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Government Gets Competitive with Tax Credit

This fall, the government will award $1 billion in tax credits and cash grants to companies that develop new therapies. The goal of the program is to support research that has the potential to create new therapies as well as generate high-quality, high-paying jobs in the United States. Companies that want to apply for the therapeutic discovery tax credit must submit their application by July 21.  

The tax credit was established as part of the Patient Protection and Affordable Care Act, which was signed into law in March. It has a few limitations, but the government is hoping that it advances U.S. competitiveness in biological and medical sciences. It is open to companies with 250 employees or less and establishes a cap of $5 million per taxpayer, regardless of the number of projects. Each project must be filed as a separate application.

To qualify for the credit, a company’s project must first meet one of three criteria. According to Karen Turk, partner at Goodwin Procter LLP (Boston), the project must be designed to do the following:

  • Treat or prevent diseases or conditions by conducting preclinical activities, clinical trials and clinical studies, or carrying out research protocols for the purpose of securing FDA approval of a regulated pharmaceutical or biologic.
  • Diagnose diseases or conditions or determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions. An example is a test that would determine which patients with a particular disease or condition would be likely to respond best to a particular drug or device.
  • Develop a product, process, or technology to further the delivery or administration of therapeutics. Therapeutics can be drugs or medical devices.

Once a project meets one of the three requirements, HHS determines whether the project shows reasonable potential to satisfy one of four factors:

  • Results in new therapies to treat areas of unmet medical need.
  • Results in new therapies to prevent, detect, or treat chronic or acute disease.
  • Reduces long-term healthcare costs in the United States. Turk says applicants will be asked to provide a reasonable estimate of the savings and demonstrate a reasonable potential to achieve those savings.
  • Significantly advances the goal of curing cancer within 30 years.

“You really want to highlight the novelty of the project,” says Turk, who spoke during a webinar held by Goodwin Procter in May. “A therapy has to be novel; you want to be able to distinguish your project from other therapies on the market.”

Once a project is deemed a qualified project and meets one of the program’s four criteria, the IRS determines which projects have the greatest potential to create and sustain (directly or indirectly) high-quality, high-paying jobs in the United States as well as advance competitiveness.

The IRS will complete its preliminary review of the projects by September 30. Certifications that approve or deny applications and authorize the payment of grants will occur by October 29.

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