[Congressional Record Volume 153, Number 126 (Thursday, August 2, 2007)]
[Extensions of Remarks]
[Pages E1689-E1690]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         THE AMERICAN LIFE SCIENCES COMPETITIVENESS ACT OF 2007

                                 ______
                                 

                        HON. ALLYSON Y. SCHWARTZ

                            of pennsylvania

                    in the house of representatives

                       Wednesday, August 1, 2007

  Ms. SCHWARTZ. Madam Speaker, today I am introducing the American Life 
Sciences Competitiveness Act of 2007. This legislation aims to 
modernize the Internal Revenue Code so that the U.S. life sciences 
industry--both biotech and medical device companies--can effectively 
raise the capital they need to fund the next generation of medicines 
and medical devices that will lead to longer and healthier lives for 
Americans and people around the world. I am pleased to be joined in 
this effort by my distinguished colleagues on the Ways and Means 
Committee, Representatives Kevin Brady, Richard Neal and Wally Herger.
  This legislation remedies obstacles to future growth and development 
faced by the American biotechnology and medical device industries. I 
want to thank the Biotechnology Industry Organization (BIO), the 
Advanced Medical Technology Association (AdvaMed), the Medical Device 
Manufacturers Association (MDMA), Pennsylvania BIO, the Texas 
Healthcare and Bioscience Institute and the California Healthcare 
Institute for their strong support of our efforts to modernize the tax 
code for the 21st Century.
  The life sciences industry promises to be a key growth sector for the 
American economy. The biotech industry alone comprises nearly 1,500 
companies, located in all 50 states, and employs nearly 200,000 
workers. The more than 6,000 medical device companies in the U.S. 
employ over 350,000 Americans at wages 49 percent greater than the 
average for private industry.
  In my own State of Pennsylvania, the bio-pharmaceutical industry has 
roughly 30,000 high-wage employees. Additionally, there are more than 
120 medical device companies in Pennsylvania, the majority of which are 
small companies working on clinical trials prior to seeking marketing 
approval for their products. These companies offer great employment 
opportunities, providing good wages and benefits to talented, skilled 
workers. They are important contributors to Pennsylvania's expanding 
health care sector and often conduct clinical trials in partnership 
with academic medical facilities such as the University of 
Pennsylvania, Penn State, and the University of Pittsburgh as well as 
Drexel, Temple, Thomas Jefferson and the University of the Sciences in 
Philadelphia.
  America's life sciences sector is one of the most research-intensive 
industries in the world. U.S. biotech companies alone spent roughly $27 
billion on research and development in 2006. There are more than 400 
biotech products in clinical trials targeting more than 200 diseases, 
including various cancers, Alzheimer's disease, heart disease, 
diabetes, multiple sclerosis, and AIDS.
  Small medical device companies are also a leading source of 
innovation that is providing technologies that address previously unmet 
medical needs. These companies are transforming health care by 
providing physicians and their patients with the tools that allow early 
disease detection, less invasive procedures and more effective 
treatments.
  For all its bright opportunities, America's life sciences industry 
faces daunting challenges. First is access to capital for development 
of biotech therapies. Most biotech firms are small businesses with 
fewer than 50 employees. Because the development of new technologies 
that can often take 10 years or more and hundreds of millions of 
dollars to bring a new product to market, these small companies 
experience years of large cash outlays before they have the opportunity 
to realize any profit.

