PA Senate Institutional Sustainability and Innovation — 2026-05-07

Good afternoon, folks. We'll get started with this public hearing from the Senate Institutional Sustainability and Innovation Committee. We'll call the meeting to order. First, we will start with introductions of the folks that are here with me today. Senator Robinson, do you want to kick it off?

State Representative Valerie Gatos, Allegheny County, the Pittsburgh Airport area is my district. We did a tour of Crystal Biotech this morning. Unfortunately, I was able to make it, but I'm so glad everyone had a chance to take a look at that. I am the co-chair of the Life Science Caucus in the House. Prior to getting elected, I spent a lot of my time in innovation and venture capital and startup companies and have actually worked on this issue quite a bit and know how important it is to the industry. So we're looking forward to working with Senator Ferry on this and Senator Robinson. Thank you.

I'm Erin Robb. I am the Republican Executive Director of the Senate Institutional Sustainability and Innovation Committee.

Thank you, Senator. I'm Senator Tim Carney from 26th District in Delaware County. Sorry I can't be with you there in person today, but I very much look forward to hearing your testimony today. Thank you.

Thank you, Mr. Chairman. Hi, everyone. I'm Senator Maria Collette. I represent the 12th senatorial district in Montgomery County. As Chairman Carney said, I'm sorry I can't be with you all, but looking forward to the hearing. Thank you.

Happy to do that. Good afternoon, everybody. Welcome, Mr. Chairman, members of the committee, David Brown, Vice Chancellor for Government Relations at the University of Pittsburgh. We're proud to host the committee today. We're grateful for your presence and the important work that this committee does on behalf of the Commonwealth. The building we're in today, the Assembly Building, embodies the themes of today's hearings. This historic building, once a Ford Motor Company plant, has been transformed into a thriving biomedical research hub. bringing together scientists, innovators, entrepreneurs under one roof. It's a symbol of what is possible when we commit to reinvention. In fact, we like to often joke that this is where our cancer research is, so we're moving from the Model T to CAR T therapies, so just a little higher ed humor. The commitment, this commitment matters enormously. Life sciences and innovation industries are not just economic drivers, but also the foundation of the 21st century economy, especially here in Pittsburgh. They create high-quality jobs, attract talent and investment, and produce breakthroughs that improve the lives across the Commonwealth and beyond. Pennsylvania has a real opportunity to lead in this space, and we look forward to the conversation ahead, and we're very supportive of this very important legislation. So, again, welcome.

Great, thank you very much, Senator Ferry, or Chair Ferry. Thanks as well to Chair Kearney Representative Gatos Senator Robinson and other members of the committee appreciate your interest and your support generally for the life sciences community but also for the research and development tax credit, among other incentives that the state can pursue to further enhance this industry. Life Sciences Pennsylvania is the statewide trade association for the Commonwealth's life sciences community. We have about 950 member organizations. They are comprised of large pharmaceutical manufacturers, small biotech companies, device and diagnostics makers, academic research institutions like the University of Pittsburgh, patient advocacy groups. We have 54 patient advocacy groups in our membership and all the support services around that industry. So law firms, accounting firms, contract research organizations and others. The sector is made up of about 3,000 life sciences establishments across the Commonwealth. They are researching, developing, and manufacturing novel medicines and technologies for millions of patients around the world facing unmet medical needs. And I think that's important to remember that the ultimate beneficiary of the work that our members do and things like the R&D tax credit incentivize are patients, certainly patients in Pennsylvania, but patients around the globe. Generally speaking, the 3,000 organizations that are part of Pennsylvania's life sciences community make up a robust ecosystem, employ over 102,000 individuals, contribute about $61 billion in direct annual economic impact to the Commonwealth. but despite those, I should say, despite those robust numbers, it's a fragile industry. Almost 90% of the new drug applications filed with the FDA fail to receive approval, and science is incremental. Many companies work tirelessly for the better part of a decade. They may spend up to a billion or $2 billion before realizing that the trial didn't work and they need to pivot to something else, And then all of those are sunk costs. And that brings me to the importance of today's hearing, and that's because things like the R&D tax credit are really important to this industry. They're critical to ensuring that we have the large companies that take advantage of it stay here and grow here, but also that we can attract new companies and help those new companies get their product from the bench all the way to the bedside. So the research and development tax credit in particular is helpful because it does benefit business of all sizes, and it's utilized at all stages of company growth. The biopharmaceutical industry in particular regularly invests more of its revenues in R&D than any other industry. A 2021 Congressional Budget Office report notes that for many years that number averaged around 18% to 20%. That has increased to about to exceed 25 percent. And then a more recent study actually put that number as high as 34 percent. And and as such, Pennsylvania's life sciences sector is a heavy utilizer of the research and development tax credit. In 2024, the total number of awards was 637 companies receiving the full allocation of 60 million dollars. and just based on our analysis of the credit awardees approximately 78 of those are life sciences companies and in total those 78 companies receive just under 21.5 million in tax credits and again those range from large pharmaceutical manufacturers and medical technology companies to early stage pre companies I think one of the most important things to remember, going back to the startup nature of the life sciences ecosystem, is that the R&D tax credits here in Pennsylvania are tradable. They are sellable. 39 other states offer research and development tax credits, but Pennsylvania is one of only a handful of states that permits early-stage companies to sell those credits to larger companies. At approximately 80 to 90 cents on the dollar, this revenue stream provides companies with critical capital to fund their research and development work. Finally, and I think most important from a fiscal perspective, is how the program calculates the credit and the positive marks the program receives from the independent fiscal office. So the very nature of the program requires companies to show an increase over a baseline R&D expenditure to be eligible for those tax credits. Therefore, if a company is not increasing their R&D expenditures in the Commonwealth, they cannot benefit from the program. It really is geared towards long-term growth, which is particularly helpful for life sciences given the long timelines our companies deal with. Actually, according to an IFO report that was released in 2003, the program is accomplishing its legislative intent, so that's certainly a good start. And in reviewing the program from 2019 through 2023, the report found several other things. There was a net tax revenue impact of an additional $6.1 million, and there's a net ROI of 12 cents per dollar, which may not seem like much initially, but if you look at just those tax credits in 2024 that went to life sciences companies that I mentioned earlier, that means about those tax credits generate about 2.1 million on life sciences investments alone. So I would just say simply put, our organization, Life Sciences Pennsylvania, and our members believe the R&D tax credit works, it works well, and it's one of the few longstanding programs that Pennsylvania should increase investment in. I will take this time to just acknowledge Senator Ferry and Senator Sanisero, who put out a bill to expand the credit to $120 million. dollars. That's an important bump as the program is regularly oversubscribed to the tune of about 150 million dollars. So there's certainly room for growth in the program. And again, based on the numbers I cited, that investment bodes well for the Commonwealth and the Commonwealth's economy. I will note that there are several other programs important to the success of Pennsylvania life sciences ecosystem that I think are important to flag. Those programs include the creation of a state SBIR-STTR matching program. Again, thanks to Senator Ferry and Senator Haywood for their leadership on that front. Ability for companies to sell net operating losses. The governor's $100 million Innovate in PA 2.0 program. I could go on for a while here, but also note that life sciences greenhouses and ideas like association health plans that Representative Gatos has led on are all things that can help spur early-stage companies to success in Pennsylvania. And I'll just note, to wrap up my comments, that these things become especially important when you realize that other states, and frankly other countries, are not sitting idly by on this front. It is because of the nature of the jobs that... and the economic development that they tend to bring, it's a competitive marketplace, and this is one thing that Pennsylvania has and can continue to rely on to grow this ecosystem. Before concluding, I'll just also note that these benefits are not solely confined to individuals with an MD or a PhD behind their name. Life sciences investments benefit many Pennsylvanians, supporting industries like manufacturing, logistics, and agriculture, as well as individuals in the building and construction trades. This work is also invaluable, as I mentioned earlier, to the ultimate beneficiary of these efforts, patients facing unmet medical needs. Life Census PA and its members, some of whom are participating in the hearing today, are happy to be a resource to the committee, other members of the legislature, as these discussions around these policies continue. Thank you very much.

