On May 21, 2010, the Department of the Treasury released its long-awaited guidelines regarding the application process for the qualifying therapeutic discovery tax credit. (For prior coverage, see $1 Billion in Cash Grants Available Soon for Emerging Growth Life Sciences Companies). Among other clarifications, the guidelines confirm the availability of the credit for medical devices as well as drugs and biologics. The credits are based on R&D expenses for 2009 and 2010 and may be received in the form of a cash grant intended to benefit companies that are in a loss position and would otherwise not be able to use the credit. Applications will be accepted starting on June 21, 2010.
Medical devices qualify for the grant if:
- The device diagnoses a disease or condition; or
- The device furthers the delivery or administration of “therapeutics.”
The term “therapeutics” means drugs or other medical devices as those terms are defined in the Federal Food, Drug, and Cosmetic Act (FDCA). Thus, a medical device that delivers or administers a drug or a substance also characterized as a medical device under the FDCA (for example, collagen, dermal filler or other substance not metabolized in the body) generally should qualify. Drug-eluting stents and infusion pumps are examples of products that further the delivery or administration of drugs and would meet the requirements for the grant.
The grant is worth up to 50 percent of the cost of qualifying investments for 2009 and 2010, up to a maximum of $5 million per applicant and $1 billion overall. The grant is only available to companies with 250 or fewer employees, and Treasury estimates that there will be 1,200 applicants. In a conference call announcing the guidelines, a Treasury official indicated that while the grants are aimed at advancing U.S. competitiveness, the application process will not discriminate against U.S. subsidiaries of foreign parent companies. In addition, unlike the grants available under the Small Business Innovation Research (SBIR) program, companies that are majority owned by venture capital funds should be eligible for cash grants based on their qualified investments.
The guidelines restate the myriad of requirements for the grant and the various expenses that are ineligible (for example, service costs under Treasury Regulations Section 1.263A-1(e)(4)).
Applications must include narrative responses addressing each of the requirements for the grant. The narratives must fully address the requirements of the guidelines, and “should not rely on the presumed background knowledge of the reviewer.” An application that deviates from or is not responsive to the specific requirements may be rejected with no right of appeal. Brochures and other presentations are not permitted. The narrative explanations are subject to strict word limits, and any language beyond the applicable word limits will be disregarded for purposes of the review. Both the Department of Health and Human Services and the Department of the Treasury will review applications for the credit.