As summer sets in, legislators in Raleigh are beginning their annual negotiations to reconcile conflicting policy priorities. This year’s disagreements focus on proposals to extend sales and income tax increments scheduled to expire July 1, strategies to relieve county governments of growing Medicaid expenses, and the usual assortment of disputes regarding spending priorities.

NCBIO is working to convince legislators to address important life science priorities before leaving town. Key objectives include $3 million for new technology commercialization programs funded by the North Carolina Biotechnology Center, $5 million to continue funding for state matching grants for federal SBIR and STTR awards, and monies for a variety of university capital projects supporting genomics, regenerative medicine and nanotechnology. NCBIO is also asking legislators to extend North Carolina’s Qualified Business Venture Tax Credit, which is scheduled to expire at the end of 2007.

Increased funding for the North Carolina Biotechnology Center was included in budget priorities adopted by the State Senate in late July, but not in the House version of the spending plan, which is instead set to cut Center funding by $228,000. NCBIO strongly supports the Center’s expansion budget request because of its potential to dramatically accelerate commercialization of new life science-related technologies, including biofuels, marine biotechnology, regenerative medicine, advanced medical technologies, and others. Click here for NCBIO’s fact sheet supporting the proposed program.

Funding for SBIR/STTR matching grants is included in both the House and Senate budgets, albeit in slightly different amounts (Senate: $5 million; House: $4.83 million). Support for the program is strong in both chambers. Other life science-related spending proposals include $16 million for cancer research (Senate), $18 million for the North Carolina Research Campus at Kannapolis (Senate), $8 million for the Soldier Institute of Regenerative Medicine at Wake Forest University in Winston-Salem (Senate), and $5 million in for additional bioengineering and other faculty at North Carolina State University’s School of Engineering (Senate).

Decisions regarding these appropriations and many others will be addressed only after legislators agree on a tax package for the coming biennium. At this writing, House and Senate negotiations had broken down after several promising attempts at compromise. Key issues facing tax conferees include (i) whether to extend a ¼ cent sales tax increment adopted in 2001 and scheduled to expire July 1, 2007, (ii) whether to extend a .25% increment in top personal income tax rates, also adopted in 2001 and scheduled to expire with the 2007 tax year, (iii) whether to authorize local governments to increase or enact a variety of local levies, including sales taxes, real estate transfer taxes, and other levies that might support a plan for state government to absorb counties’ share of Medicaid.

Senate leaders generally favor expiration of the current sales and income tax increments, but support local authority to increase sales taxes. House leaders want to extend current tax increments and authorize local land transfer taxes in lieu of an increase in local sales tax. Both chambers currently favor adoption of a new earned income tax credit aimed at helping low-income families. House leaders, however, want the credit to be refundable, while Senate negotiators want to limit the credit to a taxpayer’s tax liability.

If these major tax issues can be resolved, lawmakers will face a series of choices regarding tax matters with less fiscal impact, but of major importance to NCBIO members. Large member companies, in particular, will be interested in a proposal to eliminate the state’s existing sales taxes on electricity, piped natural gas and other fuels used in manufacturing. (See State Senate Approves Energy Reform Bill). The proposal, which is a lynchpin of pending energy reform legislation, would phase out about $45 million in energy taxes over three years. NCBIO is working with other manufacturing interests to win enactment of the reduction. Other legislation of interest includes 0.25% increase in the state’s R&D Tax Credit (House Budget), and a reduction in sales taxes for supplies used in medical testing and analytical laboratories (SB 1047).

NCBIO’s top tax priority for emerging life science companies, renewal of the Qualified Business Venture Tax Credit, appears to be well-positioned for enactment. Legislation (HB 1538) extending the credit to 2010 has passed the State House and is pending the Senate Finance Committee where it has strong support. Because of the credit’s unique structure, extension will not affect the 2007-09 budget, and hopefully can be adopted regardless of other tax and spending comprises.

Other tax legislation on NCBIO’s priority list does not appear headed for enactment. Proposals to enact a capital gains tax exclusion for founders stock and angel investments has not been heard in either chamber. Legislation establishing new tax incentive programs to support venture investments (HB 2028) has been heard in House Committee on Commerce, Small Business and Entrepreneurship, but is not expected to be taken up by the House Finance Committee in time for 2007 budget negotiations. A similar Senate Bill (SB 1048) also has not been heard.

The North Carolina State Senate has approved a comprehensive package of energy reform legislation that would largely rewrite the state’s laws governing electric power generation and utility regulation. Senate Bill 3 (Promote Renewable Energy/Baseload Generation), would establish a complex set of new rules designed to increase the use of alternative energy resources in meeting the state’s energy needs, while at the same time capping cost increases that may result from the change. The new legislation also would allow utilities to bill customers sooner for certain project planning costs and construction work in progress.