Honorable Chairman and members of the committee, thank you for holding this hearing on the life sciences sector in the state and how we can do more to grow this sector. I'm Megan Shaw. I'm the President and CEO of the Pittsburgh Life Sciences Alliance. Our mission is to make Pittsburgh a global life sciences leader, an economic engine at the intersection of our unique assets around clinical, research, manufacturing, and advanced technology strengths. Now, Erin, are those slides able to be shown? Do you know? Okay. I should ask before. Well, Kurt gave a great overview of the state. I was going to talk a little bit more about Southwest PA. Okay, sounds good. So, you know, in this region, we set it a unique confluence of two powerhouse R1 universities, two nationally renowned integrated health systems, and the robust industry cluster that is developed around those, with particular strengths in data-driven health care, connected medical devices, and the development and manufacturing of precision therapeutics. So the confluence of all these strengths here has results in over $3.4 billion in economic output, a large industry cluster, and over 15,000 jobs in the sector here in southwest PA. And it's important to note that this sector is really a growth driver for the state. Compared to the rest of the private sector, this sector, the life sciences sector, is growing faster and pays more at the wages here. So these are significantly higher salaries, and the jobs this sector creates are really good, high-paying jobs up and down skill levels. So these are really family-sustaining jobs. However, as a region, we come with over $1.2 billion in life sciences R&D coming out of these R1 universities. But we have not translated that into economic output at the same rate as other regions. So we actually see lower rates of job growth than other regions and company formation, given the amount of R&D that's going in here. And a major limiting factor that we'll hear about today is capital. We have lower rates of industry investment and lower rates of venture capital. And so with lower rates of this indigenous risk capital, we are leaving opportunities on the table here to grow the number of companies and the jobs that could be created given the R powerhouse that we are And when I talk about growth we talk about really a meaningful opportunity for growth So if we matched the national rate of translating R into economic output and jobs this region would see a four-fold increase in the economic output from this sector and a three-fold increase in jobs. So really meaningful of her. And so today I want to talk about three proposals in ways the Commonwealth can support this growth. So first, I want to touch on a proposal that directly addresses this capital challenge. As Kurt mentioned, the federal SBIR program and the match that Senator Ferry has proposed really directly helps turn research activity into economic activity. These SBIR programs are quite competitive. Only 17% of applicants for Phase I funding receive that funding. And what it does is allow Pennsylvania to piggyback on the robust federal infrastructure and subject matter expertise. Pennsylvania is currently one of only 15 states that does not offer an SBIR match program. So we strongly support the creation of a state matching program. And again, Senator Ferry, we appreciate your leadership in that area. The second topic is the Innovate in PA 2.0 budget proposal that provides a variety of programs to address regional challenges. Just to highlight a few, it seeks to address the executive talent gap that have limited translation from research to commercialization, as well as address some of the capital challenges. It also creates a unique regional clinical trial network and opportunities for regions to develop specific local projects that build upon what's differentiated. But I think more importantly than any of the individual components, it's an opportunity for the Commonwealth to come out and say that they strongly support life sciences. We've seen other states like North Carolina and Massachusetts translate strong backing from their state legislatures into world-class hubs. And to date, Pennsylvania hasn't been able to say that we have that state backing for the sector in the magnitude. Finally, R&D tax credits, what we're really here to talk about today. We see this as really one of the most helpful programs. As Kurt mentioned, this helps both the startups and the mature companies. I want to briefly talk about four companies that have received these credits. On the growth side, I mentioned data-driven health care as an area of strength for this region. A fantastic example of this is Abridge, which is the ambient listening company that allows the doctor to look you in the face and not spend all their time on notes or spilling over their waters. This is a company that has ties to CMU and UPMC and is truly one of the hottest companies in the world. and the last valuation was about $2.8 billion, and that was 18 months ago. They received these tax credits. On the other side, in the next-gen therapeutic side, Crystal Biotech, our home-grown gene therapy company. They've developed their therapies here and are now manufacturing them. As we heard this morning, over 300 jobs in the region. And they're truly one of the most successful gene therapy companies, current market cap of $8.4 billion. They use this R&D tax credit. On the big employer side, some of our largest employers in the region, Bayer and Zoll, are also strong users of the credit. So we believe that expanding this annual allocation, as suggested in Senate Bill 792, thank you Senator Ferry and Senator Santasario, and Representative Briggs-Agetos as well for your leadership in that space. Fundamentally, we see this sector as primed for growth, and we're really appreciative of your support in helping the state grow this important sector. Thank you.

