The recently enacted healthcare reform legislation provides up to $1 billion in tax credits and cash grants for life sciences companies with 250 or fewer employees that have made or will make “qualified investments” in “qualifying therapeutic discovery projects” during 2009 and 2010.  Credits and grants will be awarded through a competitive application process which is expected to commence on or before May 21, 2010.

A “qualifying therapeutic discovery project” is a project which is designed to develop a product, process or therapy to diagnose, treat or prevent diseases and afflictions by:

(1) conducting pre-clinical activities, clinical trials, clinical studies and research protocols, or

(2) developing technology or products designed to diagnose diseases and conditions, including molecular and companion drugs and diagnostics, or to further the delivery or administration of therapeutics.

A “qualified investment” is the aggregate amount of the costs paid or incurred in 2009 or 2010 for expenses necessary for and directly related to the conduct of a qualifying therapeutic discovery project, subject to certain limitations and exclusions.  The tax credits are equal to 50 percent of the qualified investment, and taxpayers may elect to receive the credits in the form of a cash grant.  Any such grant is not includable in the taxpayer’s gross income.  The availability of a cash grant significantly increases the appeal of the program to companies in a loss position who may not otherwise be able to immediately utilize the credits.  Furthermore, unlike the grants available under the Small Business Innovation Research (SBIR) program, corporations that are majority owned by venture capital funds should be eligible for cash grants based on their qualified investments.

Companies must apply to the Secretary of the Treasury in order to obtain certification for qualified investments.  The Secretary, in determining qualifying projects, will consider only those projects that show reasonable potential to:

(1) result in new therapies to treat areas of unmet medical need or to prevent, detect or treat chronic or acute disease and conditions,

(2) reduce long-term health care costs in the United States, or

(3) significantly advance the goal of curing cancer within a 30-year period. 

Additionally, the Secretary will take into consideration which projects would have the greatest potential to:

(1) create and sustain high quality, high paying jobs in the United States, and

(2) advance the United States’ competitiveness in the fields of life, biological and medical sciences.

Since the credits and grants will be awarded by the Secretary through a competitive application process which will likely be oversubscribed, companies interested in participating in the program should immediately commence compiling information on their qualifying therapeutic research projects and developing detailed qualified expense information for each project.  Applicants should prepare compelling, easy-to-read arguments for why their projects merit credits or grants based on the above therapeutic and economic criteria.  Applicants also should prepare detailed expense information that identifies and carves out ineligible expenses. 

Guidance on the application process is expected to be published by the Secretary on or prior to May 21, 2010.  Applications should be prepared in advance of the guidance since the aggregate amount of credits and grants available under the program is limited to $1 billion, and it is expected that the Secretary may approve eligible applications on a first-come, first-served basis.  Once applications are accepted, they will be approved or denied within 30 days of submission.

For questions about, or assistance with, the application process, please contact John Chase, (650) 565-2212,, or Evan Ng, (650) 565-2252,