The compromise legislation, which has been heavily negotiated by environmental, utility and industrial interests, is supported by the North Carolina Chamber (NCCBI) and the Manufacturers and Chemical Industry Council (MCIC). A key element of the package’s appeal to industry is a proposed phased elimination of North Carolina’s existing sales taxes on electricity, piped natural gas and other fuels used by manufacturers. The reduction is believed essential to offsetting energy cost increases likely to result from the bill’s renewable energy requirements and accelerated cost-recovery provisions.

As adopted by the Senate, S3 would phase out taxes on manufacturing energy by one-third beginning July 1, 2007, with subsequent equal reductions taking effect July 1, 2008 and July 1, 2009. The legislation would also create new or expanded tax credits for investment in alternative energy technologies and energy conservation. Click here for a summary of the legislation.

Norris Tolson is the new President and CEO of the North Carolina Biotechnology Center. Tolson, who has served as secretary of three state cabinet departments, previously served as Vice Chairman of the Center’s Board of Directors and had been providing interim leadership at the Center since January.

“Norris Tolson is a seasoned leader who is well-respected across North Carolina," said Sue Cole, chairwoman of the board. "He brings the attributes needed to elevate biotechnology across the state: leadership, strategy, and a rare combination of public and private sector experience."

Tolson has served on the Biotechnology Center's Board of Directors since 2000, as a member of the Executive Committee since 2001, and as Vice Chair since 2005. He was one of five co-conveners who recently led development of the Center’s new North Carolina's Strategic Plan for Biofuels Leadership.

Tolson said biotechnology is important to North Carolina's economic future. "In its first 20 years, the Biotechnology Center has assisted North Carolina's movement to leadership and jobs. Moving the Biotechnology Center and the state to the next 20 years of biotechnology expansion requires imaginative strategies and unwavering commitment…No other industry offers as much opportunity for the future of North Carolina as biotechnology."

Eisai has signed an agreement to acquire Morphoteck Inc., which develops monoclonal antibodies through the use of proprietary human antibody technologies. Novo Nordisk has expanded its facility in Clayton twice in the past three years. In late June, the company opened its $100 million, 200,000 square-foot expansion. The company makes the prefilled insulin pen FlexPen® at the Clayton site.

Aldagen received the CED Technology of the Year Award for its technology that isolated therapeutic stems cells from a patient’s bone marrow. Aldagen has also announced the establishment of a Class 10,000 clean room for Good Manufacturing Practice (GMP)-certified manufacture of its cellular products. The manufacturing facility is approximately 1,000 square feet and is fully validated and supported by environmental monitoring and quality control activities.

The Pharmaceutical Technology Division (PTS) of Cardinal Health is now Catalent Pharma Solutions. Advanced Liquid Logic has received the Forst and Sullivan 2007 Entrepreneurial Company of the Year Award. Advanced Liquid Logic was recognized for the overall advancement of the company and for its unique lab-on-a chip technology.

Jan Turek, CEO of Biolex, has received the Life-Sciences Entrepreneur Award as part of Ernst & Young’s Entrepreneur of the Year competition for the Carolinas. NCBIO members were recognized at the Council for Entrepreneurial Development’s 21st annual Eentrepreneurial Excellence Awards. Dr. Dennis Gillings and Joan Gillings of Quintiles Transnational Corp. received the Community Impact Award.

Merrill Mason of Smith Anderson received the award for Outstanding Service to Entrepreneurs. TransTech Pharma received the North Carolina Biotechnology Economic Development Award during the North Carolina reception at BIO 2007.

Please ask your company communications person or media firm to add Brenda Summers, at bsummers@ncbioscience.org, to your media distribution list so NCBIO can include information about your company in the Member Update section.

The Council for Entrepreneurial Development (CED) is now accepting online applications from Southeast and Mid-Atlantic companies interested in presenting at CED’s 5th annual Opportunity conference, set for September 10-11, 2007, at the Holiday Inn SunSpree Resort in Wrightsville Beach, N.C. The final application deadline is scheduled for July 27. Early-stage companies seeking angel funding and/or their first round of institutional investment are invited to submit a business plan for evaluation and possible inclusion at Opportunity 2007. For more information - www.cednc.org/opportunity.

The Council for Entrepreneurial Development (CED) has launched a job board to connect CED member companies with positions to fill to candidates seeking employment in the region’s fast growing entrepreneurial sector. Visit http://jobs.cednc.org to post jobs or view available positions.

Follow-on Biologics

The Biotechnology Industry Organization reports that the Biologics Price Competition and Innovation Act of 2007 (BPCIA), recommended in late June by the United States Senate Committee on Health, Education, Labor and Pensions, takes an important step toward establishing a pathway for approval of follow-on biologics, but also includes several provisions that cause concern for biotechnology pioneers, particularly with respect to patient safety and the patient doctor relationship.

