Biotech Start-Ups Covet Tax Credit
Monday, July 7, 2008
Angel investors and wealthy individuals promised to invest a little more than $1 million in BioMarker Strategies, a young Baltimore biotech working on medical devices and diagnostics for cancer patients. So Scott Allocco, president of BioMarker, invested 11.5 hours on a sidewalk to snag them thousands of dollars in tax credits.
It'll be a month before he knows whether the Maryland Department of Business and Economic Development approves his application. The state allocates $6 million in tax credits on a first-come, first-served basis. Allocco wasn't the first in line.
Last week senior executives and scientists started assembling along East Redwood Street as early as 17 hours before the department opened for business the next day. At 9 a.m. on July 1, the start of the fiscal year, the department began accepting applications for its Biotechnology Investment Tax Credit program. Eligible investors backing young Maryland biotechs can get 50 percent of their money back in a tax credit from the state.
"It minimizes the risk in investing in relatively high-risk biotech companies," Allocco said.
At 9 a.m., an informal poll among the dozen or so die-hards revealed that their combined applications exceeded the $6 million pot. The past two years, the funds lasted several months.
"Panic sets in," said Murat Croci, controller at Alper Biotech in Rockville, the seventh person in line. Alper specializes in early cancer detection. "I'm trying to get some new investors, but when you see all the money gone in one day, it's discouraging," he said.
So companies and investor groups jockeyed to be among the first few in line or face the consequences from unhappy sponsors, who might pull their pledges.
This is the third year Maryland has offered the program but the first time anyone has camped out. Through the early hours of the morning -- under the watchful eye of their personal off-duty cop -- they slept in lawn chairs, took turns dashing off to nearby hotels for naps, munched on pizza and played cards.
"It was a potential big chunk of change we were going to lose out on if we didn't show up early," said Steven W. Hutcheson, founder of Zymetis in College Park, which uses bacteria for ethanol production. His application listed 17 investors.
Why the sudden rush?
Maryland Gov. Martin O'Malley (D) pledged last month to double tax credits next year and then raise funding gradually, up to $24 million in 2013. But his plan didn't boost the limited pool for 2009.
While the pool wasn't bigger, the maximum individual investment was raised this year to $500,000, from $100,000, making it more popular, said Mark A. Vulcan, the state's director of tax incentives.