Big Pharma lobbies for slice of US chip industry tax breaks

Big Pharma has asked Joe Biden’s administration to extend generous tax breaks and subsidies contained in its $280bn semiconductor support package to drugs companies as part of an effort to build up the US biotechnology industry.

The president announced a national biotechnology and biomanufacturing strategy in September to strengthen supply chains, create American jobs and ward off competition, particularly from China.

It has allocated $2bn in initial funding to support the strategy and asked stakeholders in the health, climate and food industries to provide specifics on the type of federal funding, incentives and other policies required to support increased investment in biomanufacturing and research.

PhRMA, the main lobby group for industry, has asked the White House to offer companies an advance manufacturing tax credit of 25 per cent to help offset the cost of building and expanding biomanufacturing plants, according to a submission to the US Office of Science and Technology Policy seen by the Financial Times.

It proposes cutting taxes on manufacturing income for drugs produced in the US and federal funding to cover the cost of loans, arguing these incentives would help companies expand and prevent a reoccurrence of the type of coronavirus pandemic product shortages.

“Given the costs and timeframes for building, expanding or modernising domestic manufacturing capabilities and processes, the Chips Act [Chips and Science Act] suggests potential policies that could be applicable,” said PhRMA.

The lobby group said tax breaks and other incentives should be offered to all companies expanding manufacturing in the US, regardless of where they are headquartered. This might require exemption from a rule enacted in 2017 that sets a minimum tax of 10 per cent for certain multinationals, it said.

PhRMA said the measures are needed to offset some of the advantages available in other countries such as China, which has lower energy and water costs than the US. Labour costs are estimated to be 30-40 per cent less in China and India versus the US and European countries, it said.

The White House has identified several areas of concern regarding the US biomanufacturing industry, including a reliance on China for supplies of active pharmaceutical ingredients, the raw materials used in drugs. In 2019 almost three quarters of manufacturing facilities making APIs to supply the US market were based overseas, and 13 per cent were in China, according to the Food and Drug Administration.

Bio, a lobby group for biotech companies, said in its submission that onshoring API manufacturing in the US would be challenging and some materials would always need to be imported. It said rising environmental regulation in the US had led much of the API produced domestically to relocate abroad where it avoided US standards and could be produced more cheaply.

The US should strive to onshore as much API production as it can and what cannot be produced domestically should be sourced from allied nations in a “nearshoring” approach, said Bio.

A decision by the Biden administration to follow PhRMA’s recommendations and introduce tax cuts and subsidies for drugmakers could reignite tensions with allies. Brussels has warned that US policies offering hundreds of billions of dollars in subsidies for green energy investment in the Inflation Reduction Act will stoke global protectionism.

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Paul Timmers, a research associate at the University of Oxford, said US industrial policy in the pharma/ biotech sector must avoid fuelling tensions with the EU by avoiding subsidy races, focusing on incentives that boost mutual trade and investment and early co-ordination with partners.

“The USA and the EU must see each other as strategic partners rather than zero-sum competitors in raising global competitiveness and tackling global challenges,” he said.

The US biotechnology policy aims to address security concerns, including economic competition from China and the acquisition of proprietary technologies by foreign adversaries through legal and illegal means. This includes ensuring the security of the biological data of US citizens.

Professor Sarah Kreps, director of the Tech Policy Institute at Cornell University, said the principle of “Made in America” would be a hallmark of the Biden administration’s polices. She said any new federal funding provided to the biotechnology sector could, as is the case of the Chips Act, be tied to policy shifts, such as lower prices.

Last year, the administration passed comprehensive legislation to reduce drug prices — a move bitterly opposed by industry.

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