Carolina Journal News Reports
RALEIGH — A biotech incentives bill is on the fast track as the General Assembly’s short session winds down, but a big remaining question mark is how newly minted federal health care policies will impact the industries the measure would fund.
As reported in June by Carolina Journal, House Bill 530 (also known as the Life Sciences Development Act) would establish a private limited liability company to make taxpayer-funded loans of up to $30 million each to biotech companies.
To underwrite the loans, the Life Sciences Development company would sell equity certificates (similar to shares of ownership) to investors. If returns weren’t as good as expected, the company would issue tax credits to investors, covering their risk.
A joint conference committee was appointed June 9 to reexamine the bill, adjust it if necessary, and send it back to the House and Senate floor, where lawmakers only could vote it up or both. Supporters are now circulating talking points (PDF download) in favor of the proposal.
Opponents say the bill is more corporate welfare, runs afoul of the state Constitution (PDF download), and puts venture capitalists’ risk on the backs of taxpayers. Sponsors say the measure is necessary to spur economic growth and create jobs.
A huge wild card, however, is how the new health care law will affect private biotech research and innovation. A study by the libertarian Cato Institute found that more centralized health care systems — such as the one enacted by Congress in March — tend to curb “the use of new drugs, technologies and procedures. As a result, they tend to adopt new technologies later and use them less extensively.”
The study also found that until this point, the United States has led the world in medical innovation because investors are freer to take risks by backing new technologies. Experience with centralized systems, on the other hand, shows that more government control leads to less investment in innovation.
Yet the core purpose of HB 530 is just that — to invest in biotech innovation — and critics say it adds too much uncertainty to the equation.
“The [health care] law does tighten government price controls on prescription drugs, and that is going to make the United States a less hospitable environment for pharmaceutical innovation,” said Michael Cannon, director of Cato’s health policy studies.
Cannon also said that firms and investors are in a holding pattern to see how the regulations actually play out. “It’s likely that a lot of start-ups who are considering new [research and development] investments are sitting on the sidelines and waiting until they get a better picture of how this law is going to be implemented before they go ahead and pour lots of money into R&D that might not satisfy the new regulatory requirements,” he said.
Such arguments aren’t confined to conservative circles, either. The Houston Business Journal reported that the health care law imposes a 2.3 percent excise tax on medical devices sales beginning in 2013. The tax would cover biotech medical devices developed by any firms the Life Sciences Development company would fund. According to the Journal, “Profits at small public companies could drop by as much as 77 percent, [JP Morgan Chase & Co. analyst Michael] Weinstein says.”
Moreover, Jeffrey Flier, M.D., dean of the Harvard Medical School, wrote in The Wall Street Journal that health care reform improves access to insurance but perpetuates the current dysfunctional system.
“Ultimately, our capacity to innovate and develop new therapies would suffer most of all,” Flier said.
HB 530 isn’t on the Senate or House calendar, but it could come up at any time as lawmakers rush through legislation in hopes of wrapping up the short session this week. An initial attempt at passing the bill failed in the waning hours of the General Assembly’s long session last year, when legislators couldn’t reach a compromise on differing House and Senate versions.
Carolina Journal Managing Editor Rick Henderson and Editorial Intern Bill Flanigen contributed research to this story.