Tim, go ahead. Senator Carney, do you have a question?

Okay, great. Senator Collette, are you good? Okay. All right, Representative Gatos, lead us off.

Yeah, I'm happy to jump in there. Thank you for the question, Representative. So a tough study, and this is a little dated, but I would imagine these numbers have only increased, estimated the timeline to bring a new medicine to approval, to commercialization, commercial approval at the FDA, at about 10 to 12 years and over in excess of $2 billion. Certainly, you know, every medicine is different and trials and costs will look different, but it's not inaccurate to estimate that costs are easily over the $1.5 billion range at least, and take that time to get to, take those long timelines to get to approval. The other thing that I noted is that failure happens a lot. About close to 90%, and this is a correctional budget office number, close to 90% of new drug applications filed with the FDA will fail. and most, if not all, of the costs that you've put into that medicine are then sunk costs. And that's true, obviously, for small companies, but also for large companies. Their pipelines are a little bigger when they're a little larger, so they can take the hit a little bit, but small companies, it's their lifeblood. So if something doesn't work out, they really have to think hard and long about how they can either look for a new indication or somehow repurpose what they're already working on to succeed.

Well, we appreciate every day that our life science companies are out there trying to find these new discoveries which make our lives better, so thank you. One of the comments that I've been asked recently about when I was speaking to some of the MEDs and EDs folks in southeastern PA is you know the regionalization of it right So you have great robust universities here in western Pennsylvania and life sciences in western Pennsylvania same with southeastern PA And I know, Megan, you're basically the Pittsburgh area. But can either of you speak to the impact it has statewide, whether it's direct or indirect jobs? Obviously, Penn State has a lot going on as well. But if you can speak to, you know, this isn't just a southeast and southwest thing, And there's a lot of jobs and a lot of opportunities across the Commonwealth because of this industry. Yeah, I can jump in.

Thank you. And one additional piece of legislation that was recently introduced is Senator Pennycook's biobonds as well, which is modeled after Congressman Fitzpatrick's federal plan with that. I do know Senator McCormick spent some time with him down at Penn and with all the meds and eds leaders in the southeast. He was out here just prior to that in the west. and I think we actually have some really good leaders on the federal level that realize the importance of this industry here in Pennsylvania as well. So hopefully we can play off of one another and partner to help you get the investment that you need. I know our governor doesn't like losing. He says that very frequently. He wants to win, and this is certainly a sector where we can win. So thank you both for your testimony and being here today. Thank you.

