Testimony to the Michigan Bioscience Caucus

Advancing Bioscience Industry Growth in Michigan:
2014 Best Practice Legislative Strategies

To the Honorable Members of the 2014 Michigan Legislature:

Thank you for providing BIO an opportunity to speak with you this morning and offer best practice examples of ways that the Michigan Legislature and Governor’s Office can continue to create new and innovative economic development initiatives that support the growth of the bioscience industry in Michigan.

While considerable attention has appropriately been paid to the foundational role that the Federal Government has played in supporting early stage technology research, all fifty states have increasingly ramped-up state economic development regimens to support bioscience industry growth, particularly in the early-stages of invention and innovation of product development.

Over the past decade legislatures have supported our industry partnerships in four major areas including:

  • Workforce 
  • Facilities as in incubators and accelerators 
  • Research both publicly-funded and industry collaborations 
  • Commercialization tax measures

While these four building blocks of legislative support are critical to both our industry and other technology sectors, I want to focus on current state legislative capital formation and research and development legislative strategies that support technology transfer and economic development within state borders. These two areas of focus are essential if Michigan hopes to retain, grow and attract bioscience companies to the state.

From our review of current Michigan legislation to retain and expand our industry in the state, here are examples access to early stage capital and investing in research and development options for consideration this legislative session.

Access to Capital

States use tax policies to encourage private investment in early-stage companies and/or in funds that make early-stage investments. Twenty states offer tax credits to angel investors who in invest in technology companies, six of which are targeted specifically to angel investors who invest in bioscience companies. Eleven states reported providing tax credits to individuals who invest in early-stage venture funds.

States also use tax credits to increase the availability of venture capital. They can create funds that make investments directly in companies, invest in privately managed funds that agree to invest in state companies; or create a fund that in turn, invest in private venture-capital funds, which is referred to as a “fund of funds” if it involves more than one fund.

As of 2013, 13 states invest in a fund of funds, ten states invest state dollars in private venture capital firms, and 14 states reported making direct investments in bioscience companies. Most of the state legislative activity surrounding tech-based economic development focused on improving access to capital. Common approaches were angel investor tax credits and new investment funds. Here are some best practice examples: 

  • Arizona’s angel investment tax credit, which was set to expire at the end of FY11, was extended through FY16 as part of the competitiveness package enacted in 2013. 
  • Colorado’s 2013 legislation sets up seed funding for bioscience companies using the growth of future income tax withholdings from the biotech and clean-tech industries. 
  • Another Colorado measure expands eligibility for Colorado’s Innovation Investment Tax Credit, which provides angel investors with an income tax credit equal to 15 percent of their investment in Colorado small businesses that are less than five years old and are involved in R&D. 
  • Washington State recently launched a $20 million university-focused venture fund that, over the next four years, aims to invest its dollars in promising start-ups from the University of Washington and other research institutions across the state.

INVESTING IN RESEARCH

Thirty-seven states reported offering R&D tax credits, an increasing number of which offer a larger credit if the research is conducted by an in-state university. R&D tax credits are refundable in seven states and transferable in three others.

Here are some best practice examples: 

  • Nevada in 2012 established the Knowledge Fund for development and commercialization of research and technology
at the University of Nevada-Reno, the University of Nevada-Las Vegas, and the Desert Research Institute. The fund will be used to recruit and hire research teams, construct research labs, and provide matching funds for federal and private sector grants. 
  • South Dakota established a new fund to improve research capacity at
the state’s six public universities. About $920,000 from the special performance improvement fund was awarded to support university bioscience-related research projects leveraged with federal and private matching funds. 
  • Virginia strengthened the Eminent Scholar Researcher Recruitment program to acquire and enhance superiority at public qualifying institutions. 
  • Texas Emerging Technology Fund expedites the development and commercialization of disruptive technologies across various disciplines, including Biotechnology, Life Sciences, Energy, Software, Aerospace and Defense. Emerging Texas technology industry participants are eligible for funding if the activity: 1) has the potential to result in a medical, scientific or clean energy breakthrough; 2) has meaningful collaboration with a Texas university, and; 3) will result in the creation of high-quality new jobs in the state (immediately or over a longer period. Awards range from $250,000 seed funding up to $5 Million. 
  • Twelve states match various SBIR phases of development research. While these state funds are fairly small in comparison to Federal funding for this vital program, it does show a clear understanding by state lawmakers of the vital role early stage research funding plays in commercialization efforts.

The bioscience industry is Michigan is a diverse and growing part of the state’s economy, has its strength in Michigan companies like Perrigo, Stryker, Ash Stevens, Dow, and 1,500+ companies all over the state, providing 35,000 quality jobs and salaries that greatly exceed the average wage for all industries in the state.

For Michigan to enlarge the presence of our industry in this state, we believe that it is imperative that policymakers, academic research institutions, and our industry work together in this growing international competition for the inventions and human resources needed for success.

Peter M. Pellerito
Senior Policy Consultant
Biotechnology Industry Organization
Washington, DC.