Washington Editor

WASHINGTON - Congress is considering amending a tax law that has stopped biotechnology companies from taking certain deductions after they become profitable.

Referred to as BIOFIX, or the "Biotechnology Future Investment Expansion Act" (HR 2968), the proposed legislation would amend Section 382 of the tax law enacted in the mid-1980s to prevent corporate fraud and abuse by penalizing companies for tax-motivated acquisitions.

Multiple equity financings commonplace in the biotechnology industry often trigger technical changes in company ownership. Under Section 382, once such an ownership change occurs, the net operating losses (NOLs) accumulated by a biotechnology company will not transfer to the purchaser. If NOLs are assigned no value, it might discourage investment in a company.

"The problem here is that when companies become profitable, they cannot use their NOLs to offset their tax liability because of Section 382," Morrie Ruffin, vice president for business development and emerging companies for the Biotechnology Industry Organization, told BioWorld Today. "[Section 382] clearly was not intended to penalize companies that have to raise money the way that biotechs do, which is through a number of rounds of financing."

BIO lobbied Congress to consider the amendment and was successful in convincing Reps. Eric Cantor (R-Va.), Benjamin Cardin (D-Md.) and Robert Matsui (D-Calif.) - three senior members of the House Ways and Means Committee - to sponsor the bill. The bipartisan group introduced the legislation July 25 before recessing for the August break, and the Senate is expected to introduce similar legislation in the fall.

BIO considers the representatives sponsoring the amendment nearly as important as what the changes would do for companies.

"Our approach this year is to go to the senior people on tax writing committees to build support from people who can get the legislation through," Ruffin said.

Unfortunately, congressmen from heavy biotech areas like Cambridge, Mass., or San Diego, are not well represented on such committees as House Ways and Means or the Senate Finance Committee.

"BIO is working hard to see if we can get something passed this year, but there are no guarantees," Ruffin said.