New House bill to add 35% tax credit for contracted research

A bipartisan bill that plans to allow a tax credit for expenses of contracted research—often done by CROs—has been introduced in the U.S. House of Representatives and was quickly hailed by the industry.

The H.R. 1234 bill, also referred to as the Domestic Research Enhancement Act of 2017, intends to amend the Internal Revenue Code of 1986 by adding a tax credit for 35% of research expenses incurred by those doing researches under contracts.

The bill was introduced by Rep. Patrick Meehan, R-Pa., and cosponsored by two North Carolina congressmen Republican Rep. George Holding and Democratic Rep. G. K. Butterfield.

North Carolina is home to several CRO giants, including: PRA Health Sciences, located in the state’s capital city Raleigh; INC Research, currently in the move from Raleigh to the nearby Perimeter Park complex in Morrisville; PPD, headquartered in Wilmington; QuintilesIMS, with its CRO businesses based in Durham; and Covance’s parent company LabCorp, which has its corporate HQs set in Burlington.

Pennsylvania also accommodates several CROs and at the same time sees many others, including the ones mentioned above, build offices and labs there.

These CROs are cash cows for the states, producing billions of dollars in revenues each year. The newly merged behemoth QuintilesIMS, for example, reported a revenue of $7.8 billion in 2016, while the former CRO Quintiles reported more than $4.32 billion for 2015. INC Research garnered about $1.03 billion in 2016, while PRA Health Sciences harvested $1.58 billion.

The current U.S. law includes a 65% tax credit for expenditures of sponsors of researches, mostly biopharma companies, but says nothing about expenses by those on the receiving end of the contract. However, if a biopharma company does researches all in house, it could claim 100% tax credit for related expenses. It means, there is a 35% gap of tax credits between in-house researches and contracted ones.

If passed, this bill would for sure benefit CROs, whose very existence lies in doing contracted researches. “The Domestic Research Enhancement Act will help make American life sciences firms more competitive on the global stage, spur more investment and innovation into groundbreaking new cures, and strengthen our regional economy,” said Rep. Meehan in a statement.

The CRO industry soon moved to applaud the bill.

“The life sciences industry is a very important economic driver in both Pennsylvania and North Carolina, and contract clinical research organizations are a major contributor,” said Association of Clinical Research Organizations Chairman John Hubbard, who’s also president and CEO of Doylestown, PA-based CRO Bioclinica, in a statement. “We commend Reps. Meehan, Holding and Butterfield for introducing legislation that promotes good jobs and domestic innovation.”

Rep. David Price, D-NC., congressman of the 4th District of North Carolina, an area that hosts CRO major players INC Research and PRA Health Sciences, along with several labs by Covance, PPD and QuintilesIMS, did not respond to a request for comment about his stance on the bill by publication time.

The bill has been referred to the House’s Committee on Ways and Means, where Meehan currently sits, but it could take years before both sections of the Congress vote on it.

Editor's Note: This story has been updated to include information on biopharma in-house researches tax credit policy.