Healthcare Bill Offers Tax Opportunity for Small Biotechs

06 Apr Healthcare Bill Offers Tax Opportunity for Small Biotechs

Posted at 10:23h in News by Key Tech

If you’re developing and/or selling medical devices, you’re probably paying attention to the new Healthcare Bill that recently passed through Congress. While the specific regulations aren’t out yet, there are a few provisions to pay attention to. While Congress will be adding a new excise tax on device sales starting in 2013, it has provided up to a 50% tax credit for qualified pre-clinical and clinical activities conducted to get devices to market, starting in the 2009 tax year.

Excise Tax

The excise tax has been a hot topic of conversation ever since it was proposed. It did make it into the bill as a tax of 2.3% of the price of the device. It will go into effect for the 2013 tax year, but unlike most excise taxes, it appears to be deductible. New companies that have yet to make a profit will be at more of a disadvantage with the excise tax since it taxes revenue from any sales, not just profitable ones.

Reference: Foley Hoag, LLP

Research Tax Credit

The Healthcare Bill also has a provision, referred to as the Therapeutic Discovery Project credit, that will likely offset that disadvantage to new companies. This is a 50% credit for qualified expenses related to projects designed to

“treat or prevent diseases or conditions by conducting pre-clinical activities, clinical trials, and clinical studies, or carrying out research projects, for the purpose of securing approval of a product under section 505(b) of the Federal Food, Drug, and Cosmetic Act or section 351(a) of the Public Health Service Act.” – Section 9023 of HR 3590 EAS/PP, pg 2019.

The credit is limited to ventures with less than 250 employees, and it will be disbursed in a grant-like structure. There is $1B in the pot and an application process. Once the funds are gone, they’re gone, and the credit can be taken starting with the 2009 tax year, so get your pencils ready. Once the regulations come out in a month or two, you’ll want to submit your application right away. Dean Zerbe at Forbes.com has a much better, and much more detailed, analysis of the Therapeutic Discovery Project credit.

Disclaimer: I am not providing tax advice. I’m just pointing these issues out so you can discuss them with your own professional tax advisors.