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Ill. Life-Sci Group Expects State Lawmakers to Allocate $25M to Help Startups Launch Products

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Illinois life-science industry advocates for the second straight year are urging state lawmakers to set aside $25 million in grants and tax credits to assist biotech, pharmaceutical, and medical-device startups commercialize new technologies.

Unlike last year, when the proposal died in a state House of Representatives committee, the state's life-sci industry group expects this year's version to pass. One key reason: The legislation, which passed the state Senate unanimously on March 31, would award cash to other tech industries, including alternative-energy, or so-called "clean," technologies, and the state's fast-growing nanotech sector.

The bill is currently in the state House, which began considering the bill by assigning it to its Rules committee. Meantime, supporters of the legislation lined up co-sponsors that include the vice chair of the House's biotech committee, state Rep. Susanna Mendoza (D-Chicago).

"We expect quite a number of House members to attach themselves as either primary or regular co-sponsors," David Miller, iBio's president and CEO, told BioRegion News last week.

Those lawmakers, he said, will be part of a coalition of business and academic supporters who will advocate for the bill in coming weeks.

"The coalition literally stretches from the southern part of the state with Southern Illinois University, up to north Chicago and Rockford, and from Moline over to Champaign on the eastern part of the state," Miller said. "We're hopeful that this will pass both houses and be sent to the governor [Pat Quinn]," whose aides have told advocates he supports the bill.

Miller spoke in an interview two days after the state Senate passed the legislation, called the Emerging Technology Industries Act, or Senate Bill 1522. The measure would divide its $25 million among two programs available to startups in some other states — especially Illinois neighbor Wisconsin, whose success in building a cluster of early-stage life-science companies has not gone unnoticed by life-sci leaders in the Prairie State.

As a result, Illinois' bill mimicked two tax-credit provisions that helped draw tech businesses to Wisconsin. SB 1522 would set aside up to $10 million in state funds annually for matching grants to Illinois-based tech startups that obtain federal Small Business Innovative Research grants. The measure would also create an annual $15 million tax credit program for state-registered and qualified investors in early-stage life-sci and other tech startups.

Under the bill, the benefits would apply to startups deemed to be in biotechnology, medicine, or the life sciences; as well as in any of the following technology sectors: agricultural, computer and software, nanotechnology, energy, manufactured energy systems, aerospace, petroleum, micro-electromechanical systems, defense, semiconductors, or "any other pursuit that is determined by the [state] Department [of Commerce and Economic Development] to be an emerging technology industry."

Illinois has taken this step to try to boost its life-sci sector one year before Chicago hosts the Biotechnology Industry Organization's 2010 International Convention. The city hosted the meeting in 2006 and has been selected to host it yet again in 2013.

"Illinois has done a phenomenal job of capturing innovative spinouts from our big global corporations, and [has done] a phenomenal job of attracting high-tech companies from overseas in the life sciences," namely Japan's two top pharmaceutical companies, Miller noted.

Takeda Pharmaceutical, for example, bases its US headquarters in Deerfield, Ill., and last week the firm announced it would expand that outpost by shifting from Osaka, Japan, the headquarters of its Global Research and Development Center, upgrading what until now has been a regional hub for the unit [See BioRegion Real Estate, this issue].

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Other firms that base their North American headquarters in Deerfield are Japanese-owned Astellas and Ovation Pharmaceuticals, set to be acquired for $900 million by Danish-owned H. Lundbeck, in a deal announced on Feb. 9.

"What we're trying to do is get the state to be just as strong in the nurturing and development of pure startups, and that's what this bill is aimed at," Miller said. "It's presumed that they either tough it out in Illinois without the benefit of these kinds of measures, or they go to states where they have an opportunity to stretch their working capital, which is really what [SB 1522] is all about."

In an e-mail message to members seeking their involvement in lobbying for SB 1522, iBio was blunter about the competitive pressure Illinois faces from its neighbors.

