On May 21, 1010, the U.S. Treasury Department announced the procedures for requesting a tax credit of up to $5 million per firm to be utilized for the development of new biomedical therapies (Therapeutic Discovery Credit). The purpose of the credit is to provide an immediate boost to U.S. biomedical research and the small businesses that conduct it. The credit is effective for investments made in 2009 and 2010. Only smaller firms with 250 employees or less can participate.
The application period for the credit opens on June 21, 2010 and closes on July 21, 2010. The Department of Health and Human Services (HHS) will evaluate each project for its potential to produce new therapies, address unmet medical needs, reduce health care costs or advance the goal of curing cancer. Meeting any one of the pre-stated criteria could result in qualification. Applicants will receive a determination no later than October 29, 2010.
The credit can apply to up to 50% of a company's "qualified investment" which is defined as the "aggregate amount of the costs paid or incurred in the taxable year for expenses necessary for and directly related to the conduct of a qualify therapeutic discovery project". The credit can be applied to the taxable years of 2009 and 2010. The qualfied investment does not include costs for remuneration for executives, interest expenses or facility maintenance expenses during those taxable years. Qualified investments may include expenses for wages, supplies and lab costs, depreciable property, contractor costs, etc.
There are three types of projects that can qualify for the credit: 1.) those to treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research protocols, for the purpose of securing FDA approval; 2.) those to diagnose diseases or conditions or to determine molecular factors related to diseases or conditions by developing molecular diagnostics to guide therapeutic decisions; and 3.) those to develop a product, process, or technology to further the delivery or administration of therapeutics.
A separate application for certification must be submitted to each project for which an eligible taxpaying entity is seeking certification of a qualified investment. An application consists of the following:
1. New Tax Form 8942 (this new tax form will be released no later than June 21, 2010)
2. Penalty of Perjuries Statement
3. Project Information Memorandum
4. Consent to Public Disclosure of Certain Qualifying Therapeutic Discovery Project Program Application Information (optional).
Brochures and other presentations are not permitted as part of the application and will not be considered.
The application must disclose the number of full-time and part-time employees whose work is directly billed to the project and their average salaries. It must also disclose the number of contractors in the US that were paid for work on the project.
The application must also disclose whether the project is active, terminated, or suspended. If the project has been terminated or suspended because the project failed a clinical trial, failed a pre-clinical research milestone, or failed to secure FDA licensure, it would be ineligible for the credit. Termination or suspension of the project due to lack of funds does not disqualify the project for consideration.
The application must assert whether the project will produce new or significantly improved technology as compared to commercial technologies currently in service and whether the project is expected to lead to the construction or use of a contract production facility in the US within the next five years.
The Project Information Memorandum, to be included in the application, must meet a specified format and meet certain stated number of word limitations in response to the required questions. The applicant can take certain steps to protect confidential trade secrets and information. The memorandum will describe the scientific rationale, research and developent plan, and the scientific evidence relied upon by the applicant, including citations. The memorandum will address the FDA regulatory status of the project. The memorandum will also explain the resources, management experience and organizational capacity of the applicant. The memorandum will finally address in 250 words or less per item the likelihood that the project will: 1.) produce new therapies; 2.) address unmet medical needs; 3.) reduce health care costs; or 4.) advance the goal of curing cancer.
I recommend that interested applicants start preparing their Project Information Memorandum immediately so they can stand at the beginning of the line when their application is filed on June 21, 2010.
Steve
Steve Schurr
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