May 2010
    

A Polsinelli Shughart Life Sciences e-Alert

Update: Qualifying Therapeutic Discovery Tax Credit Program

Several weeks ago, we alerted you to the $1 billion Qualifying Therapeutic Discovery Tax Credit Program that is a part of the Health Care Act of 2010 [click here]. This program allows taxpaying companies with 250 employees or less who incurred in 2009 or will incur in 2010 expenses for items such as salaries and wages or equipment and consumables (not rent, mortgage payments, interest, maintenance costs or the like) for a Qualifying Therapeutic Discovery Project to apply for a U.S. income tax credit OR a cash grant (for entities that are in a loss position) equal to 50 percent of the qualifying expenditure. A Qualifying Therapeutic Discovery Project is one that involves most drug development and therapeutic medical devices or diagnostics and that has a reasonable potential to result in new therapies for unmet medical needs, chronic or acute diseases, reducing long-term health care costs or curing cancer.

Since then, we’ve traveled Washington, D.C. to discuss this program with legislators and regulators. Following is what we know as of the end of April 2010:

1. This tax credit/grant program is intended to be a "one- time" event. In accepting the “Legislator of the Year” award from the BIO organization on April 14 in Washington, Senator Robert Menendez ( D-NJ), the key sponsor of this program, stated: "This is a common sense idea to help small companies in an environment where private capital has become essentially unavailable. This will allow those companies to continue research until the risk adverse capital markets abate." Don't count on it being renewed or extended.
      
2. It appears that the Department of the Treasury will drive the process of drafting the regulations and forms to implement the program. They will consult with the Department of Health and Human Services, who would certainly appear to be better situated to analyze the scientific and medical aspects of the "win/lose" decisions.
      
3. The regulators state they intend to keep to the 60-day time line mandated by Congress in the Act. We expect definitive regulations and forms to be issued on or about May 21, 2010. Political forces will make it difficult for them to miss this deadline. So, the time to get ready is now!
      
4. It is not clear how Treasury/HHS will implement the 30-day "up/down" decision deadline mandated by the Act. Will this mean they will decide on every application within 30 days after it is submitted (thus, the "first day" filings have an advantage)? Or, will they collect applications for 30 days and then compare all of them as a pool (leading to better substantive decisions)?
      
5. Further, it is not clear how the $1 billion will be allocated - first come, first served; with a cap on any given application or to any given application; with dollars allocated over 30-day application periods; with dollars allocated to 2009 and to 2010? Bottom line: Assume that if you wait, you risk losing out. "First in Line" probably can't hurt!
      
6. The application process is likely to be very detailed and require much more information and a different type of information than an SBIR/STTR, NIH, or similar grant. This is not a prospective grant with general budgets and projections, but a request for reimbursement that likely will require specific and detailed financial information and backup documentation.
      
7. The program will be over subscribed (estimates range from 10 to 1 and higher). This will be a very competitive process! Each applicant will face the challenge of providing the information required to convince the decision-makers that its project has a higher likelihood of providing beneficial outcomes to the public and enhancing high quality jobs and competitiveness in the US. This is not necessarily a normal way of thinking for start up therapeutic companies. This element of the application will require "outside the box" thinking and backup data that is not the type normally found in a grant application or PPM.

The attorneys in Polsinelli Shughart's Life Sciences group are working with our clients right now to ensure they are prepared to move quickly once details of the program are announced on (or about) May 21.

For More Information

If you think that you may qualify for the program and are interested in more information, please email Kevin Sweeney (Kansas City) at KRSweeney@Polsinelli.com or Andy Hoyne (St. Louis) at AHoyne@Polsinelli.com today.

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