Bailout Number… Nine, Is It?
December 10, 2008
Biotech companies, notorious for being risky investments that take many years to turn a profit (assuming they don’t go under first), are having trouble raising money in the current economic climate. So they are turning to… You guessed it: Congress. The New York Times reports on the “Little Biotech” bailout proposal, which contains an interesting tax policy twist:
The industry’s idea is to let companies turn their very weakness — their huge losses — into an asset. Under current law, net operating losses can eventually be used to offset some taxes once a company is profitable. But that does little good for companies struggling with losses and a lack of cash now.
So the industry’s proposal would let companies receive payments from the government now in exchange for giving up those tax deductions later. The industry would agree to a cap, perhaps $30 million, on the amount any single company could receive.
…Since many companies will never reach profitability, the industry acknowledges that an upfront cash payment would have to be significantly less than the value of the deductions.
The biotech firms are trying to distinguish themselves from the Big Three by claiming that unlike the automakers, American biotech firms are innovative and competitive global leaders in their industry.
By my count this is the ninth or tenth bailout considered, but it’s hard to keep track.