Health & Life Sciences - Therapeutic Discovery Project Tax Credit. It's Time to Get Ready…
An important financial incentive for "therapeutic discoveries" was included in the recent health care legislation. The rules are out for this new Section 48D tax credit, and there's not a lot of time to prepare. Here's the scoop:
Q: Who can apply?
A: A firm with 250 or fewer employees (including employees of affiliates and subsidiaries).
Q: When can my firm apply?
A: Between June 21 and July 21, 2010. Awards will be announced by October 29, 2010.
Q: Is it better to apply early?
A: It doesn't matter as long as you get your application in on time. This is not a race. All applications submitted within the window will be evaluated without weighing the time of receipt. (A firm may apply separately for each qualifying therapeutic.)
Q. Is this a credit or a grant?
A: The law allows an applicant to designate which type of award it seeks. There is no difference in qualifying factors or application process. Because we expect more applicants to be interested in the grant form of award, that's how we'll describe the program.
Q: This is a grant for expenses, right? Which expenses?
A: Expenses incurred in 2009 or 2010 from conducting pre-clinical activities and/or clinical trials to get FDA approval of a product. There are some special rules and restrictions, mostly concerning real estate expenses.
Q: How much can my firm get?
A: The grant can be as much as 50 percent of expenses, but no grant can be more than $5 million. The Congress has set aside $1 billion in total for the program.
Q: What kind of product?
A: The three D's: drugs, diagnostics and devices that deliver drugs or diagnostics.
- Drugs to treat or prevent disease
- Diagnostics to diagnose disease or to determine molecular factors that help guide therapeutic decisions
- Delivery devices to further the administration of therapeutics
Q: What are the criteria for getting the grant?
A: The project must:
- Result in new ways to meet unmet medical needs; and/or
- Prevent, treat or detect chronic illnesses; and/or
- Reduce long-term U.S. health care costs; and/or
- Significantly further the goal of curing cancer within 30 years
The second criterion is creation of "high quality" U.S. jobs. Finally, the third criterion is improving U.S. competitiveness in biological and medical research.
While there is no (publicized) formula for weighting these criteria, we expect the clinical criteria to be most important. The other factors might serve as "tie breakers" for applications that are equally meritorious from a clinical perspective.
Q: How will the Feds decide who gets the credit?
A: The Department of Health and Human Services (HHS), likely through the National Institutes of Health, will receive and review applications. HHS will then certify successful applicants to IRS. IRS will allocate the budgeted funds to successful applicants on a pro rata basis. For example, HHS might certify applications that request $1.25 billion in total credits. IRS would award the $1 billion allotted by the Congress for the credit, with all successful applicants enjoying a 20 percent reduction.
Q: How does my firm apply?
A: Through a new Form 8942, which will be issued by Treasury before June 21, 2010. A firm will also need to submit a "Project Information Memorandum" and sign a standard set of terms and conditions. Supplemental filings, oral presentations or follow-up discussions are not likely. Every applicant will have one shot at saying the right things.
Q: The form is not even out yet? What should I be doing now?
A. We expect the form to be relatively brief, with strict page and word limits. This will not be anything like an NIH peer reviewed grant application. Treasury expects 1,200 applications – we wouldn't be surprised if there were twice that many. This will advantage applications that make a clear impact on first reading. Reviewers are not likely to spend extensive time on footnotes or second level details.
What you can do now is start thinking about how to present your case so that it makes the best possible impact.
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