WASHINGTON _ For biotechnology executives who have grownaccustomed to scanning the legislative horizon with fear in their hearts,a small but hopeful oasis is shimmering.Two lawmakers introduced a pair of bills that target the biotechnologyindustry for a startlingly generous package of tax incentives andincreased federal attention. On April 21, Reps. Anna Eshoo (D-Calif.)and Peter Blute (R-Mass.) rolled out the BiotechnologyCompetitiveness Act of 1994 (HR 4211) and the BiotechnologyStimulus Act of 1994 (HR 4212).The Competitiveness bill proposes that the director of the Office ofScience and Technology Policy (OSTP) coordinate the approximately15 federal agencies that will disburse a total of $4.3 billion in 1994 onbiotechnology research and development. In addition, the bill calls forthe OSTP director to develop priorities for federal "biotechnologyresearch, development and adoption efforts."The Stimulus Act contains four modifications to existing tax laws thatwill benefit biotechnology companies:y A permanent, guaranteed 25 percent incremental tax credit rate forbiotechnology research and development (or a flat 5 percent rate if thatis more beneficial). Under current law, the tax credit rate is a movingtarget subject to annual renewal and the whims of politicians.y A tax write-off ranging from 10 percent for assets held for one year to100 percent for assets held for 10 years. Designed to spur long-terminvestments, this provision could significantly lower the capital gainstax for companies. (Eshoo and Blute point out that the corporate capitalgains tax is 28 percent in the United States while Japanese companiespay an average of 5 percent and German companies pay no tax at all onassets held more than six months.)y A 50 percent tax write-off for individuals, partnerships andcorporations that realize capital gains from a stock investment in astart-up biotechnology company which is held for two years. Currenttax law extends a 50 percent credit only to individuals who hold stockin start-up companies for five years. Needless to say, this provisionwould be a boon for venture capital partnerships.y An allowance for biotechnology companies to adjust the tax value oftheir assets to account for inflation. Currently, assets are taxed at bookvalue so this provision would lower the corporate tax burden.For the purposes of this legislation, biotechnology is defined as "theapplication of engineering and technological principles to livingorganisms or their components to produce new inventions orprocesses."According to Robert Esposito, national director of accounting firmKPMG Peat Marwick's biotechnology and life sciences practice, thesechanges in tax law would give biotechnology companies a competitiveadvantage over other industries in the United States. He added that theproposed legislation clarifies and expands the definition ofbiotechnology. As a result, large pharmaceutical companies thatcollaborate with or invest in biotechnology companies will get hithertounavailable tax credits."The real advantages here are for individuals and corporations whoinvest in biotechnology companies," said Esposito. "It will improvetheir chances of getting an adequate return on their investment."To add icing to this extraordinary legislative cake, the Stimulus Actcontains a statement opposing new accounting rules now underconsideration by the Financial Accounting Standards Board (FASB).The FASB rules, which have been staunchly opposed by industry,would require companies to deduct the value of incentive stock optionsfrom profits (or add it to losses, in the case of most biotechnologycompanies).The statement declares "it is the sense of Congress [the rules wouldhave] grave economic consequences, particularly for biotechnologybusinesses in new-growth sectors, which rely heavily onentrepreneurship." Esposito said that if such a sentiment wereexpressed in legislation, it could provide powerful political ammunitionagainst FASB, an independent organization that monitors theaccounting industry.The fate of the Stimulus Act is uncertain since lawmakers are grapplingwith grim financial constraints and all four tax law revisions wouldreduce federal revenues. As a result, the bill may not escape theHouse's powerful financial watchdog committee, Ways and Means,unscathed.The motives of these two legislators are clear: both Eshoo and Bluterepresent states that are packed with biotechnology companies and bothbelieve the industry is critical to U.S. competitiveness. Eshoo's districtstretches between San Francisco and San Jose in Northern California, aplot of land that is home to more than 50 biotechnology firms. Blute'sdistrict in Massachusetts encompasses the city of Worcester, whichcounts at least 10 biotechnology companies in its corporate population."Unfortunately, the biotech industry is now threatened by increasingfederal legislation," said Blute. "By passing our bills, Congress wouldtake a crucial step toward encouraging the growth of one of our mostpromising industries."
-- Lisa Piercey Washington Editor
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