not everyone gets the full amount, an average distribution of $3 million apiece only stretches far enough to cover 333 companies. Thousands are likely to apply, which makes your chances of getting a grant slightly better than your chances of getting into Harvard.
But there is a bright side. Law firm Foley Hoag predicted that, unlike the energy tax credit, the R&D tax credit will be evaluated based on merit rather than first come, first served. The NIH, which has plenty of experience in the grant department, will be handling the scientific review.
Additionally, the WSJ reported that the Biotechnology Industry Organization plans to push for Congress to expand the program, similar to how the energy program was expanded earlier this year.
Even so, the application window is just one month, from June 21 to July 21. The IRS is expected to post the application on its web site Monday. Best not to delay.
UPDATE: The application form is up here. Thanks to the folks at BIO for the tip.
Cash photo by Flickr user JMRosenfeld, CC.