Good afternoon, Senator and Chair Ferry and the rest of the committee for the opportunity to speak today. Again, my name is Ryan Prufnick, and I represent a company here in Pittsburgh, Cook Myocyte Incorporated. We have probably similar stories that we'll share here today, but I'll tell our story, maybe a little bit different approach than others in the sector have taken. We are a part of actually a larger corporation that's based out of Bloomington, Indiana. They have a focus on medical device. but wanted to get into the biotech field. So way back in 2002, licensed the technology and started Cook Myosite, and I was fortunate enough to be the first employee. So I've had a front-row seat to seeing the fun, the excitement, the challenges, the ups and downs of this industry. And I'll talk a little bit about our technology just to paint a picture of what we're trying to do and what it takes to get there. But first of all, our mission statement, or our mission, I should say, is we want to make regenerative medicine a part of everyday medicine. And the way that I like to explain that is it's not right now. If you go to your physician and you have something that you're going to see him or her for, you talk about what are your options. It's pharmaceuticals, it's devices, it's physical therapy, it's other types of modalities. Right now, the talk about cell therapy or gene therapy, regenerative medicine in general, is not something that's common. So we want to make it as common of a conversation, as comfortable, and part of the menu of options that physicians have for their patients. So that's our mission. And, again, I've had a front row seat to see just how challenging this would have been. I never would have thought so 23-plus years ago. So our technology is we use a patient's own skeletal muscle cells to treat a muscle disorder that they have. So unlike some other companies that focus on the lethal diseases or rare diseases, we actually focus on more common disorders. And even more specifically, the large majority of our programs are on women's health. So that therapy is, again, if you have muscles specifically in your GI tract or your urinary tract that's not functioning for one reason or another, we train physicians to take a small muscle sample from the patient's thigh, leg muscle, ship it to our facilities here in Pittsburgh, and we do what we've learned over many, many years of research to isolate particular muscle cells that when given back to the patient, they inject them into those muscles that are dysfunctional for one reason or another with the hope that the body goes back in doing what the body does, which is heal or regenerate that damaged tissue. I once explained this to somebody, and they said, well, that sounds pretty easy and pretty common, but when you get into the nuances of what it takes, and in our case, we made a strategic decision many years ago that we were going to try to be an A to Z company So we did the development work We are doing the clinical trials We still in clinical trials We built manufacturing and now we in the process early stages of building a commercialization team Being a fortunate recipient of the R&D tax credit has been something that, even though we've been privately funded and supported over the years, it's been very crucial for us to be able to do all these things because I think the common theme that you're going to hear today and any other conversations is just how expensive this is and just how much time and investment that it takes to get there. For us, having the ecosystem that we have here has been very beneficial. You have to have access to the right talent, and you have to have that financial support both from patients and from the money itself. So that's our story. We're on the process of getting to commercialization. We employ around, I think it's almost exactly 220 people right now. The majority of them are in the Pittsburgh region. We have some that are spread throughout the country on our field team, and we have one European employee as well. So we are at this stage that, it was talked about before, investing up until this point, 22 years of clinical trials in over five indications. By my tally, we've done 15 clinical trials so far with the plan of at least one of them getting all the way through to the FDA so that we could then turn around and be able to present this to patients, hopefully across the globe, or as many as we can. And again, with that investment, I think there's going to be different numbers that people talk about what it's taken to get here so far. But we'll all agree that it's a big investment, and these credits are critical for what we have to do. Our goal is to make Pittsburgh a world leader in this field, and specifically in the field of muscle cell research. And that's what we've been doing for the past 23 years. Thank you.