The legislation, sponsored by Senators Edward Kennedy (D-MA), Michael Enzi (R-WY), Hillary Clinton (D-NY), and Orrin Hatch (R-UT), is intended to create a pathway for the approval of follow-on biologics.  “Senators Kennedy, Enzi, Clinton and Hatch deserve credit for their hard work in crafting this complex legislation, and for the bipartisan support they have achieved for the bill.  Biotechnology innovators share the goal of ensuring all patients have access to life-enhancing and life-saving biologics,” said BIO President and CEO Jim Greenwood. “We will continue to work with Congress to make certain the legislation is improved to ensure it supports the principles we have outlined for a pathway to follow-on products, namely providing better protections for patient safety and the patient-doctor relationship. 

BIO is concerned that the proposal would allow follow-on products to be substituted for the original, fully-tested innovator product without the intervention of the health care professional who prescribes the biologic product, taking medical decision-making for individual patients out of the hands of doctors.  BIO is also concerned that the bill gives very FDA broad discretion in making approval determinations for follow-on biological products.

Greenwood also said that patent litigation rules included in the bill must be revised to improve protections for the intellectual property rights of innovators, ensure timely resolution of all patent disputes and maintain incentives to develop future medical breakthroughs. Specifically, BIO notes that the standard for finding biosimilarity is weakened significantly in the bill because the information required to be submitted by the follow-on applicant can be waived by the FDA, and it is not clear from the language of the bill that critical requirements from the application – such as animal studies, assessment of immunogenicity, pharmacokinetics or pharmacodynamics, and standards for the manufacturing facility, among others – are required to be incorporated in the approval determination. The bill also does not require a follow-on applicant to conduct human clinical trials to test the follow-on product in humans.

BIO also is also concerned that the legislation would restrict the ability of innovators and third parties, such as universities which often serve as incubators for life-saving biotechnology innovations, to enforce their patents against follow-on manufacturers, while enabling follow-on products to enter the market in advance of the expiration of the innovator’s patent and prior to the conclusion of patent enforcement activity.  Under the proposal, follow-on applicants also could limit the number of patents resolved prior to market entry to a single patent.

Patent Reform

Provisions in the Patent Reform Act of 2007 (S. 1145) would unintentionally promote uncertainty surrounding – and weaken the enforceability of – validly issued patents, testified a representative of the Biotechnology Industry Organization (BIO) before a congressional committee in June.  Appearing on behalf of BIO, Kathryn Biberstein, Senior Vice President and General Counsel of Alkermes, Inc., outlined the organization’s views on patent reforms and its specific concerns with S. 1145 in testimony delivered before a hearing held by the Judiciary Committee of the United States Senate.

“Biotechnology innovation has the potential to provide cures and treatments for some of the world’s most intractable diseases, such as cancer, Alzheimer’s, Parkinson’s, and HIV/AIDS, and to address some of the most pressing agricultural and environmental challenges facing our society today,” said Biberstein.  “All of this innovation is possible because of the certainty and predictability provided by the U.S. patent system.  Therefore, when considering changes to this system, we urge the Committee to consider carefully the cautionary language embraced by the Hippocratic Oath – first, do no harm.

Click here for a copy of Biberstein’s complete testimony.

Sarbanes-Oxley Changes

The changes proposed by the Securities and Exchange Commission (SEC) and the Public Companies Accounting Oversight Board (PCAOB) to modify the Sarbanes-Oxley Act of 2002 (SOX) provide a “marginal improvement” for emerging biotechnology companies, BIO President and CEO Jim Greenwood told a congressional committee.  Greenwood made his comments as he testified before the House of Representatives’ Small Business Committee on how the new rules governing implementation of SOX will affect the biotechnology industry.

“BIO commends both the SEC and PCAOB for taking the steps to address the critical compliance problems that Section 404 audits had been creating, particularly for small and newly public businesses,” Greenwood testified. “While the SEC’s final guidance appears to provide a more flexible, principles-based set of rules for management, the new standards adopted by the PCAOB, while an improvement over the current standards, could still be improved to enhance flexibility, auditor judgment and consistency with SEC guidance.”

Greenwood expressed particular concern that the PCAOB’s final recommendations left out the definition of a small company for use by auditors, even though it was included in the Board’s original proposal. By omitting the definition, Greenwood said, auditors are left without a clear tool to help them scale the audit properly. This lack of clear direction to auditors may lead them to seek more extensive audits in an effort to avoid criticism for being too lenient, potentially resulting in even more costs and burdens to small companies.

September 10-11. Opportunity 2007, SunSpree Resort, Wrightsville Beach, NC.

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November 6, SEBIO 2007 Venture Conference. Pinehurst.

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