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No alternatives to lining up for Maryland's biotech tax credits

Danielle Ulman
Daily Record Business Writer
June 29, 2009 8:34 PM

Maryland’s first-come, first-served system for doling out biotechnology tax credits had company representatives waiting in line days before applications would be accepted to guarantee funding in a tough economy.

Legislators laid out the way the program would work in 2005, and biotech executives said the program works as it is. The only way to improve the situation would be to increase the amount of money available from $6 million they said.

“If there were $24 million in this program, there wouldn’t be people lined up around the block for five days,” said Marty Zug, chief financial officer of Sequella Inc., a Rockville biotech firm.

This year’s economic climate did not allow for the increase in funding that Gov. Martin O’Malley pledged as part of his BIO2020 initiative, but the biotech tax credit program was spared any cuts.

Aside from meeting the state’s qualifications and securing cash from investors, companies looking for the tax breaks have to do little more than be in the right place at the right time to get the money.

This year that meant that biotech firms sent out representatives five days before the state accepts applications on Wednesday at 9 a.m. to man their spot in line inside a conference room at the University of Maryland, Baltimore’s BioPark.

The Department of Business and Economic Development, which administers the program, said it follows the state’s law and there is no other way to do it.

“Oftentimes when you invest in an early-stage company, it can be a risk for the investor,” said Karen Glenn-Hood, a spokeswoman for DBED. “I know that it’s frustrating for the people that are waiting in line, but I’m not sure that there’s another way to do this.”

That risk would increase if tax credits were handed out in any other manner, Zug said. If DBED decided to ration the credits, giving rebates to investors in each company that applied, investors would be less likely to put up money.

“You cannot then tell the investor what the amount of the credit is, and therefore it doesn’t work,” Zug said. “The beauty of the program is that an investor knows what they’re getting.”

Since the program’s inception in 2006, the state has given a 50 percent tax credit to investors in Maryland’s small biotech companies of up to $250,000 per investor. Any company can get up to 15 percent of the tax credit money, assuming there is enough money available at the time their application is submitted.

Several other states offer tax credits for investments into bioscience firms, including Arizona, Kansas, North Carolina and Wisconsin. Arizona has a pool of up to $20 million to use from 2006 through 2011, and the tax breaks are also given on a first-come, first-served basis.

Another option that Zug and Steven F. Davey, chief operating officer of Zymetics Inc. in College Park, said would not work is having DBED determine how much money each company should get based on the merits of their projects.

Davey said the biotech companies are all so different that it would be too challenging for DBED to make the funding decisions.

“It would take staffing that DBED doesn’t have and it would add uncertainty to the process,” he said.

Zug said if DBED ranked and rated the company proposals it would mess with the will of the free market.

“The free market is saying I want to put ‘X’ dollars into Sequella, or ‘Y’ dollars into another company,” he said. “If DBED were to get into the business of picking winners and losers you would have a problem with investors who now see that they might not get the money back if they invest.”

In a tough year for investments, Zug said these tax credits are essential to the survival of many of the 17 companies that have been waiting for a chance to apply for the last four days.