Good afternoon. We'll get the button thing straight. Good afternoon. Fantastic. I really appreciate the opportunity to sit and speak in front of you all and give you this testimony. My name is Dave Clasey. I'm the CEO, co-founder, chief cook and bottle washer of Signature Diagnostics. We are in a kind of an interesting field where we look into bodily fluids. We turn them into data, and then we use that data to try to figure out certain health trajectories of what's going on inside of you. And it works on kind of a principle that most of our bodily fluids are proximal to different tissues and cells, and they collect them as they break down into your fluids. We gather them back up and try to put together a huge puzzle of all those pieces and parts. We focus predominantly in women's health and more specifically in women's health during pregnancy. And what I'm going to talk to you a little bit about today is how we want to kind of switch the paradigm of basically treating diseases and conditions reactively and really providing more proactive health care because we bring earlier recognition of these disease trajectories while the diseases are still in what's typically called their silent state. Next slide, please. So I am personally a serial entrepreneur. My history, I've been running an IT consulting company here in Pittsburgh for 26 years, done over million worth of business in that window of time hired at one point our maximum size was 60 employees It was a hard business to run but nothing like what I do today and I going to talk about that evolution and really the point that you been hearing all which is capital is the challenge. I took an interesting twist in my midlife crisis and decided to get out of technology straight up like I was and got involved in the life sciences field. So I invested in a company called Uscript which is a pharmacogenomics platform. Pharmacogenomics Genelix is the study of our genes and how the genes impact therapeutics that we may take, which is why somebody could take a therapeutic and another take that same therapeutic. They both have the same medical condition. One gets better, one doesn't. Well, that's because of the way we process and metabolize those medications. I had an opportunity to buy the parent company that that spun out of, which is a company called Genelix. It was a lab in Seattle, and I did the unimaginable. I re-headquartered it here in Pittsburgh. You don't get many companies that go from Seattle to Pittsburgh, but I did that. and then I packaged them both up and sold them for $100 million to Invitae in 2020. And then I took the proceeds of that after a lot of conversations with my co-founder, Dr. David Peters. And when he told me what he was able to do by looking into our bodily fluids and the work that he accomplished at McGee Women's Research Institute and the University of Pittsburgh, I was just driven to help him bring some of this stuff in a commercialized way. So we've been at it now for five years, and I'm going to use that kind of as a use case to show you what we've had to do to stay in business for five years. Next slide, please. So maternal health care, I mean, women's health care in general has been badly neglected, and during pregnancy we've just not done a great job. I mean, we rank dead last in morbidity and mortality during pregnancy, and that's across all the developed nations. There's a lot of room for improvement. There's a lot of core causes we could talk about about why that happens. But suffice to know that it does happen and keep us on time. Next slide, please. So we are focusing first as one of our indications of preeclampsia. So if you're not familiar with preeclampsia, preeclampsia is considered a complex disease. It manifests itself differently in one woman to the next. So diagnosing it looks different, if you want to do that early on, from one woman to the next. So it affects 125 pregnancies. Sometimes it's easily kind of addressed through a hospital stay and delivering of the baby. But sometimes both the baby and the mom have long-term lifetime effects as a result of kind of the stress and challenges a preeclampic event can cause. And globally, it's just a huge problem. We've got 42,000 moms that die annually of preeclampsia and about half a million infants and newborns that do the same. Next slide, please. So what's happening is, you know, we are in the field of what's called high complexity molecular diagnostics. And again, that's turning biology into data. And then what we have now as technologies have evolved, we almost have too much data because we can create an enormous amount of data from one vial of blood from one patient at one point in time to a point where most of it is noise and the signal you're looking for is really, really small. So we kind of use the term, sometimes we're looking for a needle in a stack of needles, not just the needle in the haystack, right? So that is kind of the level of work that we do. And if successful, we were going to be able to, again, change things in a way that we can provide much more proactive acknowledgement and give time for the physician and the patient to be able to respond to conditions when they're early on and easier to address, generally speaking. Next slide, please. So our kind of one of our magic tricks is we believe and are starting to prove that we can take one blood draw from mom at one point in time at the end of the first trimester and start to understand all the trajectories you see on that timeline if they may exist or not and what is the risk or the propensity of that trajectory happening. So right now we are going to our clinical validation for chromosomal disorders, so things like Down syndrome and different trisomy and sex chromosome anomalies, and we will be taking our first product also, which is going to include preeclampsia. And again, this is a two-for-one. And the way we set up and engineered our science is every time we can find another trajectory, it's just a three-for-one and a four-for-one. So we managed to keep costs down and allow the allocation or the indication of the risk and do that all very early into pregnancy. Next slide, please. And actually, if you could go to the next slide as well. So we are a combination of what you've been hearing about today in this region.

