House sends biotech tax credit to Senate

March 30, 2005
By ROBYN L. LAMB,
Daily Record Business Writer

Industry exec says Md. doing better job helping to promote growing field

A watered-down version of legislation aimed at attracting investment in Maryland’s growing biotechnology industry is on its way to the Senate where advocates are hopeful it will pass.

The bill — which provides tax incentives for investing in biotechnology startups — was pushed by industry advocates who hoped up to $12 million would be available for the program every year.

But under amendments made by the House Ways and Means Committee, the bill, HB 664, will set up a dedicated fund that would be funded year by year as part of the state budget.

The changes make the legislation more likely to pass the Senate but leave the funding at the discretion of Gov. Robert L. Ehrlich Jr.

Despite the changes, industry proponents lauded the House’s 134-0 approval and urged the Senate to move it to Ehrlich’s desk.

“By and large, I think we are starting to do a really good job [creating incentives to grow the biotechnology industry],” said Edward Rudnic, chief executive of Germantown’s Advancis Pharmaceutical Corp. and vice chairman of the Maryland Technology Council’s biotechnology arm. “Getting it [the tax credit] passed in a difficult legislative climate is a very positive thing.”

Its sponsor, Del. Brian J. Feldman, D-Montgomery, said “the main thing is that we want to get some biotechnology credit on the books in Maryland because the nature can be tweaked and changed and enhanced over the years.”

No minimum appropriation for the fund was written into the revised bill but the administration, in similar legislation, proposed tax credits of up to $8 million annually for investments in biotechnology, as well as information technology companies.

While the administration’s bill, HB 249, appears stalled in committee, an Ehrlich spokesman expressed tepid support of Feldman’s legislation.

“He [Ehrlich] believes his bill is the best deal for the state but he welcomes all efforts to bolster the industry, including Feldman’s,” said Henry P. Fawell.

The proposed fund, called the Biotechnology Investment Tax Credit Reserve Fund, would still be used to give private, corporate and venture capital investors in fledgling biotechnology companies in the state a tax credit, returning to investors 50 percent of their outlay.

However, the amendments limit the types of biotechnology companies that can be invested in under the program and lowers the cap on the annual credits available to investors.

Under the revised proposal, companies 5 years old or younger with less than 25 employees are eligible. The original bill set the limit at 10 years and 100 employees.

The maximum annual credit an individual investor can collect under the amendments is $50,000, compared to the $200,000 limit originally proposed. The cap for corporate investors and venture capital firms is now $250,000, half of what it was originally.

Narrowing the criteria to attract investment in younger, smaller companies cuts many businesses out of the loop right around the time they are able to attract private equity, Rudnic said.

It erroneously assumes that all biotechnology firms start out with venture capital funding from the very beginning, when in reality it could take years to attract investment.

“We have companies that are in the incubator here and in College Park that are going to be 5 years old before they are eligible for really good private financing, so when they are 6 and they are getting their first round, they are not a mature company, they are still a startup company,” he said.

A better marker to distinguish mature companies would be existing investment of more than $20 million or a staff of more than 50 employees, he said.