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Lawmakers Pen JOBS Act Sequel with Tax Reform Plot

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By Mari Serebrov
Washington Editor

What could be the first chapter in a sequel to the Jumpstart Our Business Startups (JOBS) Act was unveiled Wednesday with the hope that it soon will become a congressional best-seller that will stimulate investment in groundbreaking R&D.

While the JOBS Act plotline focused on SEC reforms that would make it easier for emerging-growth companies to raise much-needed capital, the bipartisan Start-up Jobs and Innovation Act looks to tax reforms to open revenue streams for R&D at start-ups and growing companies.

Authored by Sens. Robert Menendez (D-N.J.) and Pat Toomey (R-Pa.) with input from small business groups, the bill would reform Section 469 of the tax code, making investment in small biotechs more attractive. A key feature is a provision that “would allow investors to partner with small companies on a research project via R&D Partnership Structures,” said Shelly Mui-Lipnik, senior director of tax and financial services at the Biotechnology Industry Organization.

“These partnerships would allow tax losses and credits to flow from the project to the company and investors on a pro rata basis,” she told BioWorld Today. “This change would provide a more immediate incentive for investors to provide innovation capital for groundbreaking early stage research.”

Based on the R&D Limited Partnerships available before the 1986 Tax Reform Act was implemented, the proposed partnerships would relax the tax code’s passive activity loss rules, which restrict the flow of losses and credits from project to investor, according to the Coalition of Small Business Innovators.

Under the Start-up Jobs and Innovation Act, emerging, pre-revenue businesses that devote a significant percentage of their expenses to R&D, have fewer than 250 employees and have less than $150 million in gross assets could use the partnerships to attract investors.

Citing an independent study by Ernst & Young, the coalition said the proposed R&D Partnership Structures would increase investment by more than $10 billion per year, resulting in 156,000 jobs at affected companies.

More benefits could be realized from other provisions in the legislation. For instance, the bill would expand the decreased capital gains tax rate under Section 1202 to investors in start-ups with gross assets of $150 million or less. The current asset limit is less than $50 million.

By giving investors a more immediate return on their investment, the legislation could encourage investment in biotech and other fields that face the “long and risky timeline usually associated with groundbreaking research,” the coalition said.

Court Provides Wiggle Room

A Federal Circuit ruling Tuesday on cDNA claims made under the old first-to-invent rules should have some drugmakers breathing a little sigh of relief, according to a biotech patent attorney.

The ruling in Sanofi-Aventis v. Pfizer Inc. affirmed that a company “can ‘possess’ a DNA without having the entire nucleotide sequence of the DNA 100 percent correct,” Mary Sylvia, a patent attorney with Baker & Hostetler LLP, told BioWorld Today. “[The court ruled that] some error, if corrected in due course, will not defeat the written description requirement of the patent/application.”

The case stemmed from Sanofi’s and Pfizer’s competing claims for a DNA polynucleotide that encodes the protein binding chain of the IL-13 receptor. Although Sanofi was the first to file the claim in December 1995, the Patent and Trademark Office’s (PTO) Board of Patent Appeals and Interferences awarded priority of invention to Pfizer, which filed its claims a few months later.

Under the first-to-invent rules, a patent is awarded to the first party to conceive and reduce the invention to practice – not the first to file. How that is determined was the underlying question of Sanofi’s appeal to the U.S. Court of Appeals for the First Circuit.

Sanofi said priority should be based on the date the drugmakers first knew the complete sequence of nucleotides involved. Pfizer argued that it should be based on who first had the actual isolated DNA in hand and appreciated its IL-13bc function.

While Pfizer demonstrated it had the DNA in hand before Sanofi, its analysis of the 1,143 nucleotides involved was only 99 percent correct. Errors involving eight nucleotides were corrected in February 1996, according to court documents.

In upholding Pfizer’s claim, the patent board acknowledged that a sequence is the gold standard for identifying protein and nucleotide species with precision, but added that “it does not . . . follow that a sequence is the only way to identify the composition precisely.”

Although the U.S. switched from a first-to-invent to a first-inventor-to-file patent system in March, the Federal Circuit’s affirmation of the patent board’s decision will apply to patents for many years to come, given the volume of current patents awarded under the old system, Courtenay Brinckerhoff, a partner at Foley and Lardner LLP, told BioWorld Today.

Voters Take on Drug Prices

Voters in San Francisco overwhelmingly approved a ballot measure Tuesday that makes it city policy to do everything possible to reduce the city’s cost of prescription drugs and to ask state and federal lawmakers to sponsor legislation to reduce drug prices paid by the government.

More than 80 percent of San Francisco voters supported the toothless measure, sponsored by the Committee on Fair Drug Pricing and funded by the Los Angeles-based AIDS Healthcare Foundation (AHF).

“We believe a state as vast and powerful as California – and a city and county like San Francisco – can and should use its clout to stand up to and rein in runaway pricing of drug companies,” AHF said earlier this year when the initiative qualified for the city ballot.

San Francisco currently spends more than $23 million annually on prescription drugs for city-run inpatient and outpatient programs, including about $3.5 million on antiretroviral medications to treat inpatients with HIV and related conditions.

The city contracts with outside companies to negotiate prices and purchase the prescription drugs. The ballot measure would allow the city to negotiate directly with drugmakers.