"Technology firms created here frequently move to other states — including those in the nearby Midwest — recruited away by SB 1522-like programs," iBio wrote last week. "As a result, brains, talent, and Illinois-taxpayer-financed technical discoveries leave our state."

Benefiting from that exodus, Miller told BRN, have been Indiana, Michigan, and especially Wisconsin, where on Feb. 19 Gov. Jim Doyle signed Act 2, which in part expanded to $37 million from $11.5 million the Badger State's maximum amount of annual tax credits for angel and venture investors under Act 255.

The provision was part of Senate Bill 62, a larger measure designed to plug a $700 million shortfall in the current fiscal year's budget. The legislation included a new $175 million hospital tax and a new $27 million tax on computer software, as well as a $125 million spending cut

"We know we have lost companies to those states," Miller added.

Wisconsin's Act 255, enacted in 2005, allows venture capital funds to claim a 25-percent income tax credit on up to $2 million in aggregate cash equity investment in a single "Qualified New Business Venture," which the state defines as "an early-stage company with high-growth potential that meets [state] Department of Commerce eligibility criteria and that has been certified by the department."

Under Act 255, businesses can receive up to $4 million in tax credit-eligible cash equity investment, of which up to $1 million in tax credit-eligible investment can come from angel investors.

After two years on the books, the provision resulted in a jump in the amount of VC investment and in the number of companies receiving such cash among Wisconsin "healthcare" companies that mixed in healthcare IT with companies across the life sciences, according to BioEnterprise, a Cleveland-based bioscience and healthcare business-development consultancy.

BioEnterprise, which reported its results in 2008 Midwest Health Care Venture Report, also showed that eight companies received a total $48.5 million in VC finding, down nearly 14 percent from $56.2 million among 12 companies during 2007, but still nearly double the $25.2 million among seven companies recorded for 2006.

According to a survey conducted by NorthStar Economics and the Wisconsin Angel Network, and released last year as 2008 Risk Capital Report: Wisconsin, the state's total volume of startup capital invested by individual angel investors, angel networks, early-stage funds and others jumped 43 percent, to $146.9 million from $102.9 million the previous year.

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In the life sciences sector, the survey recorded 13 life science funding deals totaling $69.3 million in 2007, compared with $35.7 million in 13 deals in 2006.

Act 255 has also been cited as one factor helping to double life-sciences employment in the Madison, Wisc., region between 2000 and 2007, which swelled to more than 5,700 jobs from 2,900 jobs, according to a Biotechnology Sector Snapshot released last month by the regional economic-development group Thrive. That number swelled 66 percent to 10,160 jobs since 2000 under a broader "bioindustry" category that also includes testing laboratories, agricultural biotech, and diagnostic-imaging centers.

Meantime, in its Snapshot study, Thrive said it coordinated the umbrella of business, academic, and nonprofit leaders who have lobbied for Wisconsin's expanded investment tax credits. "These changes will take a proven program to the next level, increase investment in high-tech industries and emerging growth companies, and help promising companies stay competitive in the capital quest," Cheryl Gain, director of biotech initiatives at Thrive, said in the report.

Miller said iBio sought support for an Illinois investment tax credit this year in part by studying last year's effort, which lobbied for a House-generated companion bill with similar subsidies to SB 1522, but that was tailored expressly to life-sci startups.

iBio opted to support a bill benefiting a broader spectrum of tech startups, then helped build a coalition of supporters, according to Miller. "We picked up an enormous amount of support by doing that," he said.

That coalition, Miller said, has grown to include around 200 organizations. They include the state's largest research universities — the University of Illinois, the University of Chicago, and Northwestern University — as well as smaller yet key research schools, such as Illinois Institute of Technology and Southern Illinois University; nearly all of the state's life-sci companies, ranging from Abbott Laboratories and Baxter Healthcare, to corporate giants that have traditionally not backed legislation benefiting the life sciences, from renewable food and industrial ingredients maker Tate & Lyle, to Archer Daniels Midland and John Deere.

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