Mr. and Mrs. Biotech Go to Washington

Friday, Jan. 30, 2009 | The mad dash for a jolt from Washington’s nearly trillion-dollar booster shot includes several industries — automakers and bankers come to mind — well-schooled in the art of going hat in hand to lawmakers. But a few not-so-familiar faces have entered the arena this time around, like the biotechnology industry.

The industry, over the past year or so, has engaged in a general ramping up of its lobbying efforts in Washington D.C. “It is fair to say we are focusing on Washington these days in a much more substantive way than we have in the past,” said Joe Panetta, CEO of Biocom, San Diego’s biotech industry organization.

A big reason, of course, is the economic crisis. Most biotechs rely exclusively on investor money, which has all but dried up since last year. Industry lobbyists have been scrambling around Capital Hill in recent weeks trying to sell the so-called “biotech bailout,” a provision that would give small, research-based companies that lost money last year government cash now in the place of future tax credits.

The provision did not make it in the $819 billion stimulus package passed by the U.S. House on Wednesday. And while lobbyists are still holding out hope that the Senate will include the provision in its final stimulus bill, they acknowledge that getting the upper house to bite on the idea will be an uphill battle as well.

Biotech lobbyists haven’t ignored the federal government in the past — they push hard each year, for example, to keep the research and development tax credit. But they have spent most of their time in recent decades lobbying state governments for things like infrastructure improvements and subsidies for the construction of facilities.

Another underlying reason for the new push is the transfer of power in Washington. George W. Bush made it clear early on in his presidency that science would take a back seat to faith-based initiatives. That will not be the case Barack Obama’s administration. Obama made a point of saying his inaugural address that he will “restore science to its rightful place.”

Biotech was also bolstered by the ascendency of Nancy Pelosi to House speaker. The San Francisco Democrat’s district is in the middle of one of the great life science hubs in the world. And, given what has happened during the past year, the industry needs those friends in high places more than ever.

Layoff notices and the curtailing of research are now commonplace in a sector that was a reliable jobs-generator for decades in places like San Diego, San Francisco and Boston. Nearly a third of all biotech companies are operating with less than six months of cash on hand, and the amount of money raised through initial public stock offerings dropped by 97 percent from 2007 to 2008, according to Bio, the national industry association.

“It is safe to say that half the companies out there will be in trouble by end of the year,” Panetta said.

The tax provision would allow companies that don’t have any revenue to receive a refund of their “accumulated net operating losses” now exchange for not taking tax credits in the future in the event that they became profitable. It could mean hundreds of millions, even billions of dollars to the industry. However, lobbyists acknowledge that they have no hard numbers as of yet.

It would only apply to small companies that lost money in 2008, and the tax refund would have to be spent on research. Another caveat being highlighted by industry lobbyists is that the companies would be taking their future tax credits at a discounted rate.

For example, a company with $100 million in accumulated net operating losses could take $20 million in cash now, but would give up the ability to realize the other $80 million in potential future tax credits. However, this forgoing of $80 million assumes that the company becomes profitable in the future — hardly a guarantee for biotech companies.

The industry’s rationale for the provision is that without a cash infusion many small companies doing cutting-edge research into cures for cancer, diabetes and other deadly diseases will disappear and public health will ultimately suffer.

However, the idea of refunding taxes in such a way is a new concept, which makes the proposal a particularly hard sell to lawmakers under extreme pressure to pass a stimulus before the end of February. “This does make it a little more challenging,” said Jimmy Jackson, Biocom’s public policy chief. “You have to educate people on what net operating losses are while you are trying to discuss the topic.”

Jackson and others said their highest hopes for the provision have always been in the Senate, whose members are concerned about job and industry growth statewide, rather than the provincial concerns of a House member.

“The House is tough because it is tremendously diluted by its many districts,” said Ellen Dadisman, a Bio spokeswoman. “As opposed to going to a senator from California who is looking at San Francisco, Silicon Valley and San Diego.”

For the most part, members of San Diego’s congressional delegation — as well as California senators Dianne Feinstein and Barbara Boxer — are hesitant to acknowledge specific items they favor and don’t favor in the stimulus package. Rep. Brian Bilbray, R-Carlsbad, supported the provision, and his spokesman Fritz Chaleff said it was in the GOP version of the House bill. The offices of the other lawmakers either wouldn’t comment or didn’t return calls regarding their position on the provision.

The bill passed by the House did have other measures that help the biotech industry. The bill includes a $2 billion bump in the National Institutes of Health Biomedical Research budget, and $1.5 billion for NIH to renovate university research facilities. And the lobbying efforts are worthwhile even if they don’t lead to immediate cash for the industry, Dadisman said.

“Of course we would like the provision to be included,” Dadisman said. “But (regardless) it is an opportunity for senators who have biotech hubs to give recognition to the needs of the sector.”

Please contact David Washburn directly at david.washburn@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.