The governor readies tax credits to help Maryland compete for biotechnology companies as more states work up their own inducements.

A month after being elected governor, Robert L. Ehrlich Jr. mounted a podium before several hundred people at a technology convention in downtown Baltimore and vowed greater support for their industry.

"We've done pretty well," said Ehrlich, who co-chaired the biotechnology caucus in the House of Representatives as a Baltimore County congressman, "but we can do better."


Two years later, however, many in technology business - especially the life sciences - are uncertain about the state's progress. Ehrlich appointed a technology commission and has budgeted millions for new Maryland bioscience buildings, including $11 million in his proposed capital budget for fiscal 2006. But some in the industry, especially after this session's legislative agenda was unveiled, remain skeptical about whether such efforts are keeping pace.

States and cities chase the companies that pursue breakthroughs in the fight against disease like they once bid for automobile factories. In the past four years, the number of states that identify biosciences - a high-skills, high-wage sector - as an economic driver rose to 40 from 14. All 50 states offer some kind of technology-development initiative to biotechnology companies.


"It's kind of like a feeding frenzy in terms of economic development," said Patrick J. Kelly, vice president of state government relations for the Biotechnology Industry Organization in Washington.

Maryland has long been considered one of the top biotech areas in the country. But the state dropped to fourth place from third behind California, Massachusetts and North Carolina in a report last year by the accounting firm Ernst & Young - a slip that caused much hand-wringing among biotech boosters in Maryland.

Other states have taken "very aggressive steps to encourage entrepreneurial investments [in biotechnology] ... I don't see it from the state of Maryland, and I don't see it from the legislature," said Edward M. Rudnic, president and chief executive officer of Advancis Pharmaceutical Corp. in Germantown and chairman of Maryland's BioAlliance, an industry coalition of bioscience companies within the Technology Council of Maryland.

California's Proposition 71 designates $3 billion for stem cell research. Pennsylvania and North Carolina are channeling millions of tobacco-settlement funds to nourish life sciences initiatives. Massachusetts gave $35 million toward the establishment of an institute to develop technology initiatives and research centers focusing on biotechnology, nanotechnology and medical devices. New Jersey will invest $380 million to build and promote an institute devoted to stem cell research. New York has spent $95 million on bioscience-related capital investments.

"We are in a fierce competition in this area," Del. John A. Hurson, a Montgomery County Democrat, said during a legislative meeting this week. He fears surrounding states will begin "raiding" Maryland's biotech businesses for talent if the state doesn't keep up.

"I don't think the state has a responsibility to the biotech industry anymore than any other industry," said C. Robert Eaton, president of MdBio Inc., a private, non-profit corporation dedicated to furthering biotechnology in Maryland. "But if they want the industry to thrive here, they have to have the policies and structures in place that encourage companies to remain here and set up shop here."

Venture capital

Biotechnology businesses are drawn to locate in the state by a highly educated work force and the proximity of top research and educational institutions, including the National Institutes of Health in Bethesda, the Food and Drug Administration in Washington and top research institutions such as Johns Hopkins and the University of Maryland. Like many states, Maryland has several biotechnology business incubators that nurture fledgling companies.


But people in the industry say the state's relative paucity of venture capital remains a detriment.

"It's called the financing desert," said Joe Hernandez, founder and chief executive officer of Innovative BioSensors Inc., one of eight companies taking part in the University of Maryland's technology incubator program. While Hernandez says the state has helped his year-old company with attention, facilities, contacts and grants, he sees investment dollars lacking.

Throughout the tech boom of the late 1990s, Maryland ranked last in venture capital funding relative to its number of biotech companies, according to a report by MdBio.

Last year, about 28 of Maryland's 350 biotech companies received venture funding, with each round averaging about $6.5 million, according to the National Venture Capital Association. That was significantly below the average rounds of investment in New Jersey ($13.6 million per round), California ($10.8 million per round) and North Carolina ($8.9 million per round), which could be a factor biotech companies consider when choosing their location.

Two bills Ehrlich is submitting would provide a total of $20 million in tax credits for technology investors and businesses.

Last year, a House committee killed a bill that would have dedicated $12 million worth of tax credits to Maryland investors in early-stage biotech firms. Del. Brian J. Feldman, a Montgomery County Democrat, said he will resubmit a version of that bill.


The governor's legislation would offer $8 million in tax credits to wealthy individuals who invest in beginning technology businesses. Though it doesn't apply to venture funds, the hope is that the money will help startups become established enough to attract venture capital.

"I still believe we need more stimulation in the early stages," said Christopher C. Foster, deputy secretary of the Department of Business and Economic Development, or DBED, which helped craft the bills.

Ehrlich's second bill would extend a research-and-development expenditure tax credit for startup companies that expired in December. Nearly all states have such credits. It would double the limit on the state's previous legislation, to $12 million, but it could be used only by companies able to generate taxable income. Some biotech companies say that would render it useless for them, because many operate at a loss for years while trying to bring a product to market.

"That would be meaningless for us. ... There's an 80 to 90 percent chance we would never have access to it," said Tom Roueche, president and chief executive officer of College Park-based BioSurface Engineering Technologies Inc., BioSET for short.

Although the bill would allow companies to carry unused tax credits for seven years, that provision expires in 2010. That effectively shuts out businesses that are developing products that require FDA approval, which can take 15 years to acquire.

State economic officials point out that the bill could help industries outside biotech as well as those in the sector working on shorter-term projects that don't require FDA testing.


Ehrlich's handling of the state economy and its nurturing of technology will likely surface in next year's race for governor.

"There's no strategic plan," said Montgomery County Executive Douglas M. Duncan, an expected gubernatorial candidate whose county is home to many of the state's biotech businesses.

But others say Ehrlich's response is a marked improvement from his predecessor, Democrat Parris N. Glendening.

Rudnic of the BioAlliance said the governor shows a "tremendous willingness to be involved in the issues" that Rudnic didn't see in the previous administration.

Pappas Commission

Others cheered Ehrlich's creation of a commission that studied the development of technology businesses, led by Baltimore intellectual property attorney George F. Pappas. The commission spent a year developing recommendations for improving Maryland's business climate for technology, which it released a year ago. But some charge that the state is taking too long to implement some of the recommendations. Among them: adding a chief technology officer and boosting state pension investments in technology companies, which the Pappas Commission said would not only help technology businesses, but likely result in a higher rate of return for the state.


Maryland ranked 36th out of 38 states in pension investment in private equity. DBED's Foster said it will take at least a year to increase the pension investment in private equity to the newly authorized 2 percent from its current 0.3 percent. His long-term goal is to reach the national average of 4.7 percent.

This week, Ehrlich announced a revitalization plan for the neighborhood surrounding a BioPark under development by the University of Maryland, Baltimore, which is expected to create between 1,000 and 1,500 jobs.

Some said they would like to see a more detailed strategy in encouraging stem cell research - a hotly debated subject when applied to cells taken from fetuses or embryos. In 2001, President Bush issued an edict that no federal funding would go toward the creation of new embryonic stem cell lines because of the ethical issues involved. Though little is known about how the cells work, they are thought to hold the key to curing diseases such as Parkinson's and cancer.

Said Edward M. Sybert, director of the Biotechnology Industry Program within the University of Maryland's Technology Enterprise Institute: "If Maryland drops out and chooses not to participate, other areas, other states, will continue to develop the knowledge in the area, and there are potentially products that Maryland will lose out on."

Sun staff writer Jamie Smith Hopkins contributed to this article.