Stimulating the Life Sciences Industry
New incentives in place at the federal as well as state and local levels will help to stimulate growth of life sciences companies and affect their location and investment decisions.
Scot Butcher, Managing Director, Duff & Phelps LLC (Biotech Location Guide 2009)
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From and a state and local perspective, the life sciences industry continues to be the holy grail for economic development officials for business attraction and retention. In recent years, a number of states have pursued aggressive tax- and non-tax incentives programs with these objectives in mind.
Some states, such as New Jersey and Massachusetts, have created programs with the intention of "incentivizing" existing firms to remain and grow in their current locations as opposed to relocating their operations to lower-cost states. Other states, such as Florida, have created large-scale private-public partnerships required to invest in the development of research activities and intellectual capital formation, realizing that the success of life sciences firms in their states depends on reliable access to intellectual capital and research-oriented universities.
Massachusetts has set the bar particularly high for incentives targeted toward life sciences firms. In June 2008, Massachusetts Governor Deval Patrick (D) signed the $1 billion Life Science Initiative (LSI) into law. The LSI provides $500 million for tax- and non-tax incentives over a 10-year period and $500 million for bond-financed capital improvements to a variety of public and private institutions throughout the state. Specifically, the LSI provides for a number of refundable tax credits. These credits can be monetized or refunded for up to 90 percent of their value. Currently there are refundable credits available for investments in tangible personal property and R&D activities. Additionally, the LSI provides for a 15-year net operating loss carry forward, a sales tax exemption on construction materials and equipment, and access to the LSI Investment Program, which makes a number of grants and low-cost loans to life sciences companies. It's important to note that the Massachusetts LSI program entails a highly competitive application and certification process.
New Jersey, which has more than 10 percent of the national employment base of pharmaceuticals and other industry subsectors, has also established the standard with regard to incentives for the life sciences industry. The New Jersey Economic Development Authority (NJEDA) has led these efforts and has established the Angel Guarantee Fund, which provides equity-like and near-equity financing for life sciences start-ups. Additionally, the NJEDA administers the Edison Innovation Fund, which allows life sciences companies to access a large array of incentives, including work force training grants, commercialization loans, and the Life Science & Technology Business Tax Certificate Transfer Program (BTCTP). The BTCTP allows companies with less than 225 employees to sell unused net operating losses and R&D tax credits for at least 75 percent of their value.
Florida, which has a desire to establish a stronger life sciences presence, has continued to recruit nonprofit research institutions to the state and to invest in university-based centers of excellence. Over the previous three years, Florida has seen a total of $682 million in bioscience venture capital investments, and an increasing number of patents flow out of the state.
Lee County, Florida, has taken the lead with regard to incentives for the life sciences and has recently established the Financial Incentives for Recruiting Strategic Targets (FIRST) initiative, a performance-based cash-grant program that has been initially funded with $25 million. The FIRST program is aimed at luring life sciences and other high-wage industries to the county.
The Future of Life Sciences Decision-Making
In the current recessionary period, economic development programs and incentives have been bolstered, as both the federal government and state and local jurisdictions have increased certain funding. The life sciences industry is well positioned to take advantage of these programs. Non-traditional U.S. locations are aggressively targeting and winning large investment projects in the high-tech and life sciences industries due to very competitive incentive packages that help reduce the otherwise high occupancy and operating costs.
Now we are seeing the federal government taking on an unprecedented role in providing incentives for domestic economic growth by enacting the 2009 Stimulus Bill and taking equity positions within failing U.S. corporate giants. The federal and state incentives that are in place for the life sciences industry for 2009 will have a major impact on future site selection and domestic capital investment decision-making.
Scot Butcher is managing director of the Business Incentives Advisory at Duff & Phelps, LLC in Boston.
He can be reached at 617-378-9406 or Scot.Butcher@duffandphelps.com