Starting a Biotech? Move to Maryland
Let’s face it: current conditions don’t favor a startup company of any kind, and especially not a biotech.
Though the current economic crisis seems to be centered around mostly finance and real estate, the stock market crunch borne from the climate is obviously not kind to angel investors and venture capital firms, which in turn make it difficult for those startup companies seeking funding. And with biotechnology firms being one of the less stable kinds of investments one can make, it’s difficult to see an immediate future in which such a company could thrive.
Baltimore, however, may have an answer for those willing to spend a few hours waiting in line.
Remove any reference to the biotechnology sector, and “Biotech Start-Ups Covet Tax Credit” might be a story about people lining up for tickets to a hot concert, or perhaps the most popular toy of the Christmas season, or maybe the latest iPod. But the motivator here is the advantage start-ups can offer their investors real savings in the form of tax breaks. Scott Allocco, president of BioMarker Strategies, decided it was worth 11.5 hours of his time in line in order to get back at least some of the $1 million that was invested in his medical device and cancer patient diagnostics company.
Every year, the Maryland Department of Business and Economic Development allocates $6 million in tax credits for its Biotechnology Investment Tax Credit program. The program is a first-come, first-serve basis at the start of the tax year, 9am on July 1st. Eligible companies can get up to fifty percent of their investments back in a tax credit from the state, alleviating the burden to be carried by their investors. This year, as many as seventeen hours before the office opened that day, people started lining up on East Redwood street clamoring for a piece of the prize.
This year, the applicants lined outside the door had requests of more than $6 million, according to an informal poll held by the newspaper. In prior years, the funds would last several months, but the people playing cards camped out in lawn chairs before the office could even open its doors this year seemed to indicate that it wouldn’t be the case this year.
Though the total amount of available funds wasn’t any more this year than in the last two years, the rush was mainly attributed to the maximum individual investiment this year being raised from $100,000 to $500,000. The total allocation will double next year to $12 million and then increase gradually to $24 million by 2013.
At the time this article was written (July 2008), the stock market was performing relatively well and seemed to favor investors who might be looking for ways to spend extra money. Since September, however, the stock market has taken a nose dive, and indications are that the next several months may be tough, both for individuals and for investors. Could investment programs like this help promote investment in biotechs that might be more risky than other investments but that have better government backing in Maryland? And what other states have similar programs that might help stimulate new companies moving into their areas?
Senators Obama and McCain both agreed that small businesses were critical to the stimulation of the economy in tough economic times. At a time when larger pharmaceuticals and biotechnology companies are streamlining and squeezing every penny they can, smaller companies must reinforce the foundations of the market. The biotech industry is a victim of circumstance at the moment, its risk exacerbated by the economic climate. Programs like this one are critical to jump-starting our saging economy and should be considered in every state budget.
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