  In fact, in 2006 the biotech industry generated a total net loss of 
$5.6 billion. Despite this, R&D expenditures increased by 30 percent in 
2005. For every $1 of sales in 2006,

[[Page E1690]]

there was roughly 60 cents spent on R&D by biotech companies. Without 
question, capital investment for R&D is essential if these new 
therapies are to be developed and made available to the market.
  Much like the biotech industry, the medical device sector is also 
overwhelmingly composed of smaller manufacturers, with 90 percent of 
firms having fewer than 100 employees. Most of these small engines of 
growth focus on niche products with revenues of less than $100 million, 
yet they generate 28 percent of the industry's R&D spending. This 
commitment to R&D often means that these companies are the source of 
some of the most cutting-edge innovations, which can radically improve 
treatment options for patients.
  To continue to develop and improve the medical devices available to 
patients, the medical technology industry invests heavily in R&D. 
Today, the device industry leads global medical technology R&D, both in 
terms of innovation as well as investment. In absolute terms, R&D 
spending has increased 20 percent on a cumulative annual basis since 
1990. The industry's level of spending on R&D is more than three times 
the overall U.S. average.
  Encouraging new investment in the life sciences industry will enable 
this key sector of the American economy to grow and flourish in the 
years ahead. The American Life Sciences Competitiveness Act of 2007 
contains both corporate and investor oriented provisions to ensure 
access to capital and continued vigorous research and development in 
biotechnology and medical devices.
  This comprehensive legislation includes a number of provisions that 
would remove barriers to capital formation currently in our tax code. 
Specifically, the legislation modifies the Net Operating Loss (NOL) 
rules of Section 382, with the goal of enhancing the capacity of life 
sciences firms to leverage capital for use in high-tech, high-risk 
cutting-edge research. The legislation ensures that neither the raising 
of new research capital by biotech companies nor a business-driven 
merger of two biotech loss companies will trigger the 382 Net Operating 
Loss (NOL) limitations.
  In addition, the legislation contains two important modifications to 
the existing R&D tax credit. The legislation increases, from 65 percent 
to 100 percent, the amount of contract research expenses by life 
sciences firms eligible for the R&D credit. The legislation also 
increases the amount of basic research payments to universities from 
life sciences companies that qualifies for the full R&D credit.
  Importantly, the legislation recognizes the grave threat the country 
faces from bio-terrorist attacks and a potential avian flu epidemic and 
contains tax incentives designed to spur the industry to develop 
effective countermeasures. This provision provides a 20 percent credit 
on qualified pre-clinical and clinical trial expenses associated with 
the development of a countermeasure to combat pandemic flu or 
bioterrorist attacks.

  The bill also makes an important change to the orphan drug tax 
credit, allowing clinical trial expenses incurred after an application 
is made to the FDA, but before the orphan designation is received, to 
qualify for the credit. This change removes the current incentive to 
delay research and will help speed new orphan drug therapies to the 
market.
  In addition to the corporate-sector incentives, the American Life 
Sciences Competitiveness Act of 2007 contains two important provisions 
targeted towards the life sciences investor. One provision allows 
capital gains on the sale of stock in a life sciences company held for 
longer than 6 months to be deferred as long as the proceeds are 
reinvested in another life sciences company within 60 days. The second 
provision provides a 20 percent credit for investors in biotech firms 
engaged in incubational research. ``Incubational research'' refers to 
early, cutting-edge research that often occurs shortly after university 
laboratory research and prior to large-scale clinical trials. This 
stage of research is often termed the ``Valley of Death'' because the 
dearth of investment results in promising investigational therapies and 
products withering on the vine for lack of adequate capital.
  America's life sciences industry is strategically and economically 
vital. We must take every action we can to keep our Nation at the 
forefront of this emerging technology sector. Countries with 
significant government investments in their biotech industries, such as 
India and China, pose a serious long-term challenge to America's 
biotechnology and medical device industries.
  The American Life Sciences Competitiveness Act of 2007 will give 
American companies important tools to answer this challenge and ensure 
that our scientists have the opportunities to research, develop and 
bring to market life-saving treatments.
  Biotechnology and medical device products will be in demand from 
billions of people worldwide, creating a tremendous boon to the 
economies that create these products. Keeping the United States at the 
forefront of global life sciences innovation will translate into more 
and better-paying jobs here at home. The actions we take today will 
determine the winners and losers in the 21st century global economy. I 
urge my colleagues to support this important bill and better ensure 
that our economy continues to compete--and win.

                          ____________________