Massachusetts Life Sciences Center

Therapeutic Discovery Project Credit Program

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, H.R. 3590, into law. What many companies may not realize about this highly publicized bill is that it contains a powerful new incentive for life sciences firms: the Qualifying Therapeutic Discovery Project Credit (“Therapeutic Credit”). Modeled after existing tax credits for investments in Qualifying Advanced Energy Projects, this newly enacted program creates a credit to encourage investments in new therapies to prevent, diagnose, and treat acute and chronic diseases.

Enacted as Sec. 48D of the Internal Revenue Code, the Therapeutic Credit will allow some businesses to claim a credit for 50% of their investment in qualifying therapeutic discovery projects for 2009 and 2010.

This incentive can be distinguished from similar programs, because:

Only businesses with 250 or fewer employees may qualify; and
Taxpayers may elect to receive grants in lieu of tax credits.

Because biomedical research can take many years to turn a profit, newer firms may be unable to take advantage of a tax credit that offsets income tax liability. To ensure that these firms can benefit, an eligible firm can opt to take the credit as a grant instead of a tax credit. The ability to receive grants, in particular, makes the Therapeutic Credit especially attractive to the many small life sciences companies that have been unable to take advantage of the Sec. 41 R&D tax credit due to losses or AMT.

Universities, nonprofit research institutes and foundations, and the like will also be interested in this credit insofar as any spinoff, for-profit entities formed to develop and market the results of their life sciences research may be eligible for the credit.

What Types of Enterprises Are Eligible?

Companies engaged in a qualified therapeutic discovery project in 2009 and/or 2010.
C Corporations and pass-through entities may qualify.
Companies with no more than 250 employees including related parties.
Tax exempt entities are not eligible, nor are partnerships with tax exempt partners.

What Kinds of Projects and Costs Qualify?
Qualifying therapeutic discovery projects include those designed to accomplish the following:

Treat or prevent diseases or conditions by conducting pre-clinical or clinical activities for the purpose of securing FDA approval of a product;
Diagnose diseases or conditions, or determine the molecular factors related to diseases or conditions, by developing molecular diagnostics to guide therapeutic decisions; or
Develop products, processes, and technologies to further the delivery or administration of therapeutics.

How Are Recipients Selected?
Unlike other tax credit programs, the Therapeutic credit is not available to all eligible businesses that apply. For those companies with qualifying projects, there is a limited pool of money allocated to these credits/grants. Applications are reviewed and selected by the treasury based on the following criteria:

The project's potential to result in new therapies for areas of unmet need or to prevent, detect, or treat chronic or acute diseases or conditions;
The project's potential to reduce long-term healthcare costs or advance the goal of curing cancer within 30 years; and
The project's potential to advance U.S. competitiveness in life sciences while creating and sustaining high-paying jobs in the U.S.

Applying for the Therapeutic Credit:
In order to claim the Therapeutic Credit, taxpayers must file an application with the Treasury Department for each qualifying project. Eligible companies must act quickly.

There is a limited pool of $1,000,000,000 in credits/grants allocated to this program, and when it's gone, it's gone.
Only investments made in tax years 2009 and 2010 qualify.

Application Period Opens June 21:
The formal application window will extend from June 21 to July 21, 2010. Applicants will receive a determination no later than October 29, 2010.

You can access the application and background information at the links below: