Agenda Item 7
March 16,2010
Action
MEMORANDUM
TO:
FROM:
County Council
~
Michael Faden, Senior Legislative Attorney
Action: Expedited Bill 5-10, Economic Development - Biotechnology Credit ­
County Supplement
SUBJECT:
Planning, Housing and Economic Development Committee recommendation: enact
with amendments (2-0-1, Councilmember Eirich abstaining).
Expedited Bill 5-10, Economic Development - Biotechnology Credit - County
Supplement, sponsored by Councilmember Knapp, Council Vice President Ervin,
Councilmember Leventhal, Council President Floreen, and Councilmember Trachtenberg, was
introduced on February 2, 2010. A public hearing was held on February 23, at which Janis Pitts,
Director of the County Life Sciences Strategy in the County Department of Economic
Development, representing the County Executive, and 2 representatives of County biotechnology
firms, supported the Bill. A Planning, Housing and Economic Development Committee
worksession was held on March 1.
Bill 5-10 would commit the County to supplement the state biotechnology investment
incentive tax credit, allowed under Maryland Code, Tax-General Article
§
10-725 (see ©5-9).
The County supplement, which is a direct subsidy rather than a tax credit, would be 50% of the
state tax credit for an investment in a qualified Montgomery County biotechnology company.
For more details on the state credit, see the fact sheet prepared by County Department of
Economic Development staff on © 10-11.
Fiscal impact: $44,545 (operating costs), $2 million/year (credit supplement).
Economic impact: not estimated, but substantial positive. See OMB fiscal impact statement on
©12-13.
Issues/Committee recommendations
1) Would this spending be effective?
At the hearing Councilmember Andrews noted
that, if this supplement were offered, investors would respond to this government incentive
rather than focus on the prospects for success of the affected firms, thus negating the "pure
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market response" that would otherwise govern the investors' decisions. The 2 counterarguments
to this position are, first, that the state will have already affected the investors' market response
by its larger credit and this supplement will further enhance the attractiveness of County firms
among those selected to receive the state credit; and, second, that the County is not "picking
winners" among biotechnology firms, but rather encouraging the individual investors to pick
winners from among all County recipients of the state credit. Proponents of this Bill emphasize
the positive message that County financial support will send to investors regarding local
biotechnology firms, but have not submitted any empirical data to quantify the benefits of this
type of spending. Council staff has not had time to research the effectiveness of government
incentives offered elsewhere for start-up firms.
At the Committee's March 1 worksession, Councilmember EIrich questioned whether
this kind of assistance cold be handled on a case-by-case basis, rather than through an across-the­
board credit. Committee Chair Knapp noted that the Economic Development Fund is already set
up to do that. Committee recommendation: proceed with this
Bill
2) What percentage of the state credit should the County pay?
Bill 5-10 as introduced
would set the County supplement at 50% of the state credit allowed for each qualifying.
biotechnology firm located in the County. In considering the extent to which the County
supplement is an incentive to invest, rather than only a bonus for investing, the relative
percentage should be evaluated. Would a lower percentage have a similar effect? We can't
really know, but one option is to start lower and see if any measurable gain in investment in
County firms results, compared to pre-supplement investment patterns. Council staff
recommendation: set the initial percentage at 25%, subject to annual review in the operating
budget. Committee recommendation: keep the percentage at 50%, subject to appropriation
(see below).
3) Can the County afford this program? How can the cost of this supplement be
controlled?
As Councilmember Andrews asked at the hearing, in a very stringent fiscal
environment where will the funds for this credit corne from? As the fiscal impact statement on
©12-13 notes, the County's expenditure - initially projected at $2 million/year -- will depend on
how much the state appropriates for the underlying credit and how many County firms receive
the state credit.
The County Executive's testimony (see ©14-15), presented by Janis Pitts of DED,
proposed an amendment to Bill 5-10 that would make the County supplement subject to
appropriation. Executive staff argue that, since the total amount of the state credit is subject to
appropriation and the state adopts its annual budget before the County does, the amount the state
allows will be known. We assume that, if this amendment were adopted, the County supplement
for each recipient of the state credit would be the same percentage of the state credit that the
County appropriation is of the state appropriation.
The Committee concurred that, if authority to pay this supplement is enacted, its
aggregate amount should be controlled each fiscal year through the annual operating budget.
Committee recommendation: insert on ©2, line 3, after.lli!Y: . subject tOf,lppropriation.
2
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If the total County appropriation for this supplement is capped, then the amount of the
individual County supplement would have to be less than 50%. To reflect this adjustment, the
credit percentage should be amended. Committee recommendation: Insert on ©2, line 22-24:
.!
or a lower percentage. set in the annual operating budget resolution. which reflects the relative
proportions of the respective annual
~ppropriations
for the stat(! tax credit and the County
~ment
4) Should the County subsidize other start-up biotechnology firms?
Eligibility for the
County supplement under Bill 5-10 is restricted to firms that receive the state credit, which is
something of a lottery. Other similar County firms could be just as deserving. However,
funding them would add to the program's cost and would require added administrative steps.
Committee recommendation: if this program is approved, for now offer the supplement only to
firms that receive the state credit.
Technical amendments DED staff submitted minor technical amendments to better
link
the County supplement to the state credit. Council staff has incorporated those amendments into
the Bill.
This packet contains:
Expedited Bill 5-10
Legislative Request Report
State tax credit law
Fact sheet re state tax credit
Fiscal impact statement
Executive testimony
Testimony and correspondence from local firms
Circle
#
1
4
5
10
12
14
16
F:\LAW\BILLS\ I 005 Biotech Credit Suppleent\Action Memo.Doc
3
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Expedited Bill No. _---"5::..-.,:.;10"'--_ __
Concerning: Economic Development ­
Biotechnology Credit -
County
Supplement
Revised: 3-10-10
Draft No. 2
Introduced:
February 2,2010
Expires:
August 2,2011
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
_N!.!:o~n!:::!e-___::_-_-_
Ch. _ _, Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmember Knapp, Council Vice President
Ervin,
Councilmember
Leventhal, Council President Floreen and Councilmember Trachtenberg
AN EXPEDITED ACT
to:
(1)
authorize the County to supplement the state biotechnology investment
incentive tax credit; and
(2)
generally amend the law governing County financial incentives for
investment in certain businesses.
By adding
Montgomery County Code
Chapter 20, Finance
Section 20-76A
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* *
*
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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EXPEDITED BILL
No. 5-10
1
Sec.
1.
Section 20-76A is inserted as follows:
20-76A.
(ill
2
3
4
Biotechnology investment incentive tax credit supplement.
The Director of Finance must pay. subject to
aRRroRriation~ ~
Biotechnology Investment Incentive Tax Credit Supplement to each
applicant who meets certain eligibility standards.
{hl
An
applicant, who need not be
~
5
6
7
County resident, is eligible to receive
the Supplement if:
8
9
10
11
12
ill
the applicant has been designated as a qualified investor under
state law and has received
~
final tax credit certificate for the
Maryland biotechnology investment incentive tax credit for the
year in which the Supplement is claimed; and
ill
the tax credit received
J2y
the applicant was generated
Qy
an
investment in
~
13
qualified Maryland biotechnology company. as
14
15
16
17
18
19
defined in state law, that has its headquarters and base of
operations in the County.
(£)
The County Executive,
Qy
regulations issued under Method
ill
may
impose other eligibility standards. However, those standards must not
make any person ineligible to receive the Supplement who would be
eligible under subsection
D21
@
20
21
The Supplement paid to each recipient must equal 50% of any tax credit
the recipient receives from the State biotechnology investment incentive
tax credit program, or a lower percentage, set in the annual operating
budget resolution, which t;eflects the relative proportions of the
respective annual appropriations for the state tax credit and the County
supplement.
22
23
24
25
26
27
~
The Director must require each eligible person to submit an application
for the Supplement and may take any other action necessary to
@
F:\LAW\BILLS\1005 Biotech Credit Supplement\I005 BiII2.Doc
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EXPEDITED BILL
No. 5-10
28
29
30
administer the Supplement. The Executive may issue regulations under
Method
ill
to specify an application process and otherwise implement
this Section.
31
32
33
34
35
36
ill
If the Comptroller of the Treasury agrees, the Director may arrange for
the Comptroller to
ill!Y
the Supplement on behalf of the County. To the
extent that the Comptroller does not
ill!Y
the supplement, the Director
must
ill!Y
it directly to each eligible applicant.
(g)
A person who submits !! false or fraudulent application, or withholds
material information, to obtain !! payment under this Section has
committed!! Class A violation. In addition, the person must repay the
County for all amounts improperly paid and all accrued interest and
penalties that would
37
38
39
40
mmlY.
to
those amounts as if they were overdue
taxes. A person who violates this Section is liable for all court costs and
expenses of the County in any civil action brought by the County to
recover any payment, interest, or penalty. The County may collect any
amount due, and otherwise enforce this Section, by any appropriate
legal action.
41
42
43
44
45
46
au
If
all or part of the allowed state tax credit is recaptured under the
applicable state law, the recipient must repay the County within 60 days
the portion of any Supplement paid by the County that was based on the
recaptured credit.
47
48
49
50
Sec. 2.
Expedited Effective Date.
The Council declares that this Act is necessary for the immediate protection of
the public interest. This Act takes effect on the date when it becomes law.
51
ill
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LEGISLATIVE REQUEST REPORT
Expedited Bill 5-10
Economic Development
-
Biotechnology Credit
-
County Supplement
DESCRIPTION:
Authorizes the County to supplement the state biotechnology
investment incentive
tax
credit, allowed under Maryland Code, Tax­
General Article § 10-725. The County supplement would be 50% of
the state tax credit for an investment in a qualified Montgomery
County biotechnology company.
Need for further incentives to invest in local startup biotechnology
firms.
To supplement the state
tax
credit program for investments in startup
biotechnology companies.
.
Finance Department, Department of Economic Development
To be requested.
To be requested.
To be requested.
To be researched.
Michael Faden, Senior Legislative Attorney, 240-777-7905
Applies to credits offered for companies anywhere in the County.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENAL TIES:
Not applicable
F:\LAVi\BILLS\I005 Biotech Credit Suppleent\Legislative Request Reporl.Doc
f:\law\bills\1005 biotech credit suppleent\legislative request report.doc
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§
10-725. Biotechnology'investment incentive tax credit.
(a)
Definitions.
(1)
In this section the following words have the meanings
indicated.
(2) "Biotechnology company" means a company organized for profit that is
primarily engaged in the research, development, or commercialization of
innovative and proprietary technology that comprises, interacts with, or
analyzes biological material including l;>iomolecules (DNA, RNA, or protein),
cells, tissues, or organs.
(3)
(i)
"Company" means any entity of any form duly organized and
existing under the laws of any jurisdiction for the purpose of conducting
business for profit .
. (ii)"Company" does not include a sole proprietorship.
(4) "Department" means the Department of Business and Economic
Development.
(5) (i)"Investment" means the contribution of money in cash or cash
equivalents expressed in United States dollars, at a risk ofloss, to aqualified
Maryland biotechnology company in exchange for stock, a partnership or
membership interest, or other ownership interest in the equit:y of the qualified
Maryland biotechnology company, title to which ownership interest shall vest
in the qualified investor.
.,
(ii) "Investment" does not include debt.
(iii)
For purposes of this section, an investment
is
at risk of
l~ss
when
its repayment entirely depends upon the success of the business operations of
the qualified company.
(6)
(i)
"Qualified investor" means any individual or entity that invests at
l,east $25,000 ina qualified Marylan,d biotechnology company and that is
required to file .an income tax return in any jurisdiction.
(ii)
"Qualified investor" does not include .aqualified pension. plan,
individual retirement account, or other qualified retirement plan under the
Employee Retirement Income Security Act of 1974, as amended, or fiduciaries
or custodians under such plans, or similar tax-favored plans or entities under
the laws of other countries.
..
.
(7) CD "Qualified Maryland biotechnology company" means a
biotechnol~
·ogy company that:
1. has its headquarters and base of operations in this State;
2. has fewer than 50 full-time employees;
. 3. except as provided in subparagraph (ii) ofthis paragraph, has been
in active business no longer than 10 years;
4. does not have its securities publicly traded on any exchange; and
5. has been certified as a biotechnology company by the Department.
(ii)
"Qualified Maryland biotechnology company" includes a company
that has been·
in
active business for up. to 12 years
if
the Department
determines that the company requires additional time to complete the process
of regulatory approval.
(b)
Iri general.
-
(1) Subject to paragraphs (2) and (3) ofthis subsection and
subsections (d) and (e) of this section, for the taxable year in which an
investment in a qualified Maryland biotechnology company is made, a quali­
fied investor may claim a credit against the State income tax in an amount
equal to the amount of tax credit stated in the final credit certificate approved
by the Secretary for the investment as provided under this section.
(2) To be eligible for the tax credit described in paragraph
(1)
of this
subsection, the qualified investor shall be:
133
I
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§
10-725
TAX - GENERA.L
(i)
for a company, duly organized and in good standing in the jurisdic­
tion under the laws under which it is organized;
(ii)
for a company, in good standing and authorized or registered
to
do
business in the State;
(iii) current in the payment of all tax obligations to the State or any unit
or subdivision of the State; and
(iv) not in default under the terms of any contract with, indebtedness
to; or grant from the State or any unit or subdivision of the State.
(3) To be eligible for the taX credit described in paragraph
(1)
of this
subsection, the qualified investor may not, after making the proposed invest­
ment, own or control more than 25% of the equity interests in the qualified
Maryland biotechnology company
in
which the investment is to be made.
.
(c)
Certificate.
-
(1)
At least 30 days prior to making an investment in a
qualified Maryland biotechnology company for which a qualified. investor
would be eligible for an initial taX credit certificate under subsection·{b) of this
section, the qualified investor shall submit an application to the Department.
(2) The application shall evidence that the qualified Maryland biotechnol­
ogy company is:
(i) in good standing;
(ii) current in the payment of all tax obligations to the State or any unit
or subdivision of the State; and
(iii) not in default under the terms of any contract with, indebtedness
to, or grant from the State or any unit or subdivision of the State...
(3) The Department shall:
(i) approve all applications that qualify for credits under this section on
a first come first served basis; and
(ii) within 30 days ofreceipt of an application, certify the amount of any
approved tax credits to a qualified investor.
(4) (i) After the date on which the Department issues an initial tax credit
certificate under this section, a qualified investor shall have 30 calendar days
to make an investment in a qualified Maryland biotechnology company under
this section.
(ii)
Within 10 calendar days after the date on which a qualified investor
makes the investment, the qualified investor shall provide to the Department
notice and proof of the making of the investment, .including:
1. the date of the investment;
2. the amount invested;
3. proof of the receipt of the invested funds by the qualified Maryland
biotechnology company;
4. a complete description of the nature of the ownership interest in
the equity of the qualified Maryland biotechnology company acquired in
consideration of the investment; and
5. any reasonable supporting documentation the Department may
require.
(iii)
If a qualified investor does not provide the notice and proof of the
making of the investment required in subparagraph (ii) of this paragraph
within 40 calendar days after the date on which the Department issues an
initial tax credit certificate under this section:
134
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2009
SUPPLEMEl'i'T
§
10-725
1.
the Department shall rescind the initial tax credit certificate; and
. 2. the credit amount allocated to the rescinded certificate shall revert
to
the Maryland Biotechnology Investment Tax Credit Reserve Fund and shall
be available
in
the applicable fiscal year for allocation by the Department to
other- initial tax credit certificates in accordance with the provisions of this
section.
, (d)
ArAount of credit.
-
(1)
The tax credit allowed in an initial tax credit
certificate issued under this section is
50%
of the investment in a qualified
Marylandbiotechriolbgy company,not to exceed
$250,000.
.
(2) During any fiscal year, the Secretary may not certifY eligibility for tax
credits for investments in a single qualified Maryland biotechnology company
that in the aggregate exceed
15%
of the total appropriations to the Maryland
Biotechnology Investment Tax Credit Reserve Fund for that fiscal year.
(3) If the tax credit allowed under this section in any taxable year exceeds
the total tax otherwise payable by the qualified investor for that taxable year,
the qualified investor may claim a refund in the amount of the excess.
(e)
Biotechnology Investment Tax Credit Reserve Fund.
-
(1)
In this sub­
$ection, "Reserve Fund" mea:n,s the Maryland Biotechnology Investment Tax
CreditReserve Fund established under paragraph (2) of this subsection.
(2)
(i)
There is a Biotechnology Investment Tax Credit Reserve Fund
which is a special continuing, nonlapsing fund that is not subject to
§
7-302
of
the State Finance and Procurement Article.
(ii)
The money in the Fund shall be invested and reinvested by the
Treasurer, and interest and earnings shall be credited to the General Fund.
(3)
'(i)
Subject to the provisions of this. subsection, the Secretary shall
issue an initial tax credit certificate for each approved investment in a
qualified Maryland biotechnology company eligible for a tax credit.
(ii)
An
initial tax credit certificate issued under this subsection shall
state the maXimum amount of tax credit for which the qualified investor is
eligible.
(iii)
1.
Except as otherwise provided in this subparagraph, for any fiscal
year, the Secretary may not issue initial tax credit certificates for credit
amounts in the aggregate totaling more than the amount appropriated to the
Reserve Fund for that fiscal year in the State budget as approved by the
General Assembly.
2. If the aggregate credit amounts under initial tax credit certificates
issued in a fiscal year total less than the amount appropriated to the Reserve
Fund for that fiscal year, any excess amount shall remain in the Reserve Fund
and may be issued under initial tax credit certificates for the next fiscaL year.
3. For' any fiscal year, iffunds are transferred from the Reserve Fund
under the authority of any provision of law other than under paragraph (4) of
this subsection, the maximum credit amounts in the aggregate for which the'
Secretary may issue initial tax credit certificates shall be reduced by the
amount transferred.
(iv) For each fiscal year, the Governor shall include in the budget bill an
appropriation to the Reserve Fund.
135
,
.
'
(j)
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§
10-725
TAX - GENERAL
(v) Notwithstanding the provisions of
§
7-213 ofthe State Finance and
Procurement Article, the Governor may not reduce an appropriation to the
Reserve Fund in the State budget as approved by the General Assembly.
(vi)
Based on the actual amount of an investment made bya qualified
investor, the Secretary shall issue a final tax credit certificate to the qualified
investor.
(4)
(i)
Except as provided in this paragraph,' money appropriated to the
Reserve Fund shall remain in the Fund.
,
(ii)
1.
Within 15 days after the end of each calendar quarter, the
Department shall notifY the Comptroller as to each final credit certificate
issued during the quarter:
. '
A.
the mmmum credit amount stated in the initial tax credit
certificate for the investment; and
B.
the final certified credit amount for the investment.
2. On notification that an investment has been certified, the Comp­
troller shall transfer an amount equal to the credit amount stated in the initial
tax credit certificate for the investment from the Reserve Fund to the General
Fund.
(f)
Recapture of credit.
-
(l)
The credit claimed under this section shall be
recaptured as provided in paragraph (2) of this subsection if within 2 years
from the close of the taxable year for which the credit is claimed:
(i) the qualified investor sells, transfers, or otherwise disposes of the
ownership interest in the qualified Maryland biotechnology company that gave
rise to the credit; or
(ii) the qualified Maryland biotechnology company that gave rise to the
credit ceases operating as an active business with its headquarters and base of
operations in the State.
(2) The amount required to be recaptured under this subsection is. the
product of multiplying:
(i)
the total amount of the credit claimed or, in the case of an event
described in paragraph (1)(i) of this subsection, the portion of the credit
attributable to the ownership interest disposed of; and
(ll)
1.
100%, if the event requiring recapture of the credit occurs during
the taxable year for which the tax credit is claimed;
2. 67%, if the event requiring recapture of the credit occurs duri:i:tg
the first year after the close of the taxable year for which the tax credit is
claimed; or
3. 33%, ifthe event requiring recapture of the credit occurs more than
1 year but not more than: 2 years after the close of the taxable year for which
the tax credit is claimed.,
(3) The qualified investor that claimed the creditshall paYthe amount to
be recaptured as determined under paragraph (2) of this subsection as taxes
payable to the State for the taxable year in which the event requiring
recapture of the credit occurs.
.
(g)
Revocation ofcertification.
-
(1)
The Department may revoke its initial
or final certification of an approved credit under this section if any represen­
tation in connection with the application for the certification is determined by
the Department to have been false when made.
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2009
SUPPLEMENT
§
10-725
(2) The revocation may be. in full or in part as the Department may
determine and, subject to paragraph (3) of this subsection, shall be communi­
cated to the qualified investor and the Comptroller.
(3) The qualified investor shall have an opportunity to appeal any
revocation to the Department prior to notification of the Comptroller.
(4) The Comptroller may make an assessment against the qualified
investor to recapture any amount of tax credit that the qualified investor has
already claimed.
(h)
Reports.
-
(1)
On or before January 10 of each year, the Department
shall report to the Governor and, subject to
§
2-1246 of the State Government
Article, to the General Assembly, on the initial tax credit certificates awarded
under this section for the prior calendar year.
(2) The report required under paragraph
(1)
of this subsection shall
include for each initial
tax
credit certificate awarded:
(i)
the name of the qualified investor and the amount of credit awarded
or allocated to each investor;
(ii)
the name and address of the qualified Maryland biotechnology.
company that received the inveE?tment giving rise to the credit under this
section and the county where the qualified Maryland biotechnology company is
located; and
(iii)
the dates of receipt and approval by the Department of all appli­
cations for initial tax credit certificates ...
(3) The report
requi~ed
under paragraph
(1)
of this subsection shall
summarize for the category of qualified investors:
(D
the total number of applicants for initial tax credit certificates under
this section in each calendar year;
.
(ii)
the number of applications for which initial tax credit certificates
were issued in each calendar year; and·
(iii)
the total initial tax credit certificates authorized under this section
for all <;alendar years under this section..
(i)
Regulations.
-
The Department and the Comptroller jointly shall adopt
regulations to carry out the provisions ofthis section and to specify criteria and
procedures for application for, approval of, and monitoring continuing eligibil­
ity for the tax credit under this section. (2005, ch. 99; 2008, ch. 518; 2009, chs.
605,606.)
Editor's note. - Section 2, ch. 99, Acts
Effect of amendments. - Chapter 518,
Acts 2008, effective July 1, 2008, rewrote th.e 2005, provides that the act shall take effect on
section.
.
, July 1, 2005, and shall be applicable to all
Chapters 605 and 606, Acts 2009, effective taxable years beginning after December 31,
July 1,.2009, made identical changes. Each 2004.
added "individual or" in (a)(6)(i); in
(b)(l),
Section 2, ch. 518, Acts 2008, as amended by
added "for the taxable year in which an invest­
chs. 605 and 606, Acts 2009, provides that "this
ment in a qualified Maryland biotechnology Act shall take effect July 1, 2008. A tax credit
company is made" and deleted "in a qualified for an investment in a qualified Maryland bio­
Maryland biotechnology company" following technology company under the provisions of
"investment"; deleted former (e)(3)(vii);in the
§
10-725 of the
Tax -
General Article as
introductory language of W(l) and in (f)(2)(ii) amended by Section 1 of this Act shall be
substituted "claimed" for "approved" each time claimed for the taxable year in which the in­
vestment is made."
it appears; and made stylistic changes.
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FAQ on the Maryland Biotechnology Investor Tax Credit Program
State Program
1.
How does the MD Biotech Investor Tax Credit Program work?
Maryland's Biotechnology Investment Tax Credit program provides income tax credits for
investors in qualified Maryland biotechnology companies. This tax credit program was passed
in 2005 to offer incentives for investment in seed and early stage, privately held biotech
companIes.
It
is funded through an annual appropriation. The FYI 0 appropriation was $6
million.
(Note: one of the Tech Council's key legislative issues for the 2010 session is to double this to
$12 million)
The value of the credit is equal to 50% of an eligible investment (minimum $25,000) made in a
qualified Maryland biotechnology company during the taxable year. The maximum amount of
the credit cannot exceed $250,000 for any single investor.
The total amount of initial credit certificates issued in each fiscal year cannot exceed the
amount appropriated to the reserve fund in the state budget. All applications are reviewed and
approved on a first come, first served basis.
2. What is a 'qualified Maryland biotechnology company'?
According to the statute:
• A company organized for profit that is primarily engaged in the research, development, or
commercialization of innovative and proprietary technology that comprises, interacts with,
or analyzes biological material including biomolecules (DNA, RNA, or protein), cells,
tissues, or organs
• An entity of any form (except sole proprietorships) duly organized and existing under the
laws of any jurisdiction for the purpose of conducting business for profit.
• Has its headquarters and base of operations in Maryland;
• Has fewer than 50 full-time employees;
• Has been in active business no longer than 10 years (this can be extended to 12 years
under certain circumstances);
• Does not have its securities publicly traded on any exchange; and
• Has been certified as a biotechnology company by DBED.
3. What is a 'qualified investor'?
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FAQ on the Maryland Biotechnology Investor Tax Credit Program
• Any individual or entity that invests at least $25,000 in a qualified Maryland biotechnology
company and that is required to file an income tax return in any jurisdiction (not just MD).
• Does not, after making the proposed investment, own or control more than 25% of the equity
interests in the qualified Maryland biotechnology company in which the investment is to be
made.
• Does not include pension plans, individual retirement account, or other qualified retirement
plans.
4. What is the maximum tax credit any single investor can get?
An investor may claim a 50% credit against their (minimum $25,000) investment in a qualified
Maryland biotechnology company, up to a ceiling of $250,000 per investor.
5. How do investors get the tax credit?
For the taxable year in which an investment in a qualified Maryland biotechnology company is
made, a qualified investor may claim a credit agamst the State income tax in an amount equal to
the amount of tax credit stated in the final credit certificate approved by the Secretary of DB ED.
If the tax credit in any taxable year exceeds the total tax otherwise payable by the qualified
investor for that taxable year, the qualified investor may claim a refund in the amount of the
excess.
6. What about investors who don't pay taxes in Maryland?
Qualified out-of-state investors receive the tax credit in the form of a direct payment from the
Comptroller of Maryland.
7. What is the maximum share of the annual program appropriation that any single
qualified Maryland biotechnology company can obtain?
No single qualified Maryland biotechnology company can claim more than 15% of the annual
program appropriation. For FYI 0 (total appropriation: $6 million) this means $900,000.
8. How many Montgomery County biotech companies have benefited from the program
since its inception?
For the fiscal years FY07 - FY 09, 24
of the
39
companies
that benefited from the program were
based in Montgomery County. According to state data, investors in these companies received
tax credits totaling $10.5 million
and invested a total of $22.4 million.
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~c
Sfb'f
LL
OFFICE OF NfANAGEMENT AND BUDGET
Isiah Leggett
County Executive
""to
054514
Joseph F. Beach
Director
'OD
MEMORANDUM
February 22, 2010
TO:
FROM:
SUBJECT:
Nancy Floreen, President, County Council
Joseph F. Beach, Dire,.....
"'~--.;.
Expedited Council Bill -10, Biotech Credit Supplement
-<
The purpose ofthis memorandum is to transmit a fiscal impact statement to the Council
on the subject legislation.
LEGISLATION SUMMARY
Expedited Bill 5-10 (EB 5-10) enacts a County tax credit that supplements any State
biotech investment tax credits given to those who have invested in Montgomery County based biotech
companies. The tax credit would be administered by the Department of Finance or the Maryland Office
of the Comptroller,
if
the Comptroller agrees to administer it on the County's behalf. This
tax
credit, like
the County's other business tax credits, would be an entitlement for those eligible and it would not be
subject to County appropriation, as the bill is currently constructed.
FISCAL SUMMARY
The legislation obligates the Department of Finance to either administer the credit, or to
come to terms with the Maryland Office ofthe Comptroller to have the Comptroller administer the tax
credit on the County's behalf. The bill does not provide the Department ofFinance with the resources
required to either administer the credit or to negotiate with the Comptroller to have the Comptroller
administer the credit. The Department does not have the resources available to serve either ofthese
functions. The bill requires that all requests for the
tax
credit be made by way of an application and the
Department notes that the number of State
tax
credit recipients that received credits for investments in
Montgomery County businesses
in
2008 exceeded the number of recipients given Montgomery County
business
tax
credits that year. The business
tax
credits already require one workyear and since 2008 the
County has enacted additional
tax
credits, (such as the Renewable Energy Tax Credits) the administration
of which had to be absorbed by existing personnel.
If
this bill is enacted, it would require that Finance be
given additional resources to implement and administer
it
as the Comptroller is unlikely to take on the
responsibility in these harsh economic times. Therefore, the Department ofFinance would require the
creation of a part-time, Grade 23 position to administer this program. The estimated cost for a part-time
position with benefits (at mid-point) is $44,545 and a halfof a workyear.
________________
~~~~~~~~~~O~f=fi~ce~of~t=h~e~D~k;e;ct~o~r------------
____________________
~~
101 Monroe Street, 14th Floor' Rockville, Maryland 20850 • 240-777-2800
www.montgomerycountymd.gov
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Nancy Floreen
February 22, 2010
Page 2
The
Issue of Direct Cost:
The EB 5-10 tax credit is an entitlement for those who have been certified to receive the
State's Biotechnology Investment Incentive Tax Credit for investments that they have made in
Montgomery County based biotech companies. As an entitlement, the cost of the credit is determined
solely by State action, and is dependent on how much the State appropriates for its tax credit and how
much of that appropriation goes to investors in Montgomery County businesses. The County has no
control over the cost ofthe
tax
credit under the legislation as it is currently constructed.
If
future State
credits are similar to those ofthe recent past, then the County could expect the EB 5-10 tax credit to cost
about $2 million per year. However, if the State increases its appropriation, or
if
it keeps its appropriation
at the same level but more of it is given to investors in Montgomery County based companies, then the
County will see a consequent increase in its cost for the tax credit.
It
follows that a reduction in State
appropriations for the State credit would lower the cost to the County (unless more ofthe State credit goes
to those who invest in Montgomery County).
The issue of direct cost is somewhat mitigated by the fact that investors know that if they
invest in Montgomery County companies and are certified by the State for the State credit, then they will
get the County credit too. This should serve as an incentive to invest in Montgomery County biotech
businesses, rather than in similar businesses in other parts ofMaryland, at least for those who are
investing in biotech companies. This could also serve to skew investments toward Montgomery County
businesses, which could skew the State tax credits more toward Montgomery County businesses and
consequently cause the County to incur additional costs for the credits. The upside risk is that the
proceeds that investors receive as
tax
credits could be re-invested in Montgomery County biotech
ventures, thereby multiplying the effect of the
tax
credits given. All of the risk associated with having no
control over the cost of the credit could be mitigated merely by requiring that the County Council approve
an amount for the credit prior to the State's certification ofthe State
tax
credits in a given year, and
limiting the County's exposure to whatever that amount may be. The State's budget is approved before
the County's and the Council would know how much to approve to ensure that the County's match is
50%, if it wants to spend that much on the credit.
The following contributed to and concurred with this analysis: Alison Dollar, Office of
Management and Budget, Michael Coveyou, Department of Finance, and Peter Bang, Department of
Economic Development.
JFB:ad
c: Kathleen Boucher, Assistant Chief Administrative Officer
Michael Coveyou, Department of Finance
Steve Silverman, Director, Department of Economic Development
John Cuff, Office ofManagement and Budget
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J
Expedited BillS-10
Economic Development - Biotech Credit - County Supplement
February 23, 2010 Public Hearing
Testimony of Janis Pitts, Director of the Montgomery County Life Sciences
Strategy
For the record, my name is Janis Pitts. I am director of the Montgomery County Life
Sciences Strategy for the Department of Economic Development, and I am here today to speak
on behalf of the County Executive in support of Expedited Bill 5-10 - Biotech Credit - County
Supplement.
This bill will supplement the State of Maryland's highly successful Biotechnology
Investment Tax Credit Program by providing investors in Montgomery County biotechnqlogy
companies with an additional 50 percent local tax credit on top of state tax credits.
Biotech is a high risk investment, with uncertain outcomes and long development
timelines. The Bioscience Task Force report notes that while investment finance is a challenge
at all stages of the Research and Development (R&D) continuum, there is a particular shortage of
seed and venture capital for early stage companies.
These early-stage research-oriented companies represent a sizeable portion of the biotech
companies in the County. Maryland's Biotech Investment Tax Credit program has enabled a
significant number of them to attract critically needed angel investment to help sustain them
through the so-called 'valley of death' until they reach proof-of-concept and can attract venture
financing.
During the first three years of the State program (FY07-09), 24 of the 39 companies that
benefited were in Montgomery County. State tax credits helped them leverage $22.4 million
dollars of investment. Preliminary figures for FYI 0 indicate that investments in eight County
biotech companies have been certified for state tax credits.
A 50 percent local supplement to State tax credits would give a significant boost to early
stage biotech companies in their efforts to attract investors and expand their operations in
Montgomery County.
It
would position Montgomery County as the first local jurisdiction in the country to
adopt a local tax credit for biotech, and make a clear and strong statement to investors,
entrepreneurs and companies looking to relocate or expand that the County pro-actively supports
its biosciences sector, and offers unparalleled local incentives.
Over the past 25 plus years, Montgomery County has made important strategic
investments in developing a vibrant biosciences sector. We have reaped significant returns on
1
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this investment in the form of new, well-paying jobs, private capital investment and additional
tax revenues.
But as Biosciences Task Force report emphasizes, we are now in a global competition for
new bioscience investment and jobs. Our competitors around the country and across the world
are plowing hundreds of millions of dollars into the development of their own bioscience
clusters. If Montgomery County wants to stay in the game and gain, not lose ground, we need to
use every tool possible to help sustain and grow our local biotech industry.
For this reason, the Bioscience Task Force selected the creation of local biotech tax
incentives as one of its priority recommendations.
On behalf of the County Executive, I urge you to pass Expedited Bill 5-10 with an
amendment which provides that the tax credit supplement is subject to appropriation in the
County budget. This amendment would align Expedited Bill 5-10 with the State law governing
the State biotech tax credit, which is subject to an annual appropriation in the State budget.
Since the State budget is approved before the County budget is approved each year, the Council
will have a clear understanding each year of the potential fiscal'impact ofthe County tax credit
supplement before adopting the annual budget and can limit the County's exposure if necessary.
If a funding source can be identified, the County Executive believes that the local tax
credit supplement should be made available at the beginning of calendar year 2011. If the
aggregate amount of future State tax credits is similar to those of the recent past, the maximum
cost of the local tax credit created by Expedited Bill 5-10 would be about $2 million per year.
However, ifthe State increases its aggregate appropriation, or keeps it at the same level but gives
more of the total appropriation to investors in Montgomery County based companies, the
maximum cost of the credit would be higher.
The Executive Branch also suggests a couple of additional minor changes to clarify the
bill's language. We will relay these recommended changes to the Council's legislative staff,
and will also note them during the
PHED
committee work session on March 1st.
Passage
of
Expedited
BillS-lO
is
an
important first step in achieving the vision
articulated in the Bioscience Task Force report for Montgomery County to:
" .... enhance its position as a globally recognized leader in advancing bioscience
research and development, and in translating scientific discoveries into
commercially available products that benefit human health."
On behalf of County Executive Leggett, I recommend that you pass this bill with the requested
amendments. .
2
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2-23-10 Public Hearing
Montgomery County Expedited BillS-10 - Biotech Credit Supplement
• My name is Douglas Doerfler and I am here today to speak in
support of Expedited Bill 5-10 - Biotech Credit Supplement. This bill
would supplement the State of Maryland's highly successful
Biotechnology Investment Tax Credit Program by providing investors
in qualified Montgomery County biotechnology companies with an
additional 50 percent tax credit.
• A powerful example of an R&D Tax Credit success story is my
company MaxCyte, a Gaithersburg company that is developing
innovative cell-based therapies for the treatment of cancer and
cardiopulmonary diseases. We employ approximately 20 scientists
and engineers and have global development partnerships with local
companies such as United Therapeutics as well as companies such as
MedINet in Tokyo, Japan.
• In 2008, MaxCyte received $500,000 worth of Maryland R&D Tax
Credits and $125,000 more in 2009, for a total of $675,000. Total
capital (debt and equity) raised as a direct result of the R&D Tax
Credits was over $5 million, which means that for every dollar of
R&D Tax Credit, MaxCyte was able to leverage $7.40 of investment
in the con1pany.
• These credits directly helped MaxCyte hire four additional
employees in 2009 and allowed the company to double its revenues
and achieve massive reductions in losses, making MaxCyte a healthier
and more valuable Montgomery County company.
• As you may know, biotechnology companies have a notoriously
difficult time obtaining investment capital, and it is especially hard for
early stage companies to attract seed and venture capital. Given the
risk involved in these businesses as well as the capital required,
MaxCyte had to take advantage of every program available to survive
and grow. In 2002, we received an 80,000 loan from Montgomery
@
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2-23-10 Public Hearing
Montgomery County Expedited BillS-10 - Biotech Credit Supplement
County Economic Development Fund. We were
awar~ed
two SBIR
grants from the US SBA, received investments from the Maryland
Venture Fund and have raised over $30 M in over 20 rounds of
financing from over 40 investors from around the world, recently in
Asia. The County, State and Federal programs provided the catalyst
for most of these investn1ents.
• The 50 percent supplement to State tax credits that Expedited Bill
5-10 would offer qualified investors in Montgomery County biotech
companies would greatly enhance the ability of early-stage companies
like MaxCyte to attract investors, as it would effectively give them a
75 credit on their total investment.
• Equally importantly, the program would send a strong signal to
investors and entrepreneurs -locally, nationally and globally - that
Montgomery County pro-actively supports the growth of its
biosciences industry - this is the place you want to be.
• Offering tax credits to investors in qualified companies will help
stimulate the capitalization of local biotechnology firms, attract new
biotech start-ups, create new, well-paying jobs, and generate new tax
revenues for the County.
• Montgomery County has done an excellent job of fostering the
development of its biosciences industry, and biotech is now a
cornerstone of its economy. But as regions and states around the U.S.
and countries across the globe invest hundreds of millions of dollars in
developing their own bioscience clusters, the County needs to avail
itself of every tool possible to help sustain and enhance its position as
a leader in biotech research and product development.
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2-23-10 Public Hearing
Montgomery County Expedited BillS-l0 - Biotech Credit Supplement
• The tax credit supplement proposed in Expedited Bill 5-10 is one
such tool. I urge you to support its passage, and to appropriate funds
to jump start the program.
@
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February 23,2010
Good afternoon. My name is Marty Zug and I am the Chief Financial Officer of Sequella, Inc. in
Rockville. Sequella is a clinical stage biopharmaceutical developing drugs and diagnostics for
infectious diseases.
I am here today to speak in support of Expedited Bill 5-10 Biotech Credit Supplement. This
bill would be a welcome addition to the very successful State Biotechnology Investment Tax
Credit Program. The magic of the State's program and the one being proposed by Montgomery
County is that they are market driven - where investors choose where capital should flow. The
benefits are enormous as biotechnology is a very capital intensive business where the
participants have tremendous difficulty raising capital to move their products forward.
Over the past four years, the State Biotech Investment Tax Credit has been a lifeline for Sequella
and over 40 other Maryland Biotechs, most of them located in Montgomery County. At
Sequella, we have raised $5.3 million directly through the program over the past four years.
Additionally, the amounts raised through the program allowed us to secure an additional $10
million in investment and over $20 million in grant funding. Without this program in place, it is
highly doubtful we would have survived as a company.
Demand for the state tax credit greatly exceeds the budget allowance each and every year so it
is a very welcome idea to supplement the state's program in Montgomery County. In July 2008,
the Department received applications totaling $8.5 million for $6 million of funding - on the first
day of availability and applicants slept out on the streets of Baltimore to ensure their investments
would qualify.
In 2009, Companies lined up a full five days ahead ofthe Statetax credit application date. Five
Days! That fact alone shows how valuable this particular tax credit is to small biotechnology
companies. Supplementing the state program will provide more incentive for investment which
will in turn create new jobs, attract new biotech start-ups, and generate additional tax revenue for
the County.
I thank you for your time today and urge you to pass Expedited Bill 5-10 for the Biotech Credit
Supplement You will make a significant and positive impact on biotechnology growth in
Montgomery County with this legislation.
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THE VOICE OF MONTGOMERY COUNTY BUSINESS
MONTGOMERY COUNTY COUNCIL
BILL 5-10
FEBRUARY 23,2010
SUPPORT
The Montgomery County Chamber of Commerce ("MCCC"), as the voice of
Montgomery County business, supports Bill 5-10, which would authorize
Montgomery County to provide a local biotechnology tax credit.
The Maryland biotechnology tax credit has been a huge success in helping early
stage biotechnology companies thrive. In three years, nearly 40 companies have taken
advantage of the 50% tax credit provided by the State of Maryland. In 2009, the $6
million in credits were given to investors on the first day they were available, with many
biotechnology executives lining up days in advance to have access to the program.
Through 2009, close to 80 percent of the companies that used the credit were in
Montgomery County, demonstrating the critical mass of start up biotech companies
located in our community. Most importantly, the tax credit addresses a critical gap in
our biotech community: the lack of investment dollars for early stage companies that is
demonstrated in communities like Palo Alto and Boston.
Our one small concern is that because so many worthy companies are unable to
access the State credit given the high demand and limited dollars, we are a little worried
that the reliance on piggy backing the County credit for those who receive the State
credit will shut out many of the same worthy companies. We support the Council getting
this program up and running as structured in the legislation, but also think it's worth
examining this particular set of issues once the program has been launched and running
for some reasonable amount of time.
We applaud the efforts to grow jobs here in the County and look forward to working with
you on other efforts consistent with this mission so that we can grow the tax base for our
community.
Gigi Godwin. President and CEO
Montgomery County Chamber of Commerce
51 Monroe Street. Suite 1800 Rockvilk. MD 20850
301-738-0015
www.montgomerycountychamber.com
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POSITION STATEMENT
~
TECHCOUNCILOFMD
.MdBl0
I
MdT<och
, MC
5-10
--
Economic Development
-
Biotechnology Credit
-
County Supplement
Montgomery County Council
February 23, 2010
Support
The Tech Council of Maryland (TCM), a non-profit membership organization with over 500
technology and biotechnology member companies who employ more than 250,000 people in
our region, strongly supports MC 5-10 --
Economic Development- Biotechnology Credit­
County Supplement.
The unique Maryland state Bi'otech Tax Credit is model legislation that the Biotechnology
Industry Organization, which represents biotech companies on the national level, has put
forth for other states to consider. This tax credit provides incentives for early stage biotech
companies to locate and grow in Maryland, and especially in Montgomery County where
there is already a strong cluster of such companies. However, competition for the biotech
industry and its high-paying jobs among other states remains fierce. Just across the river in
Virginia, economic development leaders are also looking at biotech as a way to grow their
economy. Virginia and virtually every other surrounding state wants to create biotech jobs
because they see the average salary for someone employed at a Maryland biotech company
is $76,785.
The existing Maryland tax credit has been a great success in helping early stage biotech
companies secure needed capital to grow their businesses. Starting a biotech company is
very risky and capital intensive, so such incentives often are the difference between success
and failure. It takes a number of years for a biotech company to go through its development
stages before bringing a product to market. During this process, a biotech company typically
requires significant investment to survive before products are brought to market and a profit
can be realized. The business model is one of high risk and high reward. Incentives like the
Biotech Tax Credit help nurture companies that create high-paying, family-supporting jobs
that are vital to Maryland's long-term economic development efforts.
Again, the Tech Council of Maryland urges the Montgomery County Council to support MC 5­
10.
II
9713 KEY WEST
AVENUE,
SUITE 100.
ROCKVILLE.
MD 20850 •
240.243.4026
PH
.240.243.4060
FX.
WWW.TECHCQUNCllMD.COM
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Blue Torch Medical Technologies Testimony in Support of Bill 5-10
February 23, 2010
My name is Jerry Stringham. I am President of Blue Torch Medical Technologies in
Rockville, Maryland. Blue Torch is a young biotechnology company with a commercial
product that helps surgeons preserve nerves that are easily damaged in surgery.
Blue Torch is an example of how powerful the Maryland Biotechnology tax credit has
been. In 2007, Blue Torct{ was based in Ashland, Massachusetts and at a financial
crossroads. Running low
ffiq
capital, the incentive for equity investment afforded by the
Maryland program was sufficient to warrant moving our operations to Rockville. While
we raised just $100,000 through the program in the first year, that capital was critical to
continuing our operations, which has drawn more than $1 million in sales, grants and
additional capital since then and is now on a growth path Without a doubt, Blue Torch
would not have moved to Maryland without the program.
The biotechnology tax credit program continues to open doors for us for other potential
investors and business partners, who view the award of credits as strong support from
the state. The program continues to provide an important tool for us to access the
capital necessary to advance our technology, which is now in use in the United States
and Canada. The existence of the program itself adds to our credibility as a
biotechnology company, as Maryland's reputation has increased as a pro biotechnology
state.
The addition of a companion tax credit for Montgomery County would be a powerful
addition to secure development and expansion capital not available to earlier stage
biotechnology concerns like ours. This credit would make Montgomery County the
dominant area for young biotechnology concerns in the State, just as the state program
has drawn companies like ours from other states. The added incentive would be
powerful to expand growth and opportunity.
I thank you for your time today and urge you to pass Expedited Bill 5-10 for the Biotech
Credit Supplement.
@
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Written Testimony of Jonathan Cohen
President
&
CEO of 20/20 GeneSystems, Inc.
Rockville, MD
In Support of
Biotech Tax Credit Supplement
Montgomery County Expedited BillS-tO
February, 23 2010
I
am
Jonathan Cohen, President & CEO of 20/20 GeneSystems, Inc. and a lifetime resident of
Montgomery County.
At the outset, I would like to express my strong appreciation to Councilmember Knapp,
Council President Floreen, Council Vice President Ervin, Council Member Leventhal, and
Councilmember Tranchtenberg for co-sponsoring this extremely important legislation. Out­
of-town business travel prevented me from presenting oral testimony at the hearing but I
would be most appreciative ifmy written testimony would be considered by the Council.
20/20 is a Rockville based biotech company focused on developing innovative diagnostics
and detection technologies. Our BioDefense division invented a novel technique for
screening suspicious powders based on meetings we had with the Montgomery County Fire
and Rescue Service at the peak of the 200 I anthrax mailing. The product we developed-­
BioChecl&;;
has yielded annual revenue growth of 30% per year for each of the last three years
and supports employment of about one-third of our company's 16 employees. Last week we
signed a worldwide distribution agreement with Smith Detection, a division of a multi­
national company with over 20,000 employees and more than $1.7 billion in annual revenues.
We anticipate that this new marketing relationship should further boost our sales growth and
result in new hires for 20/20.
Our cancer testing division has developed a technology to analyze tumors to better predict
whether a particular drug will be effective in treating the cancer. Over the past 3 years we
have won over $2.5 million in government funds in support of this technology and are now
preparing to compete for a new NIH funding initiative called the "Bridge A ward" which
provides up to $3 million in government grants (over a three year period) if the applicant can
obtain at least 1:1 matching funds from private investors.
The state tax credit program,
hopefully supplemented by the new County initiative, will be a critical tool in our effort
to raise these matching funds.
The economic downturn has made it particularly hard for biotech companies such as
20/20
that are engaged in higher risk R&D to obtain investment capital. Fortunately, the Maryland
Biotechnology Investment Tax Credit has defied economic gravity.
To date we have raised
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Testimony of Jonathan Cohen
Expedited Bill 5-10
Page 2
about $2.5 million as a direct result of this program. Simply put, our company would
not be in business without this unique and important investor incentive.
The proposed Montgomery County supplement would be a huge accelerator permitting more
rapid investments and job growth by the life sciences sector which is uniquely capable of
creating high paying, sustainable jobs.
When considering the merits of this bill, particularly when so many important county services
need to be cut due to budget constraints, please keep the following in mind:
• Each dollar allocated by the County would immediately yield at least four dollars
in outside investments.
Thus, for example, if Expedited Bill 5-10 were implemented
as written, $25,000 in county credits would be allocated only if a Montgomery County
biotech company earned at least a $100,000 investment.
• Beneficiary companies will further attract outside federal funding and additional
private sector investments.
For example, over the past 3 years
20/20
has been
awarded over $3 million in federal funding and several hundred thousand dollars from
R&D partnerships with large corporations. However, unlike investment income,
federal and corporate funding must be spent in very specific ways. Thus, investment
income earned from the Maryland biotech tax credit was absolutely essential to help
20/20
attract and deploy this outside funding.
• When governments help companies create and bring to market innovative
technologies, jobs grow long after the government funding ends.
Whereas most of
the jobs created by the federal stimulus program end when the government funding
ceases, products like the
20/20 BioCheck®
kit (developed with a mere $100,000 in
state funding) support jobs in diverse fields such as manufacturing, sales and
marketing, accounting, etc. decades after the government assistance ends. In other
words, innovative technology products are a jobs "gift that keeps on giving."
We would welcome the opportunity to meet with any member of the Council having questions or
concerns about the merits of Expedited Bill 5-10. Thanks.
Respectfully submitted,
Jonathan Cohen
President & CEO,
20/20
GeneSystems, Inc.
Tel. 240-453-6339 xl 02 Email: icohen@2020gene.com
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Written Testimony in Support of Expedited bill5-l0
Ozge Alper, CEO and President, Alper Biotech
F or the record, my name is Ozge Alper and I am writing to express
my company's support for Expedited Bill 5-10 - Biotech Credit
Supplement. This bill would supplement the State of Maryland's
highly successful Biotechnology Investment Tax Credit Program by
providing investors in qualified Montgomery County biotechnology
companies with an additional 50 percent tax credit.
