Olympia: Don’t Crush Biotech With New Taxes


Xconomy Seattle — 

Washington’s economy is showing signs of recovery. But some major problems persist—unemployment is stuck at a historic high and healthcare costs continue to skyrocket.

The biotechnology industry can help alleviate both these problems. Washington is already a major hub of new biotech research and products. Boosting this sector will deliver our state—and our nation—from this economic slump. And if we don’t support it, others such as China and British Columbia are calling those of us in the investment community and asking “what can we do to get your investment dollars, and companies, to come here?”

We are at a crossroads. Do our state legislators want the high paying jobs, and thriving economy that comes with strong biotech, or will they force the research, startups, and investors away with inadvertent innovation-killing policies.

Life science companies directly employ more than 22,000 Washington residents, paying out over $5.3 billion in annual wages and contributing $5.7 billion in state GDP. This industry is a major producer of jobs in the state.

The creation of bioscience jobs has a ripple effect on the rest of the economy. For every new job within the industry, 3.4 jobs are generated somewhere else. The life science sector indirectly supports some 55,000 jobs here in Washington and 2.4 million nationally. In other words, it’s not just well-trained scientists that benefit when the biotech sector grows. Union construction workers, engineers and a host of other goods and service providers also gain from biotech’s success.

Washington is home to major international research institutions, including the Fred Hutchinson Cancer Research Center, the Bill & Melinda Gates Foundation, Seattle Biomed, the Institute for Systems Biology, and the University of Washington.

Bioscience also has a major role to play in reducing healthcare costs. Americans currently spend over $2 trillion a year on medical care. Lawmakers have been working tirelessly for the last year to devise a solution to this problem. But nothing will be as effective at lowering costs as sustained medical innovation.

Pharmaceuticals have long been known to drastically reduce costs. New medications have brought down the cost of treating depression by mitigating the need for hospitalization. Likewise, cholesterol drugs have saved our health system billions of dollars by reducing the need for heart surgery. And how much of the healthcare dollar do you think goes to branded pharmaceuticals? Four percent. Yes…only four percent. Pills that cure disease are cheaper than doctors and hospitals.

It’s no wonder that Lawrence Summers, President Obama’s chief economic advisor, recently noted that “over the long run, few issues are as important to a nation’s long-term economic security and global standing as being a leader in moving life sciences forward.”

And given Washington’s strong bioscience industry, this state is poised to play an integral role in helping the life sciences industry fortify our economy.

How does Washington’s life science sector compare to other states? It’s in the top ten for both research funding from the National Institutes of Health, and investment of bioscience venture capital.

There are a number of ways lawmakers can accelerate the growth of this industry. The most urgent and immediate issue is before the state Legislature right now. The Washington State House and Senate are negotiating final revenue bills that include massive increases in taxes on the life sciences industry and its research institutions.

If the State Legislature passes a bill like they did this week that almost doubles taxes on basic research in Washington (ESSB6143), this is a big problem for science and for jobs. If the State Legislature passes the proposed massive increases in taxes on investment income on foundations, research institutions, life science companies and venture capital investors, every venture fund will flee the state, and life sciences companies and research institutions will suffer. That would be the death of the industry. We need to make sure we have good policies in place that ensure researchers are incentivized to innovate and that cultivates a positive business climate for investment.

Thankfully, there are some State legislators and leaders, including Governor Gregoire, Rob McKenna, and others who understand the value of biotechnology and can put a stop to the inadvertent killing of the industry at the state level.

There are also issues at the federal level that must be addressed in order to ensure a vibrant life sciences sector. Hopefully, Congress will support sensible capital gains tax reform that will reduce taxes on investment in job-creating biotech investment, and not increase taxes as currently proposed.

With the right support and some restraint of innovation-harming policies, Washington’s biotech community will continue to generate jobs and revive the economy, while also saving lives with new products and driving down healthcare costs.

Robert Nelsen is a co-founder and a Managing Director of ARCH Venture Partners. He focuses on biotechnology, pharmaceuticals, and nanotechnology. Follow @

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4 responses to “Olympia: Don’t Crush Biotech With New Taxes”

  1. The WBBA and its members agree with Mr. Nelson.

    Washington’s life sciences are at a crossroad and showing signs of emerging as not only one of the state’s leading sectors (#5 as counted by direct jobs in the state in 2009), but fastest growing as well (5% employment increase since January, 2007, compared to a 1-2% decrease in the rest of Washington’s private sector job markets).

    We have been very active contacting the Governor’s office, Commerce and key representatives and senators in the state with the messages below. We are encouraging all WBBA members, and supporters of life sciences to contact your representative and senator with the following messages;

    – Oppose SSB 6143 Sec 1902(2)(0)!
    – If passed, it would result in an increase in the B&O tax of up to 33 percent for life science companies and a doubling of the B&O tax for not-for-profit research institutions.
    – This tax has the potential to seriously derail Washington’s life science innovation economy and weaken if not destroy one of the state’s top 5 sectors.
    – It is estimated that for every $1 million received in research grants, that 7.5 direct jobs are created.
    – Our emerging life science companies cannot afford this excess tax and be expected to survive in the current economy.

    – This tax will make our life science sector less competitive, prevent many disease treatments, cures and research from getting funded, and either dissolve existing jobs or prevent new jobs from being created.

    Commments from WBBA members organizations;

    – Emerging biofuel company – As an early stage, pre-revenue company, it is imperative that we maximize the amount of cash we have to employ scientists and position ourselves for success. Adding an additional surtax to the B&O we already pay is harmful to our company and our competitiveness and to the research we are doing to increase quality and yields in food crops and bioenergy feedstocks.
    – Emerginng biotech – The B&O surtax will likely require a reduction in benefits and no new hires.
    – Emerging digital biology company – The B&O surtax means we would delay hiring of an anticipated staff member and may reduce the number of people employed and slow research.
    – Large non-profit research organization – We estimate that the B&O surtax as proposed would increase our annual B&O tax by $5M per year, thereby negatively impacting research, jobs and innovation.

    Please contact your representative and senator and oppose this tax increase on life sciences research, development & innovation.

    Chris Rivera, President
    Washington Biotechnology & Biomedical Association

  2. Anthony Rodriguez says:

    From a young scientist’s and aspiring entrepreneur’s perspective, I am paying close attention to how well the state government supports the life science industry here. Training a single PhD student like me can cost tens of thousands of dollars a year to the University of Washington. I want to make my career in the Northwest but will be forced to leave in search of a job if the industry becomes stagnant. Washington will lose out on the money invested in training me and my fellow graduates students if we are forced to move to one of the other areas around the world with strong local governments that value the life science industry.

  3. High taxing kills brilliant industries. I hope they can see that.