Alert January 21, 2009

Massachusetts Life Sciences Center Launches New Tax Incentive and Early-Stage Investment Programs

The Massachusetts Life Sciences Center (the "MLSC"), a quasi-public agency tasked with implementing the State’s $1 billion Life Sciences Initiative, is now accepting online applications for its Life Sciences Tax Incentive Program and its Life Sciences Accelerator Program. These programs are part of the Center’s broader effort to expand life-sciences employment opportunities, promote health-related innovations and stimulate research and development, manufacturing and commercialization in the life sciences.

Life Sciences Tax Incentive Program

Under the Massachusetts Life Sciences Act, the Life Sciences Tax Incentive Program became effective on January 1, 2009. The Act authorizes the MLSC to offer a combination of nine different tax incentives totaling $250 million over 10 years, limited to $25 million annually, to Certified Life Sciences Companies. These incentives are intended to encourage growth in companies at all stages of development. The program consists of the following credits/benefits:

  • Life sciences investment tax credit (ITC)
  • FDA user fees credit
  • Deduction for orphan drug qualified clinical testing expenses
  • Extension of net operating losses (NOLs) from five to 15 years
  • $38 million research credit refundability
  • Life sciences research credit
  • Designation as R&D company for sales tax purposes
  • Elimination of throwback provision in calculation of sales factor for apportionment purposes
  • Sales tax exemption for property used in certain types of development

The Massachusetts Department of Revenue has issued Technical Information Release 08-23, which provides information about the tax incentives and generally explains what follow-up guidance it anticipates providing. The Technical Information Release is available here. Incentives are awarded on a competitive basis and are effective from January 1, 2009 through December 31, 2018. They generally apply for taxable years beginning on or after January 1, 2009. The Tax Incentive Program is available only to life sciences companies that are engaged in life sciences research, development, manufacturing or commercialization in Massachusetts. Tax incentives are provided to such a company only after the MLSC has certified it as a Certified Life Sciences Company and authorized the incentives and the Commonwealth’s Secretary of Administration and Finance has expressly granted them. Companies are limited to one application per 12-month period, although the application may request more than one tax credit or benefit in any given year. Applications for 2009 will be accepted on an ongoing basis until May 15, 2009.

Life Sciences Accelerator Program

The Life Sciences Accelerator Program is a funding program intended for early-stage life sciences companies with a "high-potential for technology commercialization, rapid growth and downstream private equity financing," as determined by the MLSC. Proceeds are intended to serve as flexible working capital to help awardees achieve product development milestones and facilitate access to private capital, and could take the form of equity investments, grants or loans. "We will likely give out awards up to $500,000 for the Accelerator Program, but we may give out up to $1 million, depending on the quality of the idea," MLSC President and CEO Susan Windham-Bannister stated.

According to program guidelines, strong preference will be given to applicants that obtain matching funds from alternative sources, including SBIR grants and grants from institutions such as the National Institutes of Health, the National Cancer Institute, the National Science Foundation, the National Institute for Standards and Technology, the Department of Defense, state and local governments and other nonprofit agencies.

The MLSC has allocated $15 million for the program, although additional support from the private sector is expected. In December 2008, the MLSC announced that Johnson & Johnson would become a charter member in the MLSC’s Corporate Consortium and would provide $500,000 to match agency funding awards over the next two years.

The Accelerator Program is available only to life sciences companies that obtain certification through the MLSC. The deadline for applying for the program’s first round of funding is March 6, 2009. Awardees will be notified by April 30, 2009. The MLSC expects to award additional grants in the second half of 2009.

Eligibility Criteria and Requirements

The Life Sciences Act requires that companies receiving benefits under the Tax Incentive Program and the Accelerator Program be certified by the MLSC through a consolidated application and certification process. To be eligible for certification, an applicant must be a legally organized "for-profit" entity engaged in life sciences research, development, manufacturing or commercialization in Massachusetts.1 Certification as a Certified Life Sciences Company is valid for five years starting with the tax year in which certification is granted. A Certified Life Sciences Company must file an annual report with the MLSC detailing whether it has met the specific targets established in its certification proposal.

Application Requirements and Assessment

Applications for the Tax Incentive Program and the Accelerator Program must be completed and submitted online at www.masslifesciences.com. Applications will generally be reviewed by the MLSC according to the following criteria:

  • Threshold Criteria. Evaluation of the application to verify that applicant: (i) is a Certified Life Sciences Company; (ii) is in good standing with the Commonwealth of Massachusetts; and (iii) has developed credible employment and revenue targets for the next five years and a reasonable plan for achieving such targets.
  • Qualitative Criteria. Evaluation of the application based on the scientific, technical, financial, market and managerial merits of the applicant’s operations and/or proposed project.
  • Programmatic Criteria. Evaluation of the application against the objectives of the MLSC and the applicable program, including factors such as wide geographic distribution of life sciences operations in Massachusetts and wide distribution of life sciences technologies and industries supported by the MLSC.

Applicants to the Accelerator Program must also include a business plan that articulates the company’s strategy to develop its product, service or technology toward a commercial use. The business plan should "clearly demonstrate applicant’s understanding of the product market as well as identify its go-to-market strategy, fundraising schedule and cash management plan."

Confidential Treatment

Information submitted to the MLSC is subject to the public disclosure requirements set forth in the Massachusetts Public Records Act, MGL c. 66, subject to certain limitations for information comprising trade secrets or commercial or financial information regarding the operation of any business conducted by the applicant, or regarding the competitive position of the applicant. Applicants seeking confidential treatment of submitted materials must follow specified procedures, which include the submission of such materials in hard copy form only, together with an explanatory letter detailing the basis for seeking confidential treatment.

Additional Information

Additional information regarding these programs is available at www.masslifesciences.com.

1 As defined in the Life Sciences Act, life sciences means "advanced and applied sciences that expand the understanding of human physiology and have the potential to lead to medical advances or therapeutic applications including, but not limited to, agricultural biotechnology, biogenerics, bioinformatics, biomedical engineering, biopharmaceuticals, biotechnology, chemical synthesis, chemistry technology, diagnostics, genomics, image analysis, marine biology, marine technology, medical devices, nanotechnology, natural product pharmaceuticals, proteomics, regenerative medicine, RNA interference, stem cell research and veterinary science."