CBIA’s Bioscience Growth Council was formed to foster collaboration among Connecticut biotech and biopharma companies and, just as importantly, with our state.
Connecticut made a strategic investment in the life sciences to build a strong 21st century economy and create a broad spectrum of jobs.
The state’s support for huge research and development investments made by biopharma companies, the recruitment of The Jackson Laboratory, and the creation of a variety of funds and programs for early stage biotech companies, stem cell research, and regenerative medicine, are among these investments.
Determining how to generate valuable dividends from our investments—in terms of biopharma company formation and job growth in Connecticut—is what drives the council’s support for SB 965.
The bill provides an exemption from the income tax for income derived from the management of a venture capital fund.
Two main factors often determine where a new biopharma company will locate.
First, it’s the quality of the basic life sciences research of local institutions and universities.
The founders of biotech companies need to be close to the research labs and colleagues who were integral to the core research findings that led them to see the commercial potential to start a new enterprise.
We are fortunate in Connecticut to have several leading life sciences research institutions.
The quality and quantity of research grants and projects ongoing at Yale University, the University of Connecticut, and several other Connecticut colleges and universities, gives us opportunities to grow new biotech ventures.
For example, bringing The Jackson Laboratory here was a wise economic-development move because it grew the size and quality of Connecticut’s portfolio of cutting-edge, life-sciences research.
But there is only so much that state policy can do to boost academic research.
The second determining factor of where a biotech venture will start operating—and almost as important as proximity to academic research—is access to venture capital.
Attracting Venture Capital
Perhaps the most effective incentive we could create to grow the Connecticut biopharma sector is to attract venture capital by exempting such income from the personal income tax.
Because biopharma companies require such large investments of capital and time—it takes $2.6 billion and 12 years to bring a new medicine from research concept through FDA approval—their investors usually require the companies to be in close proximity to the investors’ offices.
With so much risk capital at stake, biopharma venture capital investors are active participants in assessing a new venture’s scientific research and development, and oversight of company management.
This is what causes biopharma venture capitalists to require the projects in which they invest—the labs and offices of biotech start-ups—to locate near their firm’s offices.
Venture capitalists want to be able to regularly see and feel what’s happening in the lab—in other words, kick the tires.
Exempting venture capital income from state taxes is a powerful incentive to encourage investors to locate here.
Connecticut is also well situated near the Boston-Cambridge venture capital community.
Venture capital firms could move operations here to take advantage of a personal income tax incentive while still being a few hours from their existing investments.
More importantly, with these firms relocating to Connecticut, over time their investments—start-up biopharma companies—would soon follow.
Because we have so few venture capitalists in Connecticut, the exemption would not have a negative impact on state income tax revenue.
Indeed, the venture capital firms’ investment in biopharma companies—labs, buildings, payrolls—in addition to their purchases of offices and homes, would be a substantial economic driver.
Start-Ups Important Economic Catalysts
A venture capital income tax exemption creates precisely the opposite effect of many state tax policies.
Rather than encouraging high-net-worth individuals to arrange their lives to spend “six months and a day” outside Connecticut, the incentive induces them to spend at least six months and a day in Connecticut.
Attracting startups is especially important today.
Larger, established biopharma companies have adjusted their business models and now favor smaller research campuses built among dense clusters of life sciences companies, clinical research organizations, and medical research hospitals.
The perception that the pool of potential employees, workplace amenities and intellectual cross-pollenization is greater in such clusters fuels this migration from contained suburban R&D campuses to urban settings.
We have much we can do to enhance our urban centers—transportation immediately comes to mind.
But if we attract venture capital firms and their biotech company investments to Connecticut, our cities can grow organically to be more like the urban areas with which we compete—Boston, San Diego, and San Francisco.