Viewpoint: How Maryland Could Become a Biotech Leader
The Baltimore region and state of Maryland appears to have all the critical components to emerge as a nationwide leader in the biotech and life sciences market.
Indeed, the Maryland Life Sciences Advisory Board, an agency that reports to the Department of Commerce, has adopted as its vision statement “to become a top three biohealth ecosystem by 2023.” Buoyed by Johns Hopkins University and the University of Maryland, and together with an entrepreneurial private sector, state officials are optimistic that this becomes a reality.
However, in order to achieve its full potential, startup and growing biotechnology businesses must take advantage of existing tax incentives, government funding opportunities, and create financially efficient business structures to succeed.
Yet, many businesses do not avail themselves of the resources available that help companies get past the initial barriers in the business cycle. Here are two they can utilize.
- The Maryland Biotechnology Incentive Tax Credit provides a refundable income tax credit equal to 50 percent of an eligible investment in a qualified Maryland biotech company. is means that even if an investor has no Maryland income, they will receive the amount of the credit back in cash. A company must be certified for its investors to receive the credit. The precertification period begin in May and applications may be filed starting in June.
- TEDCO (Maryland Technology Development Corp.) has various programs that provide funding for startups including the Maryland Innovation Initiative that provides early stage funding for projects that originate from Johns Hopkins, University of Maryland and Morgan State. For private companies, the TEDCO Seed Fund and Life Sciences Investment Fund allow companies to apply for investment, which is made in the form of a convertible note. Given the difficulties in raising early-stage funding in the private sector, the TEDCO investment programs allows a streamlined vehicle for companies to raise funding.
Frequently, I receive calls from companies that want assistance in identifying potential investors, advice regarding equity sharing arrangements or benefiting from tax losses. Yet, these companies all too often fail to operate as a business. They have poor fundamental tracking of costs, nonexistent cash flow management and no mid- or long-term plan to get past the initial development of a prototype or some comparable early stage benchmark.
The reality is that achieving an early success is the first of many steps in a very long process. With such companies often requiring five to 10 years to generate substantial revenues, business owners must be prepared to operate like a business from day one. To accomplish this result, they should focus on the following
- Operate as a business and invest where possible in building an adequate accounting infrastructure, formalize legal agreements and limit potential liability.
- Choose investors wisely. Investors are either your partners or your creditors and picking the wrong investors can prove costly if you experience any bumps in the road.
- Find strategic partners. The easiest way to act like a bigger company with significant resources is to have access to networks of companies with these resources. These can be industry partners, CPA firms, law firms or advisory board members that have the ability to help access the right people to help you grow.
- Be patient, but driven. Biotech and life sciences companies pay huge dividends when successful, but it takes an unbelievable amount of persistence in the face of day to day failures as innovations evolve from an early stage idea to commercialization over many years.
David S. Rosen is a partner at Rosen, Sapperstein & Friedlander LLC, a business consulting and accounting firm.