Biocom Urges Senate Committee to Improve Orphan Drug Tax Credit Provision, Eliminate Provision Taxing Stock Options

SAN DIEGO–(BUSINESS WIRE)–#lifescience–Biocom, the association representing the life science industry of
California, submitted the following statement to Senate Finance
Committee Chairman Orrin Hatch and Ranking Member Ron Wyden in response
to the Tax Cuts and Jobs Act being considered by the Committee this
week. The statement can be attributed to Joe Panetta, Biocom’s president
and CEO:

“In our mission of providing feedback and communication between
legislators and industry, we write in response to the Tax Cuts and Jobs
Act, legislation being marked up by the Committee this week. Biocom
commends the Committee on drafting legislation that aims at reforming
the tax code to make businesses more competitive at home and abroad, and
create and support jobs throughout the country. Specifically, Biocom
applauds the Committee for permanently reducing the corporate tax rate
to 20 percent and moving the U.S. to a territorial tax system, which
will help make companies more successful and attractive and level the
playing field for both businesses and employees. We also applaud the
Committee for retaining both the research and development (R&D) tax
credit and the orphan drug tax credit (ODTC), which are essential to the
sustainability and growth of California’s innovation ecosystem by
incentivizing investment in R&D and allowing companies to better plan
for their development.

Biocom is very encouraged that the Committee acknowledged the value of
the ODTC, contrary to its House counterpart, but we are concerned that
the proposed limitations to the definition of qualified clinical testing
expenses (expenses that exceed 50 percent of the average of such
expenses for the three preceding taxable years) and eligible drugs
(drugs previously used to treat other diseases if all diseases combined
affect more than 200,000 people) would result in lower tax credits and
affect our companies’ ability to recoup their investments and undertake
new R&D projects. Biocom suggests that the Committee revises the ODTC
provision to eliminate the excess over the three year average and the
200,000 cap. We are amenable to reducing the rate to 40 percent and
other changes to ensure that the ODTC remains as effective as in current
law. With more than 7,000 rare diseases affecting more than 30 million
Americans (one in 10) and only 305 with an approved treatment, a
well-functioning ODTC remains a necessity to help companies develop rare
disease products that would not otherwise be commercially feasible.

In addition, we are very concerned about a provision that would change
how stock options offered to employees as part of a deferred
compensation benefit are taxed. Taxing stock options when they are
vested, rather than when they are exercised, would force employees to be
taxed based upon a hypothetical compensation that’s not yet accessible
and could take years to become liquid (or never materialize into cash).
As a result, it would bar businesses from offering this incentive
program, turning an existing benefit into a liability. In the life
science industry, small- and mid-size companies rely heavily on
stock-based compensation to attract talent and compete with larger
businesses which can usually provide better cash compensation. This
provision would have devastating consequences for early-stage and
startup companies, making it dramatically more difficult overnight to
attract and retain talent. Biocom urges the Committee to eliminate this
provision.

Lastly, we have concerns about the interest deductibility limitations
proposed in the legislation, which would affect competitiveness, stifle
innovation, and hamper future mergers and acquisitions which are
critical to economic growth. To maintain global competitiveness and
avoid significant harm to U.S. firms, a “thin cap” structure must allow
unused interest expense to be carried forward indefinitely, be phased in
over time, and have a high percentage of EBITDA limitation similar to
existing U.S. 163(j) tax policy. In addition, the proposed worldwide
interest limitation is an additional layer of complexity that further
disadvantages U.S. headquartered businesses.

Again, Biocom applauds the Committee for drafting the Tax Cuts and Jobs
Act and continues to support the Committee’s efforts to enact tax reform
legislation. We appreciate the opportunity to provide feedback on behalf
of our members and thank you for your time and diligence in examining
our comments.”

About Biocom

Biocom is the largest, most experienced leader and advocate for
California’s life science sector. We work on behalf of 1,000 members to
drive public policy, build an enviable network of industry leaders,
create access to capital, introduce cutting-edge STEM education
programs, and create robust value-driven purchasing programs.

Founded in 1995 in San Diego, Biocom provides the strongest public voice
to research institutions and companies that fuel the local and
state-wide economy. Our goal is simple: to help our members produce
novel solutions that improve the human condition. In addition to its San
Diego headquarters, Biocom operates a core office serving the Los
Angeles market, satellite offices in Washington, D.C. and Tokyo, and has
a continuous staff presence in the San Francisco Bay area and
Sacramento. Our broad membership benefits apply to biotechnology,
pharmaceutical, medical device, genomics and diagnostics companies of
all sizes, as well as to research universities and institutes, clinical
research organizations, investors and service providers.

For more information on Biocom, please visit our website at www.biocom.org.
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and Twitter (@BIOCOMCA).

Contacts

Biocom Media Contact:
Canale Communications
Carolyn
Hawley
619-849-5382
Carolyn@canalecomm.com