Life sciences and biotech companies should evaluate the opportunities for their businesses.

On June 16, 2008, Massachusetts Governor Deval Patrick signed into law an "Act Providing for the Investment in and Expansion of the Life Sciences Industry in the Commonwealth" (the "Act"). The Act brings to fruition a proposal made by Governor Patrick more than a year ago to invest $1 billion in the life-sciences and biotech industries in Massachusetts. The Act provides tax incentives for companies to embark on expansions or new initiatives and addresses federal funding shortfalls by providing seed money to develop new ideas and provide financial aid for graduate students. The Act also provides money for the state's vocational and technical high schools and colleges to purchase new equipment to train life sciences workers.

The Act authorizes $1 billion in spending. Of that, $500 million is earmarked for the Massachusetts Life Sciences Investment Fund, $250 million for the award of grants, and $250 million in tax credits.

Administration of the Act and Certified Life Sciences Companies

The Act delegates its administration to the Massachusetts Life Sciences Center (MLSC), a quasi-public agency of the Commonwealth of Massachusetts, created by the Massachusetts legislature in June 2006.

Only "certified life sciences companies" are eligible for the grants and tax credits established by the Act. To become certified, a company must apply to the MLSC, and its application must be approved by a majority of the MLSC's board. Applications must contain a certification proposal, which must include, but is not limited to, (1) an estimate of the projected new state revenue the company expects to generate during the period of certification and a plan to achieve that new state revenue (also, the plan should include certain information, including an estimate of new commercial revenue, new full-time employees, projected average salaries of the new employees, and so on), (2) documentation of any agreement between the company and any banking institutions by which the company has agreed to establish accounts with the bank (and by which the banking institutions shall have agreed to commit a specified percentage of the funds deposited in the accounts for loans made to companies under the small business capital access program), and (3) if appropriate, documentation that the life sciences company has received approval for a certified project.

In acting upon a company's application, the Act directs the MLSC to consider the likelihood that the company will meet any other requirements the MLSC may impose and the likelihood that the company will meet the new state revenue and employment growth projections, as specified in the certification proposal. The MLSC also may consider whether the life sciences company has sufficient business contacts within Massachusetts, whether the company has potential to offer breakthrough treatments and technological advances, and other similar criteria.

Once certified, a life sciences company is entitled to a variety of benefits and assistance from the MLSC. The benefits include: (1) the tax incentive program established by the Act; (2) grants, loans and other investments from the Massachusetts Life Sciences Investment Fund; (3) investments from the Mello Fund (described below); (4) assistance from regional technology and innovation centers; (5) assistance from the center to obtain designation as a certified project; (6) assistance from the center in accessing economic incentive programs; (7) assistance from the center in obtaining federal grants; (8) assistance from the center in facilitating clinical trials; (9) preference for funding for life sciences job training programs; and (10) preference for pre-permitted industrial land as identified by the Massachusetts Development Finance Agency. Act, sections 5(c) and 13.

Certification, once granted, is valid for five years but may be revoked under certain circumstances. Act, sections 5(e)-(f) and 13. The Act directs the MLSC to promulgate rules and regulations to carry out its functions under the Act.

Massachusetts Life Sciences Investment Fund

The Act provides $500 million for the Massachusetts Life Sciences Investment Fund (MLSIF), through which the MLSC may make qualified investments, grants, research, and other funding and loans. The MLSIF may be used to (1) provide financing for constructing new facilities; (2) make targeted investments; (3) match grants to universities, research institutions, nonprofit entities and so on; (4) provide bridge financing to universities, independent research institutions and other entities; (5) provide fellowships, co-ops, internships, loans and grants; (6) provide workforce training grants to prepare people for life sciences careers; (7) provide funding for development, coordination and marketing of higher ed programs; (8) make qualified grants to certified life sciences companies for certain projects; and (9) otherwise further the public purposes in the Act. Act, section 6(c) and 13. Moreover, the MLSIF can be used to fund life sciences initiatives, including: international trade initiatives, joint research, and commercial exchanges between Massachusetts and Israel; the Massachusetts Technology Transfer Center; the Massachusetts Sciences, Technology Engineering, and Mathematics Grant Fund; and programs to promote development through field trials. Act, section 6(d) and 13. Finally, the MLSIF may be used to fund the Folkman and Mello funds (described below) created by the Act. Act, sections 6(d) and 13.

Five requirements must be satisfied for a grant or other investment to be approved by the MSLC: (1) a majority of the Board must approve the investment; (2) the company must be a certified life sciences company or a project or initiative listed in section 6(d) of the Act; (3) the MLSC must find that a definite benefit to the Commonwealth's economy may be reasonably expected from the investment; (4) to the extent the investment is a capital investment, it must have been approved by the Secretary of the Executive Office of Administration and Finance upon request of the MLSC; and (5) the investment must conform with any rules approved by the Board. Act, sections 6(e) and 13.

