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Government program provides $67 million to local life science firms

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With venture capital and other forms of investing funds lacking in the recession, the life science industry is welcoming a new form of government funding for research.

Qualifying Therapeutic Discovery Project credits and grants are a program of the U.S. Department of Health and Human Services and the IRS that was created by the Affordable Care Act, better known as the health care bill passed in March. The grants and tax credits are for projects that show significant potential to produce new and cost-saving therapies, support jobs and increase U.S. competitiveness.

Or as John Sharp, chief financial officer of the local drug developer Ligand Pharmaceuticals (Nasdaq: LGNDD) said with a laugh, “It’s almost like free money.”

Ligand was one of more than 150 San Diego County companies to receive the grants. Ultimately the program will allocate $1 billion around the county, with a maximum of $5 million per company. San Diego companies received about $67 million. Ligand took in the most at nearly $2 million from eight different grants.

Sharp said that the wide net cast by these grants and credits were a large part of the appeal. Usually, grants are for very specific kinds of research. Companies can use the Qualifying Therapeutic Discovery Project credits and grants for anything, from research projects to creating and retaining jobs.

“We’re a small biotech here in San Diego and cash is very important to us, so anytime somebody says that they’re going to fund some of your research, we’re going to listen,” Sharp said. “It’s allowed us to, I’ll say keep jobs. We may not necessarily be hiring people with this funding, but the reality is we may not be laying off as many people.”

Already a public company, Ligand isn’t relying on venture capital, but Sharp said investing in general is down, and few companies are going out for initial public offerings. Any source of funding available is important.

David Gollaher, president and chief executive officer of the California Healthcare Institute (CHI), agreed. The state of the economy has made even investors who have money very risk averse, and investing in life science, particularly pharmaceuticals, is always risky. There is the chance that a company could spend five or 10 years developing a drug only to have it fail.

The government has long used National Institute of Health (NIH) grants to fund early scientific research, but as Gollaher said, there is still often a “valley of death” in funding between early-stage research and the viable product it could eventually become. These grants and credits are meant to do more to close that gap.

“Very early on, President Obama said that he wanted there to be more investment in getting NIH research into the marketplace where it can help patients,” he said. “I think this is a part, and a small part, of that strategy.”

The Qualifying Therapeutic Discovery Project is aimed at small companies with less than 250 employees, which make up the bulk of the life sciences industry in San Diego County.

“The Genentechs and Amgens won’t be competing for these,” Gollaher said.

Gollaher added that this project seems to be aimed at getting results into the marketplace. A complaint about NIH is that it sometimes seems to fund science experiments more than product-oriented research.

“I read that language (in the grants) as saying, ‘We want this to be about important problems in human health,’” he said. “They want a clear path from these investments to products.”

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