Yeah, so thank you, Chairman, and to the committee to give a chance to talk a little bit today. I'll introduce my company Calavir and emphasize the importance that the PA, R&D tax credits have been to us as a company. So, yeah, my name is Steve Thorne. I'm the chief scientific officer and founder at Calavir, which is a Pittsburgh-based company. I'm also the founder of a second company called Duo Oncology, which is also based in Pittsburgh. But I'm going to talk to you today a little bit about Calavir and how the tax credits have been important to us. So Calavir is a cancer immunotherapy company. We're using modified viruses as cancer treatments. These can target the tumor, replicate in the tumor, destroy tumor directly, but also attract an immune response into the tumor that is also able to act as an additional mechanism of tumor killing. We are a clinical stage company. We have two products currently in the clinic. One of these products is being developed in partnership with Estellas Biopharmaceuticals, a Japanese company which we actually deal primarily with their U arm And then we have a second product that we developing ourselves as our lead internal clinical candidate As these products are in earlier stage clinical testing it does mean we are pre-revenue so everything that we're using all the money that we're spending we have to raise somehow. As I mentioned we're based in Pittsburgh we lease an 18,000 square feet facility up at our IDC Park in O'Hara, just north of here. We currently have just over 20 employees, the vast majority of whom are scientists, technicians, who are based in the Pittsburgh area. As part of the facility and part of our ability to develop these products through early discovery and then through manufacturing into the clinic is that we actually built a manufacturing facility, spent about $5 million using local contractors and builders to build a GMP facility, which is a clinical-grade manufacturing facility, within our location at our IDC park. In order to do this, we've raised almost $150 million. This has been primarily through partnerships with large pharmaceutical companies, but also through VC financing and some other investors. As you can imagine, because we're pre-revenue, the vast majority of our spend has been on research and development to date. And just for context, in 2023, we were a recipient of $180,000 of tax credit of the $455,000 that we applied for. We traded that in order to give the company a much-needed cash influx at the time. And in 2024, we were awarded 87,000 of 267,000 that we applied for. So we're well aware of the system and can certainly highlight some of the benefits that it has given to us as a company. One of the things I was asked to mention by our controller is the fact that the application process itself is rigorous but not onerous, in that we felt that the rigor here indicated that the money was being spent wisely and the money was getting to the people that it was intended to get to. However, the real benefit to us has been both financial but also in our ability to create networks throughout Pennsylvania. Certainly, the money that we traded came to us, As with all small companies and certainly biotech companies, we've been through some lean times. And so that money came to us at a very opportune time in our company's development. As a result, we were able to keep the company going and allowed us to retain employees that otherwise we probably would have had to let go. In addition to the financial benefits, we also, something that I don't think has been mentioned so much, but the emphasis on working with other Pennsylvania companies is something that is actually something that we've certainly had in our minds. As we've been manufacturing our product and moving it towards the clinic and into the clinic, we have to work with a number of different vendors. Even though we have our own manufacturing facility, some of the steps in the manufacturing process we're not able to do, so we have to outsource that. that we need to perform on the product in order to get it cleared by the FDA for use in patients. Again, other companies have developed these so it makes more sense financially for us to go to them We could go to any company across the U or also in Europe or Asia And obviously being fiduciary responsible, we looked at a number of different companies and definitely one of the factors that we considered in choosing vendors was their location. As a result of this, we have performed several of our manufacturing steps at the Center of Breakthrough Medicine, which is a manufacturing company based in King of Prussia. We also have run a bunch of our assays at Eurofins, an assay company based in Lancaster, PA. We've also run a number of animal studies to determine the mechanism of our products and some of the toxicity profiles at Hilltop Lab Animals, which is based just outside of Pittsburgh in the Laurel Highlands. So again, speaking to some areas of the country that aren't in Pittsburgh or Philadelphia. In addition, I think as we're running our clinical trial, I think our most active clinical site currently is actually right here at the Hillman Cancer Center, a new PMC health network. I think they've enrolled more patients than any of the other sites we currently have open. We've also worked very closely with the University of Pittsburgh. We've licensed some technologies out of the university. We have had sponsored research agreements, including with an investigator based right in this building here. So again, as part of this tax credit, it has enabled us or encouraged us to build a network of companies throughout the Pennsylvania region and work with a number of companies that are either life science or life science-associated companies. And one final factor that I wanted to mention is, again, we support Pittsburgh. We are very supportive and appreciative of the growth of life sciences in the Pittsburgh area over the last few years. And we have, at times in the past, considered whether Pittsburgh would actually be the best location for us to maintain a presence. Certainly, we feel that there is the potential for Pittsburgh to become a life sciences hub, but we have had issues recruiting people, finding people, relocating qualified people to the Pittsburgh area, and we considered whether certain other areas would actually make more sense for us. And I think one of the considerations is always, is a state going to charge state tax for a company working in the area? So again, I think these PA tax credits have been very influential in maintaining our presence in Pittsburgh and our continued commitment for the long-term future to stay in Pittsburgh and maintain a presence here. One of the things that is perhaps something of a small issue with this program is something to do with the uncertainty. And again, we have applied in a number of years. We never really know how much we're going to get or even whether we're going to get anything at all. We understand and appreciate that it's great that the money is there, but it is a limited pool. So again, we are very supportive and encouraged and appreciative of this bill and the possibility of increasing the pool and allowing us to better budget for the future growth of the company. So thank you.

