The United States is characterized by a complex ecosystem of universities, venture-backed start-ups, and larger biopharmaceutical companies, as well as a range of policies including strong intellectual property (IP) protection, financing government of basic biomedical research and a drug pricing system that allows pharmaceutical companies to invest in R&D.
Together, all these factors make the country leading this sector. The United States is unique in having a vibrant and research-intensive biopharmaceutical start-up system. Indeed, among the firms ranking as the world’s top 2,500 R&D investors in 2021, 260 were small, research-intensive (SRI) firms.
SMALL, RESEARCH-INTENSIVE FIRMS
Thanks to its robust innovation ecosystem, the United States is home to the majority of SRI firms, with 211 of the 260 registered in 2021, which represents 85% of them – with it, we also have the fact that 193 of them are characterized as biotech or biopharma start-ups, compounding 85% of all such biopharma start-ups in the world, putting the sector in the hearth of the country’s innovation landscape.
In the biopharmaceutical sector, Research & Development is critical for developing new drugs that can treat and cure diseases, distribute and create new medicines and vaccines – therefore, supportive policies inherent in the ecosystem are essential to enable a diverse community of contributors in the drug development process to innovate and thrive. The number of SRI biopharmaceutical firms is not random: most of them belong to the sector thanks to the strength of R&D in this field, which has a profound impact on local, state and national economies, supporting directly more than 900,000 jobs, and the direct production of the sector, its vendors and suppliers, along with the economic activity of its workforce resulted in more than $1,4 million in economic output in 2020.
Despite this, the survival of these companies is not always easy, and the process from research to market approval is challenging, especially for companies with few or no sales. According to Pharmaceutical Research and Manufactures of America (PhRMA), only 1 drug succeeds for every 5,000 to 10,000 compounds entering the drug development pipeline, and a study by Richard Thakor et al., says biotech companies “typically do not generate revenue… incur much larger losses… consistent with the fact that many biotech companies focus on R&D and do not have lines of commercialized drugs that they actively manufacture and sell.” As a result, these companies often succumb to the “valley of death,” or the phase between new drug discovery and market approval, when “cash is flowing out, risks are high, and valuation is low”.
Regardless of the risks, many of these companies continue to make big bets on activities that could have big, long-terms returns, not only for investors, but also for the US economy. Regardless of the risks, many of these companies continue to make big bets on activities that could have big, long-terms returns, not only for investors, but also for the US economy. Currently, the tax code has some inadequacies for those who decide to take these risks, and certain tax provisions make it difficult for these companies to invest, especially if they change ownership. On this topic, we have the proposals for the American Innovation and R&D Competitiveness Act of 2023, the Build It in America Act and the American Innovation and Jobs Act, which would make it easier for for-profit companies to get the R&D tax credit, restore R&D expenses, and amend section 469 and 382 of the tax code so that passive investors can take advantage of net operating losses even when ownership changes.
How can we help you?
FI Group is a global tax consultancy that helps industry obtain tax credits and incentives, with more than 1,700 qualified employees, counting on specialists from different fields, committed to supporting companies of all sizes and in all sectors of activities. With our expertise, FI Group specialists can support your company in identifying qualified activities. We specialize in helping companies finance innovation and secure funding for their R&D activities through the comprehensive management of the R&D Tax Credit.
Source:
Biopharmaceutical Pipeline Report 2017
Thakor RT et al. Just how good an investment is the biopharmaceutical sector?
Preserving Biopharma Leadership
