Presented by: Jason Brown, CPA Date: May 10, 2010

1. Qualified Therapeutic Discovery Project Tax Credit Presented by: Jason Brown, CPA Date: May 10, 2010

2. Qualified Therapeutic Discovery Project Credit • Before the 2010 Health Care Act, the only credits available for drug development were R&D and orphan drug credits. • The QTDP credit is equal to 50% of the “qualified investment” for any “qualifying therapeutic discovery project” of an “eligible taxpayer”.

3. What is an Eligible Taxpayer? • An “eligible taxpayer” employs no more than 250 employees in all businesses at the time of the submission of the application.

4. What is a Qualified Therapeutic Discovery Project? • A qualified discovery project is designed to: • Treat/prevent disease or conditions by conducting pre-clinical activities, clinical trial studies or researchfor securing approval under the Public Health Service Act 351§(a); • Diagnose diseases/conditions or determine molecular factors related to companion drugs and diagnostics to guide therapeutic decisions; or • Develop a product, process or technology to further the delivery or administration of therapeutics.

5. What is a Qualified Investment? • A “qualified investment” is the total costs in the tax year for expenditures necessary for and directly related to the conduct of a “QTDP”. • An investment is considered a qualified investment if made in 2009 or 2010. • The credit still applies even if the product is not placed in service until after 2010.

6. Excluded Costs • Excluded Costs: • Remuneration for CEO • Interest expense • Facility maintenance • Mortgage or rent payments • Insurance payments • Utility and maintenance • G & A expenses

7. Ineligible Investments • A credit is not allowed for: • Bonus depreciation investments • Investments funded by treasury grants • Investments financed with non-qualified non-recourse debt • Investments in property that is: • Predominantly located outside of the US; • Primarily used for non-transient lodging; or • Used by governmental entities or by foreign persons.

8. Certification Program • By May 21, 2010, IRS, in conjunction with the Secretary of Health and Human Services, must establish a QTDP credit. • The Treasury Department (TD) must approve or deny any application within 30 days of submission. • The application can include a request for an allocation of credits for both 2009 and 2010.

9. Certification Program - What’s the Catch? • The total credits that can be allocated under the program cannot exceed $1 billion for the 2 tax years. • Companies will need to apply and compete with each other for the credit. • The application will need to include detailed documentation for all allowable expenditures. • Apply early because once the money is gone, the deal is over!

10. Criteria Used to Award the Credit • In determining qualifying projects, the TD will consider the projects’ potential to: • Result in new therapies to treat unmet need or to prevent, detect, and treat chronic illness; • Reduce long-term health care costs in the United States; or • Significantly advance the goal of curing cancer within a 30-year period. • Projects must also have the greatest potential to: • Create and sustain (directly or indirectly) high quality, high-paying jobs in the US; and • Advance US competitiveness in life, biological, and medical sciences.

11. Other Restrictive Rules • Other restrictive rules include: • Recapture of the credit if property is disposed of or ceases to meet credit requirements • Reduction in basis for QTDP credit allowed in relation to property subject depreciation • Denial of deductions where double benefit • Denial of research credit or orphan drug credit when taking QTDP credit

12. Grants in Lieu of Credit for QTDP’s • If a company does not have a tax liability, it could elect to apply for a grant instead of a credit. • The TD will provide guidance on how to elect a grant instead of a credit. • The grant will not be taxable. • Similar to the credit, the grant will be in the amount of 50% of the costs related to a qualified investment in a QTDP.

13. Applying for a Grant • An application for a grant under the 2010 Health Care Act for a tax year beginning in 2010 must be submitted: • Not earlier than the day after the last day of that tax year; and • Not later than the due date (including extensions) for filing the federal tax return for that year.

14. Timing of the Grant Payment • The TD must pay the grant amount during the 30-day period beginning on the later of: • The date of the application; or • The date the qualified investment is made. • In the case of investments of an ongoing nature, the TD will issue regs determining when payments will be made.

15. What Entities Are Not Eligible for a Grant? • The TD cannot make any grant under the 2010 Health Care Act to: • Any federal, state, or local government; • Any tax-exempt organization; • Any entity considered to be a clean renewable energy bond lender, a cooperative electric company, or a governmental body; or • Any partnership or other pass-through entity with an owner that falls within any of the categories above.

16. What Should You Do Now? • Do not wait! This is not too good to be true. • Draft applications that are properly documented and that clearly justify expenditures. • Make sure to show investments on a project-by-project basis.

17. How Can We Help? We can assist you with: • Identifying qualifying projects • Capturing eligible costs • Collecting appropriate support • Preparing and submitting applications for the credit or grant • Providing audit defense as needed