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Health Care Reform Package Provides $1B Tax Credit for Biotechs

Small biotech and medical device companies in San Diego are looking into a new grant opportunity that would provide up to $5 million apiece to offset a portion of their research and development costs.

Signed into law with the rest of the health care reform package was a $1 billion therapeutic discovery tax credit aimed at biomedical research projects that show potential in advancing life-saving treatments for unmet medical needs, including cancer, and in lowering the long-term costs of health care and supporting jobs.

Drug and device makers with fewer than 250 employees can either take advantage of a tax credit that covers up to 50 percent of qualified research costs in 2009 and 2010, up to a maximum credit of $5 million, or opt for the funding in the form of a grant.

Each company could qualify for up to $5 million in grants. Eligible expenses include money spent on wages, supplies, laboratory costs, depreciable property and contract work. Chief executive officer salaries, building maintenance costs and interest expenses aren’t covered under the program.

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Teresa Lavoie, a patent attorney in the San Diego office of Fish & Richardson P.C., said the money could help struggling biotechs plug the gap between early stage funding — typically supplied through National Institutes of Health grants — and later stages when companies rely on capital provided by venture investors, also known as the “valley of death.”

“One to five million (dollars) can really bring them far enough along to bridge that valley of death, maybe to get some further investment rounds,” she said.

Fierce Competition

Anaphore Inc. of La Jolla is among dozens of small biotechs that plan on applying for the grant program. The privately held company, backed by $38 million in venture funding, is testing a new class of drugs for treating cancer, inflammatory bowel disease, multiple sclerosis and rheumatoid arthritis.

“I think it will provide a lot of support for local biotech companies,” said Bruce Steel, chief business officer at Anaphore. “Certainly it’s at a time many could use it.”

Steel acknowledged that the competition among biotechs could be fierce, but said Anaphore has a decent shot at securing a portion of the $1 billion set aside under the Affordable Care Act.

“Our cancer program addresses a number of solid and blood borne cancers that are currently not served by existing therapeutics,” he said.

Ocera Therapeutics Inc., a 15-employee “virtual” company that outsources much of its clinical work, also has plans to submit an application during the monthlong window that closes July 21, according to CEO Laurent Fischer.

The company has raised $62 million in venture investments that it has put toward advancing its lead drug candidate, AST-120, into midstage clinical trials for treating mild hepatic encephalopathy. The neuropsychiatric condition, caused by the liver’s inability to break down toxins causing a buildup in the brain, is estimated to affect as many as 60 percent of the 1 million Americans living with liver cirrhosis.

‘Enormously Popular’ Program

Joe Panetta, chief executive of the San Diego life sciences trade group BIOCOM, said he expects most qualified San Diego biotech and drug device companies to apply.

“The program is already enormously popular,” he said last week. “When you take $5 million and run it across a number of companies over two years and a billion dollars, it’s pretty easy to see that money going very quickly.”

Panetta said it may be wise for some young companies without much expertise in applying for highly competitive federal grants to hire an adviser.

“Those who can most afford to hire competitive expertise are probably going to be most likely to win the dollars,” he said.

Ian Wisenberg, a consultant with San Diego-based CFO Connect Inc., which helps venture-backed early and midstage firms doing business in the life sciences and technology industries, said he’s advising at least a dozen companies interested in applying for the grants.

“I think anyone could make a decent application with a little bit of guidance,” he said.

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