Representative Gatos, it's yours. Dave, you had mentioned, or on one of your slides, you talked about the capital that you've raised to date.

to date

of those dollars

in the region

And how much of your funding, though, is local versus out of state?

and I appreciate that you as a company stay in our state despite some of these challenges because I see all the time as somebody myself coming from the investor field, that I see that this area has incredible companies and where companies were way better than any other companies that you see in other parts of the country, but yet they go to the other parts of the country, raise some capital. As an investor myself, I don't have enough capital in our funds to support that. And it would be nice if we can incentivize investors to come and pull together. And I know that's sort of off topic, but when there's these credits, that also makes investors want to invest because they know they're backed by non-dilutive capital. What are some of the other things that you think that would make a difference to attract investors?

Well, hopefully, any of the stuff that we do here in the state that will build a bigger pie as opposed to all of us fighting over a smaller pie, and hopefully this is a piece of doing that.

And that's one of the things you've heard and Megan discussed at the SBIR match, Innovate PA 2.0, R&D tax credits, like increasing the amount of funding that's available. One of the newest to the table is Senator Pennycook's biobond to try and help match the equity component because that is part of what I hear. And I think Representative Gatiss was just referring to because we want you to stay here. We don't like your competitor that is in San Francisco or Stanford, right? Yeah. And their ability to raise out their, well, one year here and two, it sounds like you have a better product. So we want you to win on both those fronts. You know, and we talked about it when Megan was with us earlier when we did the tour. You know, because sometimes what also gets lost in this is the compassion part of this. My wife just got done a two-year battle with breast cancer. So things are good now. You know, she has got some lab results, so we're in a good place. But, and Megan's going to hear this for a second time today, and she's heard this in several times where I talk about it. You know, when my wife got diagnosed, both the oncologist and breast surgeon in different meetings ultimately said the same thing. And they said, you will be cured as we're sitting here today. People in this building are being cured with what you have. This is normal for us. This is what we do. It's not going to be normal for you. And she had some health complications. She had some infections along the way, physical health issues. The battle with cancer was actually easier than some of the physical health things she encountered. But, you know, that's because of the science and the investment and all the great people that have worked, you know, in researching how to beat breast cancer over these many years. And then all the great people that are employed in that field to help ensure that we have successful situations like my wife just went through. And it wasn't a normal two years for us by any stretch. but I almost look like it's like an elongated flu, if you will, right? It was something where you knew you were going to get better and it was going to be done, but you had to go through the process and the compassionate side of that gets lost. You know, I saw when you had your chart of the different things you can find by having that blood draw at the end of the first trimester and all the different things, including post-birth that you may be able to find early. That's so, so important. I'm a longtime firefighter. One of my first bills that became law was making cancer a presumed job-related illness for firefighters. I worked with your career firefighters here in Pittsburgh to help get that done because of the amount of exposures we have. And I'm currently battling locally to help ensure that we can get as many pre-cancer screenings in our physicals, our annual physicals, to try and catch it early. My wife found her lump through a self-exam, which, by the way, if I don't digress for a second and mention that Kim Morton and I had the resolution, May is mammography month. So ladies, get yourselves checked, get your testing done, do your self-exams, and, you know, men remind the ladies in your life to get that done. So, sorry, sidebar. So President Pro Tem Kim War doesn't scold me for it. But, you know, my wife found that through early detection, right, through feeling a lump through a self-exam. And, you know, so as I'm trying to ensure that our firefighters have access to the best early testing possible. All the great science that's come before will help them beat cancer, if any of them, so far they don't, but if any of them develop cancer. We lost one of my great friends who was a firefighter with a long-time battle with cancer. And people would say, where's your cancer? And by the end, it was everywhere cancer, was basically what we called it. One of the strongest people I know, and he had a very long battle with it. But, you know, there's the compassionate side, too. Like, we've talked about economics. But we want you to be successful because the people you're doing this for, who are nameless, faceless people that you'll probably never see for the most part. You know, you're saving their lives. You're improving their lives. DEB, maybe it was DEB. Is that what the skin illness was that they're working on correcting their crystal or working on treating their crystal? I mean, that's a terrible thing. I didn't know it existed. I'm a little sorry to know it existed because it sounds like a very terrible thing, but you guys are all doing God work and trying to make a difference And you know it a worthy investment the dollars not just for the economic benefit of pennsylvania the jobs but also the compassion and you know we as elected officials you know you go to harrisburg you may have strong knowledge in a couple couple industry areas but you quickly are a foot deep on a thousand different types of issues this is one that somebody wisely started guiding me on when i first got elected to the house almost two decades ago, and I learned a lot about it. I say I'm at the 200 level. He gave me my life sciences 101 course and all, but we need people on both sides of the aisle, which this panel today represents both sides of the aisle, both chambers. We have Representative Gatos joining us here today. The governor's obviously invested in it, but we need to ensure you guys have the tools so you can do the work you're doing, both for the economic development purpose but for the humanitarian purposes as well. Of course. And I apologize that I have to leave, and part of it I've got to jump on a call to talk about some other tools that we want to put in your toolbox, and that, as Kurt had mentioned, the Association of Health Plans, that anything we can do to help your bottom line, that it's industry agnostic, it's anything that we can do to help lower the cost of whether it be energy, which is a huge consumer, health care, and those are the two biggest costs of most companies, and hopefully we're going to try to work on that. In fact, I was pretty optimistic that during the budget hearings that it almost seems like we maybe opened, shook the jar loose a little bit that the revenue secretary did mention that possibly association health plans are on the table and some other things. Now what that means, I don't know for sure, but it sounds like at least they heard us that there's a lot of things that we have to do, and we're very lucky that we do have a governor that has been responsive to some of these requests that we've made. So thank you. Apologize, I have to go.

We have Ben Bush, who is the Vice President of Public Affairs for the Allegheny Conference on Community Development. Brian Kennedy, Senior Vice President, Operations and Government Affairs, Pittsburgh Technology Council.

and his firm is Snyder Downs. And joining us online is Benjamin Fortnir, JD,

So if everyone can raise their right hand. Sorry, stand and raise your right hand. Sorry, gentlemen. Do you swear that the testimony you're about to give is the truth, the whole truth, and nothing but the truth? Great. Thank you. I think Ben's online. Ben, do you want to start since you're online? Would that be easiest, or how do you guys want to do it? Oh, all right, Mark, you can fire away.

Brian.

