Want to see one example of where state tax policy has worked according to plan?

Look at the sprawling campus of Boehringer-Ingelheim—the biopharmaceutical company’s U.S. headquarters—spanning the Danbury-Ridgefield line, said Dr. James Baxter, BI’s senior vice president, U.S. development, at The Connecticut Economy conference last week.

The campus is where 2,700 Connecticut employees from nearly every city and town in the state work; where more than 3,000 state-based suppliers—mainly smaller businesses—provide the state’s largest biopharma with $84 million in goods and services.

It’s where BI has made over $600 million in investments in labs and buildings to bolster its drug discovery, development, and manufacturing capabilities—in fact, investing tens of billions, here in Connecticut, in new medicine R&D.

Over the past two decades, teams of scientists have been researching and developing leading edge solutions to more than 22 chronic health conditions, launching 20 medicines.

So, why Connecticut?

Baxter says BI likes Connecticut for its supply of superb talent, top educational institutions, and an enviable quality of life that includes safe communities and excellent schools.

Plus the fact that Connecticut has offered a competitive R&D tax credit to make the super-expensive, decades-long development process possible in this high-cost state.

Years ago, state lawmakers approved the R&D tax credit, along with several others, specifically to enable high-powered, long-term economic activity to happen in Connecticut.

And it went according to plan. Until, that is, this past June.

Chopped

That’s when state lawmakers reversed course and chopped the credit in the new state budget.

“We’re quite dismayed,” said Baxter of the rollback.

It takes 10 years and about $2.6 billion of investment, on average, he said, to develop and bring to market a new medicine.

Only a tiny fraction—less than 1% of new medicine R&D and only 12%, at most, of those drugs that enter clinical trials ultimately result in an approved medicine.

And once a drug is approved, BI and other pharmaceuticals have only another 10 years to make a return on investment before the medicine becomes generic.

“How can we survive that kind of environment,” Baxter asked, now that the state weakened the very R&D tax credit that’s enabled the state’s 12th largest employer to make the long-term financial equation work.

Great investment

Connecticut’s R&D tax credits have been an extremely good investment for state taxpayers, said Baxter.

He showed state Tax Department figures revealing that between 2001 and 2012, $109.2 million in approved R&D tax credits were responsible for creating $3.14 billion in investments by Connecticut companies.

As Baxter wrote in a Hartford Courant opinion piece in June during the budget debate:

Companies have made long-term business decisions based on the tax credit program and need to be able to rely on stable business environments to make investments that drive innovation and growth. The cut … has many people questioning the logic of the decision because the program has proved to be one of the state’s most successful drivers of economic activity and job growth.

“We can go most anywhere in the world to make capital investments,” said Baxter at the economic conference. In fact, he said it’s his job to justify to the parent company, located in Germany, why Connecticut is the place to locate its US headquarters.

“We’re committed to be here in Connecticut,” he added.  But he also called on state lawmakers to reconsider the tax credit rollback.

“This is not helpful to the competitiveness of our state,” he said. “R&D is the foundation of the biopharmaceutical industry. We have to think about the long-term success of our state.”

“Baxter is right on point,” said Paul Pescatello, chair of CBIA’s Connecticut Bioscience Growth Council.

“Tax credits are a win-win for all of us. Patients get new medicines, workers get great jobs, and the state creates highly effective economic development.”

The legislature returns for the 2016 session in February.