WASHINGTON _ Thomas Wiggans, president andCEO of Connective Therapeutics Inc. on Tuesday told theSenate Small Business Committee that S. 959 _ a capitalgains tax bill sponsored by Sens. Orrin Hatch (R-Utah)and Joseph Lieberman _ (D-Conn.) is vital for capitalformation within the biotech industry.

Biotech firms ideally would like to see Congress enact atwo-tiered capital gains tax cut bill that provides broad-based incentives for investments held at least a year and aventure capital incentive for direct investments in thestock of small companies held for a minimum of fiveyears.

However, House and Senate tax-writing committees noware weighing whether cuts in domestic spendingprograms, including the highly controversial Medicareand Medicaid program cuts, will be adequate to finance apackage of corporate tax breaks including capital gains.The venture capital provision is particularly vulnerablebecause it carries a price tag of $700 million over 10years.

S. 959, which now has 44 co-sponsors in the Senate, soonwill be considered by the Senate Finance Committee aspart of the budget reconciliation. In the House, Ways &Means Chairman Bill Archer (R-Tex.) and BudgetCommittee Chairman John Kasich (R-Ohio) arenegotiating behind the scenes about how much to reducecorporate tax breaks which are viewed by someRepublicans as inappropriate in a year when Congress ismaking cuts in welfare and health services to the poor.

In a bid to protect his capital gains tax bill from possibledeletion by the Senate Finance Committee next week,Hatch described the bill as a "win-win situation for smallbusiness that will encourage economic growth and jobexpansion."

Wiggans explained to committee members howdependent biotech firms are on the capital market.Spending by biotech firms on research and developmenttotaled $7 billion in 1994, a $1.3 billion increase over theprevious year, according to an Ernst & Young surveycited by Wiggans.

The same Ernst & Young survey estimated that 75percent of biotech firms have less than 24 months ofcapital left at their current burn rate, meaning "astaggering 983 companies" would need to return to thecapital market, said Wiggans.

The special tax break for venture capital is "justifiedbecause of the dynamic ability of high technologyentrepreneurs to create jobs and capture markets," saidWiggans, whose company is located in Palo Alto, Calif.He told the committee that this section of the bill is "mostlikely to be utilized by high technology firms which arecapital and research intensive and have no other source ofcapital available." n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.