Rell protects biotech program

Citing her commitment to economic development and job growth, Connecticut Gov. M. Jodi Rell has decided against a proposed elimination of the state’s research and development tax-exchange program.

The program was one of many that Rell had planned to cut due to budget constraints, but industry experts said its loss could slow the growth of biotechnology throughout Connecticut. The program, which provides rebates to companies worth less than $75 million, has helped sustain more than 20 biotech companies in the state during their research and development phases. Developing companies can use the credits toward future taxes to ease their way into profitability.

“[Rell] has heard the concerns that have been raised … and she is willing to forego that portion of the budget proposal and come up with the revenue by some other means,” Rell spokesman Rich Harris said. “Her first priority is job creation.”

Paul Pescatello, president and CEO of CURE, Connecticut’s bioscience cluster, said by nature biotech start-ups often make very little money during their first few years, a burden the program helps alleviate. Rell’s decision represents her understanding of the importance of the biotech industry to Connecticut’s economic vitality, he said.

“I think the program is like a keystone of the state’s economic development efforts,” Pescatello said. “We are a high-cost state, and it really lowers the cost of accomplishing things, especially for young companies.”

Since the state introduced the tax-exchange program in 1999, small companies have come to depend on the additional capital. Between 2002 and 2003 alone, the state returned a total of $9.7 million to the biotech industry.

Susan Froshauer, president and CEO of Rib-X, a small New Haven biotech company that started in 2001, said non-equity cash is crucial to biotech companies, especially in their early and developmental stages.

“We rely heavily on these rebates to help us create investor value,” Forshauer said. “In order to help get us over the hump and become a full-fledged biotechnology company generating revenue, we need these rebates to get us going.”

Genaissance Pharmaceuticals, which creates DNA-based products and has its main offices in Science Park, would have also been one of the companies affected by the budget cut. But Gerald Vovis, chief technology officer at Genaissance, said a lost tax credit would not impact his company the way it might a newer one. He said Genaissance, established in New Haven in 1997, has three other facilities outside of the city and clientele around the globe.

“We’ve been through things like this before, in past years,” Vovis said. “The impact is not so serious for a company like ours, which has been around for awhile and is more developed.”

Because other states provide similar rebates, Connecticut could lose standing as a biotechnology leader if its tax credit program were cut, Yale Office of Cooperative Research Managing Director Jonathan Soderstrom said.

Matthew Nemerson, president and CEO of the Connecticut Technology Council, said the program is important not only to help expand Connecticut’s biotech industry but also to keep it alive.

“There are a lot of programs out there that provide these kinds of incentives, and Connecticut would not be able to compete without one,” Nemerson said. “It’s expensive for the state, but I think they get a lot of value for it.”

When deciding where to begin operations, Pescatello said, biotech companies take into account not only proximity to research facilities and big cities, but also the anticipated tax burden from the state.

“Biotech companies are really defined by how much research they do,” he said, “so they will be attracted to states willing to make the initial investment in that research.”

One difficulty in obtaining capital for biotech businesses is that often much time and money is spent without any visible results. Nemerson said companies need incentives to get research started before they can even think about the final product.

“Biotechnology is an incredible industry that people don’t usually recognize until an actual product is developed, but in the 10 to 15 years it takes to develop that product, a lot of money goes into the business,” Nemerson said.

Aside from the tax rebate program, Connecticut — and New Haven in particular — provides other benefits to growing companies, Vovis said. Though it is not the largest biotech center in the Northeast, New Haven is close to both New York and Boston and offers affordable real estate, he said.

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