Extending CA net operating losses carry-forward to 20 years would create a better business and innovative environment

For the full article link to: http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/18/EDO3VLH2T.DTL

Extending the net operating losses carry-forward to 20 years, as do the federal and many state governments, would create a better business and innovative environment for the development of many new therapeutic and prophylactic products.

David Martin is president and CEO of AvidBiotics, a biotechnology company developing protein products for the treatment of specific bacterial diseases of humans, with particular emphasis on antibiotic-resistant bacteria. Matthew M. Gardner is CEO and president of BayBio, an independent, nonprofit trade association serving the life science industry in Northern California.

Finding drugs to combat super bugs

By David Martin, Matthew M. Gardner
Tuesday, March 18, 2008

The antibiotics we have come to depend upon to fight bacterial ear infections, pneumonias and strep throats are working less and less well. At the same time, we have fewer new drugs in the pipeline to replace the increasingly ineffective antibiotics. These problems have serious consequences for all of us. Last year, 2 million people were infected with drug-resistant "super bugs," resulting in 90,000 deaths and an additional $9.5 billion in health-care costs, according to the Infectious Disease Society of America.

The high risks and high costs of drug development, coupled with the relatively small antibiotic markets, have resulted in the limited pipelines. High overhead costs and limited market demand constrain traditional pharmaceutical companies' interests in developing an effective response. The result is a dearth of new antibiotics: between 2003 and 2007, only four new antibiotics received FDA approval.

Small entrepreneurial companies that make up much of California's life sciences industry can fill this gap. Many of these companies focus on discovering new treatments for unmet medical needs that are more difficult to develop, but have a large public impact. Small biotech companies have the institutional agility and the scientific know-how to discover and develop new drugs to combat super bug infections. Markets of considerably smaller sizes are sufficient to greatly interest small biotech companies. Yet these companies face their own challenges.

Raising capital to fund research and development is the top priority for any small life sciences company. Drug development costs continue to escalate. The average company must invest $800 million of capital over 15 years to develop a successful product and eventually achieve profitability. Because of the length of the research and development cycle for typical biotechnology products, some California tax code provisions that are intended to assist emerging industries are less than useful. In the fight against antibiotic-resistant super bugs, new solutions are needed to spur innovation and stem this deadly trend.

A case in point is California's treatment of net operating losses. Net operating losses are generated by companies engaged in research and product development but not yet making a profit. California law allows such losses to be carried forward for 10 years and written off upon profitability. Extending the net operating losses carry-forward to 20 years, as do the federal and many state governments, would create a better business and innovative environment for the development of many new therapeutic and prophylactic products.