Biotech companies have a notoriously difficult time obtaining
investment capital, and it is especially hard for early stage companies to
attract seed and venture capital. Maryland's biotech investment tax
credit program has enabled promising but high-risk start-up companies
like mine to leverage critically needed angel funds to support our
research and development and operational costs.
Thanks to Maryland's program, we have secured $1,816,000 in
angel money to date. These funds have enabled us to discover more
than ten Biomarkers which we will use as tools for early diagnosis of
various cancers; to prepare our first diagnostic kit for marketing and to
create one full time and four part-time new positions. Without this
critical infusion of cash, we would not be able to make significant
progress and complete our first kit and start marketing.
The 50 percent supplement to State tax credits that Expedited Bill
5-10 would offer qualified investors
in
Montgomery County biotech
companies would greatly enhance the ability of early-stage companies
like Alper Biotech, LLC to attract investors, as it would effectively give
them a 75 credit on their total investment.
The progranl would send a strong signal to investors and
entrepreneurs - locally, nationally and globally - that Montgomery
County pro-actively supports the growth of its biosciences industry.
Montgomery County has done an excellent job of fostering the
development of its biosciences industry, and biotech is now a
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Written Testimony in Support of Expedited
bill5-l0
Ozge Alper, CEO and President, Alper Biotech
cornerstone of its economy. But as regions and states around the U.S.
and countries across the globe invest hundreds of millions of dollars in
developing their own bioscience clusters, the County needs to avail
itself of every tool possible to help sustain and enhance its position as a
leader in biotech research and product development.
The tax credit supplement proposed in Expedited Bill 5-10 is one
such tool. I urge you to support its passage, and to appropriate funds to
jump start the program.
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Statement
of
Peter
J.
Levine
President and CEO
Correlogic Systems, Inc.
on
Expedited
Bill 5·10
February
23, 2010
I am Peter Levine, President and CEO of Correlogic Systems, Inc. I appreciate
the opportunity to submit comments on Expedited Bill 5-10 before the
Montgomery County Council. I applaud the Council's vision in cultivating
Montgomery County biotech companies - recognizing the value of the jobs they
generate and their contribution to technological advancement more broadly. I
would urge passage of the bill with some modifications I will detail later in my
testimony.
Corre/ogic Background
Correlogic is a biomarker discovery company engaged in the development of
tools and processes for proteomic and genomic-based clinical diagnostic
systems, and new drug discovery. The company has developed patented and
patent-pending, scientifically validated methodologies and tools for the early
detection of various cancers and other diseases through the use of high
throughput bioassays and pattern discovery software. The technologies have a
wide range of applications for the creation of disease diagnostic models,
biomarker and new drug discovery processes, bio-defense, and complex data
analysis problems. Our lead product, a proteomic pattern blood test for ovarian
cancer, is now working its way through the FDA regulatory process. Other
potentially life-saving tests, including blood tests for colon and breast cancer are
in our pipeline. The company was founded in 2000, and is based in
Germantown, MD.
Corre/ogic's Experience with the Mary/and Biotech Investment Tax Credit
It is intrinsic to the biotech industry that a great deal of time and financing is
required to get a product to market. In our case, after nine years of development
and clinical trials, and with virtually all our funding from the private sector, we are
almost to market with a life-saving product. This is a critical phase for biotech
companies. Indeed, many valuable products fail to reach market for lack of the
last pieces of financing - so many in fact, that the National Institutes of Health
has dubbed this gap "the valley of death".
In the summer of 2008, securing the close-to-the-finish-line funding was the very
challenge Correlogic faced. That challenge was exacerbated as the credit
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crunch began, ultimately shutting down private funding, including most venture
capital, for the biotech industry.
While the economic meltdown kept us from obtaining the full sum we will need to
get to market, the Maryland biotech investment tax credit enabled us to close on
sufficient funding to carryon. Without it, we might have been forced to layoff our
employees: scientists, software programmers, and support staff; and years of
productive research within reach of fruition might have been lost.
It is important to emphasize that Federal bailout and stimulus efforts largely
ignored the reality faced by small companies. While there have been billions for
the too-big-to-fail companies that were largely if not entirely responsible for their
predicaments -- and that of the country -- the rest of us were left to fend for
ourselves in the financial aftermath. On the federal level, only belatedly has
there begun to be focus on this 'fundamental sector.
The Maryland biotech investment tax credit has stood in stark contrast. It is a
smart, efficient, market-based incentive that recognizes the funding challenges
the biotech industry faces -- even in a stable economy. In the context of
economic crisis, it has been a lifeline that preserves not only jobs, but also the
years of research and development investment
already made
and the
technological and medical advancement potential they hold for SOCiety more
broadly.
Expedited Bill No. 5-10
The County Council faces myriad competing budget demands; now especially,
the demands are heightened while the ability to meet them is constrained. And
so, the introduction of a new expenditure program at this time is particularly
deserving of praise for
its
courage and vision. By enacting a program similar to
that of the State, the County can promote new jobs and technology and preserve
those investments still working their way through the pipeline.
However, as the Council considers this legislation, I would urge one fundamental
modification: that the tax credit
not
be limited only to companies that already
received the state tax credit. Indeed, companies that have already received state
assistance in the same year should logically be excluded from the additional
benefits offered by the county. The demand for the state tax credits far exceeds
funds available, as the annual newspapers stories of weary applicants waiting
days in line graphically depict. The state program is first-come-first-served; once
a year the window opens, and within moments all funds are allocated to the first
handful of companies in line. Then, there is
nothing
for the rest of the biotech
hopefuls, however otherwise deserving.
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By limiting the county incentive to the same handful of companies fortunate
enough to secure the state incentive, the county ensures that no additional
companies are helped; the county incentive would simply deepen the benefits
already obtained by the successful state
recipients~·
a win-win for some, but a
lose-lose for the majority.
Surely my own investors in 2008 would have been delighted to know that their
state tax incentive would be compounded by the county. But the limitation of the
state incentive is far more its breadth than its depth. Given the relatively small
number of deserving companies the state program can reach each year, I
strongly believe that the county should focus
its
resources on companies that are
not
already receiving state tax incentives. If there were to be a linkage to the
state program, I believe it should be that receipt of the state biotech tax credit
disqualifies
the applicant from county tax credits in the same year or for some
appropriate period. At a minimum, receipt of state credits should not be condition
precedent for obtaining the Montgomery County incentives.
I would offer one additional eligibility modification for the Council's consideration.
The state program generally limits eligibility to companies that have been in
business for less than ten years. That sounds like a long time, but as I can tell
you - from my own near decade of experience with Correlogic
~-
it takes a very
long time to take a technology from concept to validation and especially through
FDA approval and ultimately to market. The financial crisis of the past few years
has contributed to delay; funding shortages meant staff cutbacks for many
companies and held back the pace of research progress. Particularly in view of
the funding challenges of the past few years, I would urge the Council to consider
extending eligibility to companies that have been in business somewhat longer
than ten years.
I would be pleased to discuss any of these comments further. Thank you for
support of the biotech industry and for the opportunity to present our views.
Respectful1y submitted,
:'
.
. ;'
!
.
//J~l:i'M
/'
i
Peter
J.
lieviry'e
Presi~t
and CEO
Correlogic Systems, Inc.
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