A 30% tax credit on vaccine R&D could be as cost- effective as direct federal investment in vaccine development through government grants, a Congressional Research Service report states.

The report, prepared for the introduction of Sen. Kerry's (D-Mass) "Lifesaving Vaccine Technology Act" Oct. 12, notes that studies have shown the research and experimentation tax credit to roughly yield a dollar-for-dollar increase in reported R&D.

"In other words, these studies suggest that government spending programs and the [Research & Experimentation] tax credit are equally effective in increasing the amount of qualified research performance in the U.S.," the report concludes.

The Kerry bill, cosponsored by Sen. Durbin (D-Ill.), is a companion to legislation (HR 1274) introduced by Rep. Pelosi (D-Calif.) March 24. President Clinton, in a recent speech to the United Nations General Assembly, referenced the bill as a possible method to address the need for development of vaccines for malaria, tuberculosis and AIDS (¹ Also see "Clinton Calls For White House Meeting To Discuss Vaccine Development" - Pink Sheet, 27 September, 1999.).

The federal government invested about $500 mil. in vaccine R&D in 1995, according to the CRS report. The federal investment was 36% of the $1.4 bil. spent on vaccine research in that year, with the "lion's share" of private funding coming from Merck, Wyeth Lederle, SmithKline Beecham and Pasteur Merieux Connaught.

By May, 1998, the report shows, about 50 small biotech firms had 75 new vaccines in development. "The economies of scale in vaccine production, however, make it unlikely that many of the small startup firms now engaged in vaccine R&D will grow into large, independent producers," the report states.

The Kerry/Pelosi bill aims to spur investment in small biotech firms by offering a 20% tax credit on funds invested in the stock of a company engaged in vaccine development. In order for the investor to qualify for the credit, the developer would be required to spend the invested funds on vaccine R&D within 18 months, and would waive its right to the 30% credit.

The vaccine tax credit could lead to as much as a 19.5% increase in R&D, the report states. That figure is on the high end of estimates, however.

Vaccine R&D Tax Credit Proposal Supported By Findings In CRS Report

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