And a lot of the companies that are going to benefit from this most don't actually have tax liability in their early years. So having a tax credit doesn't really help a company who may be creating a lot of jobs but doesn't necessarily have a lot of profits to offset. And so we worked, and I think the key thing was here, bipartisan, right? So we worked. I can tell you when I was a young lobbyist, I got called into the office by a younger Senator, Jim Furlow, who heard me testify at a hearing like this that morning and said, Hey, Kennedy, get in here. I want to hear about this corporate welfare that you're pushing. And so for the people who are listening to the hearing, I do want to make sure that people understand how the R&D tax credit works, because I did explain that to Senator Furlow at the time. You do not get a tax credit just because you do R&D. If you just spent a million dollars on R&D this year and another million dollars next year, you would qualify for no tax credits. You only benefit if you are increasing and expanding your R&D spend in the state of Pennsylvania, and the credit only applies to the increase amount, not just what you've done in the past, right? So this is a bill designed to incentivize more R&D in Pennsylvania, and it's done a great job. Let's talk about some other things that have changed over the years that are very important to this story. First, we worked with the General Assembly to increase the percentage that small businesses get from 10% to 20%, which is twice as much as the overall pool. So we fully were able to, by making that one change alone, we were able to fully utilize the set aside that existed for small businesses, even as we significantly increased it as the pool increased. But something that is way more important is we modeled after our neighbor state, New Jersey, and we allowed companies to sell unused R&D tax credits. This was a game changer for startup life sciences companies and people who desperately need capital in order to keep going. And I can tell you I had a member company, I'm not going to name him because I'm going to tell you some confidential stuff here, but he told me, he's like, BK, you dragged me to Harrisburg and want me to talk to elected officials and I just want to be back in the lab. Like, this stuff's like putting needles in my eyes, you know, talking to the General Assembly. He said, but you need to know last year I was within two weeks of not being able to make my payroll. And I sold $500,000 of R&D tax credits, and it saved my company. And a short time after that, that CEO went on to sign an agreement that could have been worth tens of millions of dollars in terms of a licensing agreement for that company and had a fantastic run after that. If not for the R&D tax credit, that story wouldn't have been possible. And super importantly, he was investing that resources in solving one of the most debilitating diseases that exists. So kudos to the General Assembly for constantly upgrading and improving the R&D tax credit. I do want to echo, I actually came up with the $5 million definition, so I'm kind of feeling bad about that one now. But that was, I think, like 15 years ago. Yeah, I'm showing my age now, but that was 15 years ago. So it is definitely time to update that. And thank you so much for trying to increase. As an economic development tool, we want companies to know if I increase my R&D budget this much in Pennsylvania and I hire this many people, here's what I'm going to get from the credit. And it's going to be a very small percentage of their spend. And it doesn't work unless they actually can get the credit in the end. So for people who don't know how it works, like, essentially, there's a cap. They take all the applications, and you get a percentage of what it applies for. The small guys fare better than the large guys, which is our doing. So thank you, Representative Stevenson, Senator Furlow, and Senator Earle, and all the people that came before that worked on these bills. If I can, I want to talk about another issue that is really important. So this is not something we came and talked to the General Assembly about. But the federal government, back in the first Trump administration, when they were passing a tax cut bill, made a major change to R&D depreciation. And this is, by the way, this is really silly. I don't think anybody's going to understand this, but it's really silly. But essentially, in a normal business, you get to write off the expenses you have for your office space and for your equipment, and of course, for the salaries that you pay to your staff, right? So you may have $500,000 of expenses and $600,000 of revenue, and you have $100,000 of profit, right? To pay for these tax cuts back in 27 Congress did what Congress often does and they put a gimmick into the bill that they never intended to actually go into effect They put it into the future like five years and this was the gimmick The gimmick was if you're a company and you invest money in research and development, you're not allowed to write off the expenses for any of that R&D, except for about 20% of it, and you have to amortize the rest of it and push it forward. And this was acute pay-for. There was absolutely no public policy justification for doing this. It was just to pay for. And I promise the people who did it did intend to go back and fix it and make it never happen, but they didn't. And so we've spent the last three or four years at the federal level working with our member companies here in Western PA fighting that change. And we have finally fixed it. And the problem is, is the state followed the federal government, right? And they used the same rules and the same depreciation rules on the way in, but on the way out, when the federal government stopped being silly, the Pennsylvania decided to keep being silly. So we're thinking about, like, if I was trying, if I was sitting around trying to think about how I could hurt the tobacco industry, for example, I might make their staff and the salaries that they pay their staff not expensable, right? Like, if I was trying to put a tax on somebody who doesn't do great things for planet. That's how I might do it. Instead, we've done that for literally people who are curing cancer. And really how this works, let's think about it. They're eventually going to turn those credits in, unless they go out of business, because it puts a burden on them. But eventually, they're going to turn them in. So this is not something from a, you know, it's revenue neutral, right? But what essentially the state of Pennsylvania is doing is they're borrowing money from the companies behind us, right, that are trying to cure cancer so that they can have money in their budget, in a year we don't actually need the money in our budget anyways. That was our last report, a billion dollars. So this is something we would very much encourage the General Assembly to please go back and put common sense back into our law and do not punish companies. Because this is, by the way, this is a real deal, right? If you're an innovation company and you're thinking about setting up shop here, you can't write off the expenses you pay your staff. Like, who thinks that's a good idea? It's a terrible idea, so we need to fix that. Lastly, I do want to say, sorry, I'm a little passionate about the topic, and it did take a few years, so I was a little bitter about it to get that fixed at the federal level, and it really hurt companies. So let me say that. It really hurt my member companies. The last thing I do want to say is the idea of a matching SPR program makes complete sense. And, in fact, when we passed the Tobacco Settlement Investment Act, one of the things we did is we made sure that universities who receive NIH dollars can receive matching money from the tobacco settlement agreement in Pennsylvania. It a great time right now to make sure that when small businesses bring in money from the NIH that they can get matching dollars too It this idea of trying to commercialize all that great research that happening in places like this to bring it out to the commercial marketplace so that it can change people lives in a direct way And so, yeah, we want to wholeheartedly endorse the idea of a matching SBR program. The core legislation here is super essential. And thank you for taking the time to explain it to your peers and to push this legislation through. And I'll conclude there.

Mark, you covered everything on BM. Thank you.

Senator Carney, do you have any questions or comments? I do. Thank you, Senator Ferry. Mark, I wanted to ask you a quick question about, you were talking about reforming the tax credit. I thought a lot of those points made a lot of sense to me. But I was wondering whether you could flesh that out a bit, give us some examples about what you might, how we might go about this.

Just to echo that sentiment, can everyone hear me okay? Thank you, everyone, for joining. And the mechanics of the credit are really important. So as Mark was saying, moving closer to the federal mechanic with a 50% weighted average allows companies to have the same payroll, the same scientists, maybe a higher or two, and still be eligible for the credit. They don't have to spend infinitely more, but they have to stay in PA and continue to invest in PA in technical resources. And the other thing, I think, as we talked about the definition of the small businesses, to bring more of those folks in, time goes on. Costs go up, inflation's go up, the value of the companies go up, which is good. So I think we need to just make sure we updating ourselves to the current environment of what a small business truly is that we want it to be within the Commonwealth and for the credit purposes Okay, well, thank you for that.

Yeah, we'd be happy to. Thank you. Thank you. Thank you, Mr. Chairman.

No questions, Mr. Chairman. Thank you.