Specifically Earmarked Funding

In addition to administering the grant of funds under the Act, the MLSC is responsible for disbursing the specifically earmarked funds for particular projects and institutions. Act, section 2B. The particular earmarked funds are as follows:

  • $12.9 million for facilities in Framingham

  • $12.6 million for the I-93 interchange in Andover, Wilmington and Tewksbury

  • $6.5 million for the William Stanley Business Park

  • $10 million for a new nano and biomanufacturing facility at UMass Lowell

  • $5.5 million for the Pioneer Valley Life Sciences Institute

  • $1.1 million for three mobile labs in conjunction with Massachusetts Academy for Life Sciences

  • $9.5 million for Tufts University

  • $10 million for the Marine Biological Laboratory in Woods Hole

  • $5 million for a regional incubation center in New Bedford in conjunction with UMass Dartmouth and Bristol Community College

  • $5 million for a life sciences center at the Paul A. Dever State School in Taunton

  • $10 million for the MA Small Business Matching Grant Fund

  • $5 million for the MA Life Sciences Education Fund

  • $90 million to UMass Worcester

  • $95 million to UMass Amherst

  • $10 million to UMass Boston in collaboration with the Dana-Farber Harvard Cancer Center

  • $11.4 million to UMass Dartmouth

Tax Incentives

The tax incentives provided for in the Act also are administered by the MLSC. Tax incentives are not available to any certified life sciences company unless expressly granted by the secretary of administration and finance in writing. Act, sections 5(d) and 13. Total annual tax incentives cannot exceed $25 million annually. The tax incentives are effective as of January 1, 2009, and sunset on December 31, 2018. Act, Sections 52 and 53.

The tax incentives are as follows:

  • 10 percent Investment Tax Credit for qualifying property used exclusively within Massachusetts (refundable at 90 percent and may be carried over)

  • Carryover of net operating losses for 15 years

  • 100 percent credit for FDA User Fee

  • Elimination of the sales throwback provision

  • Extension of research and development credit to certain activities performed outside of Massachusetts (refundable at 90 percent and may be carried over)

  • Qualification as a "research and development" corporation for purposes of the sales and use taxes

  • Elimination of the sales tax for purchases made by certified life sciences companies for the development of their utility systems

  • Deduction for qualified clinical testing expenses for orphan drugs

  • Credit against excise tax for clinical trial expenses conducted in and out of Massachusetts

Specific Funds Created Within MLSC

Dr. Craig C. Mello Small Business Equity Investment Fund

This fund, established in honor of the recently awarded Nobel laureate and University of Massachusetts research scientist Craig Mello, permits the MLSC to make qualified equity investments in enterprises seeking to raise seed capital, provided that not more than $250,000 is invested in any one enterprise. For a company to receive an investment, the MLSC must approve the investment by majority vote, the recipient must be a life sciences company, the center must find that a definite benefit to the commonwealth's economy may reasonably be expected from the investment and the investment must conform with any rules approved by the board. Act, sections 7 and 13.

Dr. Judah Folkman Higher Education Grant Fund

This fund, established in honor of the late research scientist who was not only a prodigious researcher but was known for his mentorship of other scientists, allows the MLSC to make qualified grants to graduate level and doctoral students and post-doctoral fellows studying in the life sciences for living expenses. The grants shall be in $5,000 increments and cannot exceed $15,000 for any individual. To receive a grant, the recipient must be in a graduate or doctoral level program or be working as a postdoctoral fellow, the recipient must be a Massachusetts resident and the recipient's annual income must not be more than 300 percent of the federal poverty level. Act, sections 8(c) and 13. Again, a board majority must approve the grants. See id.

Massachusetts Small Business Matching Grant Fund

This fund is established to allow the MLSC to provide matching grants to public agencies, independent research institutions, nonprofit organizations and other similar entities. These companies need not be certified life sciences companies. The grants may not exceed $500,000 annually to any company. A majority of the MLSC board must approve the grants, the MLSC must find that a definite benefit to the commonwealth's economy may reasonably be expected from the grant and the grant must conform with any rules approved by the board. Act sections 9 and 13.

Massachusetts Life Sciences Education Fund

This fund is established to allow the MLSC to make qualified grants to vocational and technical schools for purchasing or leasing equipment and to train students. Grants must be approved by a majority of the board, the recipient must be a vocational technical school, the grant recipient must have identified and trained instructors to use the equipment and the grants must conform with rules approved by the board. Act section 10 and 13.

Where to Go from Here?

While many will applaud this legislative effort as providing very much needed support to the already world-renowned Massachusetts-based life science and research community, others have already been critical of the bill's wide-ranging approach, labeling it a "pork-barrel" spend. Regardless of how one characterizes the bill, one thing is clear: it has created opportunities for the broader life sciences community both within Massachusetts and for those outside of Massachusetts who are contemplating bringing their enterprises to Massachusetts for strategic purposes to be located among the leading universities, academic medical centers, and the Cambridge and 128 biotech clusters.

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