Executives from the biotechnology sector gathered this week to look back at this years’ legislative session and begin planning for next year.
By Rose Hoban
Usually by the time the N.C. Biosciences Organization has its annual meeting in mid-October, the legislative session has been over for months and members of the biotechnology community have had time to digest any changes legislators delivered to their businesses.
But this year’s meeting at the N.C. Biotechnology Center in Research Triangle Park on Thursday ended up focusing on the results of this year’s session, which was one of the longest “long” sessions in recent history. And the meeting was an opportunity for biotech executives to figure out the challenges and opportunities created by the General Assembly’s actions this year.
“If you look strategically at what NCBIO got this year, everything we proposed has been adopted by somebody, except the R&D tax credit,” said Sam Taylor, the lobbyist for NCBIO, referring to about $40 million in tax credits that used to be available to larger biosciences companies to help defray some of the costs of research and development.
Earlier in the summer, Taylor had worried about his industry, as the Senate budget did not fund many of the biotechnology community’s requests, and even eliminated funds for the Biotechnology Center.
In the final budget, lawmakers declined to renew the tax credit, while funding many other biotech priorities, including the center.
Instead of the credit, the legislature funded a new Venture Multiplier Fund, with money that comes from the state Escheats Fund: unclaimed insurance, estates, properties and other monies that end up reverting to state coffers. The state Escheats Fund has close to $480 million, and the Venture Multiplier Fund could use as much as 10 percent of that fund.
The venture money will be targeted towards companies that are earlier in their development, Taylor told several hundred people gathered at the meeting. “[It] is designed to increase the amount of private venture capital in North Carolina for commercialization and company scale-up.”
“I know there are different capital needs and capital challenges depending on where you are in the process,” Rep. Nelson Dollar (R-Cary) said, referring to early-stage companies that don’t yet have investors but need money in order to continue researching and growing.
“We know that in North Carolina, one of the areas we are in need of is venture capital,” Dollar said. “There’s a lot of us that believe there is money here in various places if we can find ways to get that off the sidelines and get it more engaged.”
Crossing the ‘valley of death’
Incubating new companies is something Taylor said is a priority for NCBIO. In particular, biotech executives worry about that part of the company development cycle that science entrepreneurs call the “valley of death,” when initial excitement over, and investment in, an idea has faded and a fledgling company needs the next infusion of cash to grow. But often, investors have by then moved onto the next big thing.
Legislators put $5.25 million over the next two years into a fund that will provide up to $50,000 in matching funds to companies that have already received federal small-business innovation, research and technology transfer grants.
“It’s more than just the money,” Taylor told the crowd. “I think we’ve actually convinced legislators that this is a program that has merit, instead of just a place to put money for one year and see what happens.”
“We get huge dividends from biotechnology and R&D companies,” Sen. Bill Rabon (R-Southport) told the gathering. “The statistics show that you folks who start here and are incubated here tend to stay here and you bring good business and good jobs.… I appreciate it.
Taylor did say that in order for North Carolina to put a $50,000 state match to every company receiving the federal credits, the legislature would have to allocate an additional $5 million over the two-year budget cycle.
“But we’re well ahead of where we were two years ago, which was zero,” he said.
Replacing the R&D credit
Taylor told the group that late in the legislative session, after the usual June 30 deadline for the budget to be completed, he was approached by legislators to put together a grant program to replace the R&D tax credit program.
“I’d really like to see something formulated to start-up companies and people who are trying to get off the ground with something new,” Rabon said. “We could have the mechanism to do that with credits, or whether it’s grants or whatever.
“It’s much easier to budget with a grant program than with a credit program,” he said.
Taylor said he worked with biotech executives to propose an alternative incubator fund that would refund between 1.5 and 2.5 percent of any company’s spending on research and development, wages or services.
“It would have been a progressive credit, so that smaller companies get the larger percentage and larger companies would have gotten the smaller credit,” Taylor said, calling it a “rain-shower” approach to funding research.
“That will have to be hashed out and compromised,” Rabon said.