Hartford Business Journal

12 HARTFORDBUSINESS.COM | FEBRUARY 24, 2025 on oncology. The past decade "was a huge boom time for biotech. It outperformed every other sector," Shannon said. "Now we're sort of on the other side of that, where companies that shouldn't have survived are failing, but some companies that in other times would not have failed … are struggling to survive." Shannon says Connecticut has had its share of successful biosci- ence firms. He cited rare drugmaker Alexion Pharmaceuticals, now owned by AstraZeneca, as one example. While AstraZeneca is based in the United Kingdom, it has not relocated Alexion and, in fact, is expanding its offices in New Haven. He also cited New Haven-based Arvinas Inc., which is developing therapies for prostate and breast cancer and announced a $350 million fundraise at the end of 2023. "That's a company that's recog- nized around the world as an absolute innovator in what they do," Shannon said. Still, when looking at the sector beyond Connecticut from a "macro" level, "the biotech investor markets have been difficult for a while now," he said. He noted that the XBI exchange- traded fund, built to track the S&P Biotechnology Select Industry Index, is "down like 60% or 70% since February 2021. So, the public markets are down, and that creates a drag on the private markets as well." It's also a drag for startup compa- nies seeking capital, which "has created a problem with funding of a lot of the biotech companies that are in existence, but don't have products that need new investor capital," he said. Shannon added that all markets go through cycles and biotech is no different. "And this is, I would say, a relatively down time." 'Really bullish' Matthew Storeygard is more opti- mistic. The senior managing director of investments and bio team director for Connecticut Innovations (CI), the state's venture capital investment arm, says his orga- nization believes the state bioscience sector is a strong investment opportunity. "My sense was that in 2020 to early 2022, there was a lot of inflow of money and sort of inflated valua- tions," Storeygard said. "There were a lot of VC rounds. … And then it sort of corrected over the last two years. But I would say over the last year, espe- cially, we're really bullish." He added that CI's portfolio of investments in healthcare-related ventures is approximately $100 million, while investments in biosci- ence companies "is probably a little less than half" of that. CBIA's Pescatello is also bullish on the sector, saying, "We've really hit our stride over the last couple of years in terms of new companies That opinion is shared by John Bordeaux, president and CEO of AdvanceCT, the state's nonprofit business support and recruitment arm. He says comparing staffing levels from 25 years ago with today fails to account for how technology has progressed. He cited artificial intelligence as an example. "The companies that are … raising money today are enabled by this next-generation technology in a way that just doesn't need the same number of people," he said. Pescatello added that the number of companies in the sector, combined with the number of related suppliers and support businesses, is a more Proposed R&D tax credit boost 'a huge win' for CT bioscience firms By David Krechevsky davidk@hartfordbusiness.com W hen Gov. Ned Lamont addressed BioCT's 2025 legislative breakfast on Jan. 27 in New Haven, his keynote address included a surprise. While praising the bioscience sector as one of the state's strengths, Lamont said his proposed two-year budget — set to be released nine days later — would include a revision to the state's research and devel- opment (R&D) tax credit. "In terms of the R&D tax credit, we weren't compet- itive," he told the gathering of more than 200 people. "So, our budget proposal takes that R&D tax credit up to, I think it is 90%, (which) makes us much more competitive with what I see going around the region." Event attendees welcomed that announcement. "There's been a big push from BioCT and other legislative action groups" to support the increase, said Bill Claffey, a tax attorney and partner at accounting firm Fiondella, Milone & LaSaracina LLP. He participated in a panel discussion during the event. "It was kind of a surprise to those of us pushing for it that they were going to increase the exchange rate," Claffey said. "That's what he referred to, raising the exchange rate from 65% to 90%." According to Claffey, state law allows qualified companies that are not yet profitable — such as bioscience firms that aren't generating net income because they don't yet have a product to sell — to carry forward any R&D tax credits and use them to offset future corporate business taxes. Connecticut, however, also allows qualified compa- nies to exchange those tax credits for a "refund" (a reimbursement from the state) up to a certain amount. Currently, that amount is 65% of the tax credit; Lamont's proposal would increase that to 90%. Claffey called the R&D exchange a "great policy." "There are only a handful of states that do have a refundable R&D tax credit," he said. "Our neighbors, New York and Massachusetts, have refundable tax credits for life science-type companies, but the rate of exchange is higher." In Massachusetts the rate is 90%; in New York it's 100%, he said. "If I'm a biotech company and I'm looking to start my business, that rate is kind of a big deci- sion-maker. If I get 100% or 90%, that may be more attractive," Claffey said. The tax-code change won't lead to a windfall for bioscience companies, according to Lamont's budget projections. Increasing the exchange rate from 65% to 90% will cost the state only $1.8 million in tax revenue in each of the next two fiscal years (2026 and 2027). Even still, Claffey said the change would be a win for Connecticut if the state wants to be a real player in the biotech sector. Bioscience companies offer high-paying jobs and will not just bank the exchange reimbursement, he said. "They invest, or they fall behind," Claffey said. "So, how do they typically invest? They're hiring new people. They're investing in machinery. They're investing in supplies, and it just builds up the ecosystem within the state. So, this would be a tremendous win if they can get it approved." Another incentive Claffey said eliminating another tax, the capital base tax, would also help bioscience companies. The tax subtracts a company's liabilities from its assets and, if the result is net positive, the state applies a 0.26% tax to that. Connecticut is one of the few states that still has that type of levy, he said, adding that the tax was supposed to be phased out by 2024, but the legisla- ture extended it to sunset in fiscal year 2028. In his budget proposal, however, Lamont proposed eliminating the tax two years earlier, by fiscal 2026. That would cost the state $35.7 million in tax revenue over the next two fiscal years. "For a biotech company, it's really a sore spot," Claffey said of the capital base tax, "because they spend so much time and effort trying to get investors to invest in the company, … and then that investment goes on their balance sheet and they've got to pay a tax on that." telling figure than the number of people the sector employs. According to DOL data, there were 1,744 biotech companies in the state at the end of the third quarter of last year — more than double the 817 companies in 2002. There is yet another reason for the reduced employment numbers: outsourcing. Kat Kayser-Bricker, Halda Thera- peutics' chief science officer, says many bioscience firms often choose to use consultants. "For example, we're moving into our clinical trials, and we have a consulting chief medical officer because we don't want to hire a CMO until we start to see some readouts on the trials," she said. "You want to make sure that it's worth bringing somebody on, that you have the data to support that." Halda, which is developing a novel class of therapies for prostate and breast cancer, currently employs 35 people, she added. Matthew Storeygard Tim Shannon Bill Claffey It's also worth noting that the average annual pay in the industry has grown 82.5% over the past two decades, rising from $75,990 in 2001 to $138,650 in 2023, the latest year for which full-year data is available, according to the labor department. Difficult market Beyond the number of businesses and employees, though, is whether venture capitalists (VCs) and others are still investing in the state's biotech companies. Tim Shannon is a general partner with Canaan Partners, a California-based, early-stage venture capital firm with an office in Stamford. He's not just an investor; he's a former pulmo- nary and critical care physician and was president and CEO of CuraGen, a publicly traded biopharmaceutical company focused John Bordeaux Under the Microscope Continued from page 11

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