The state’s Keystone Innovation Zone program provides tax credits to new and startup technology companies. Businesses that operate within the designated zones and meet certain criteria can claim a tax credit up to 50 percent of the increase in gross revenues attributable to activities within the zone. The tax credit limit is $100,000 per business per year.
In Centre County, which is home to many Penn State research-based spinoff companies, the program is vital to getting these high-tech startups through the difficult early year of operation and product development on the way to the successful commercialization of cutting-edge research.
In 2014, more than $17.1 million in KIZ tax credits were awarded by the Department of Community and Economic Development to 227 eligible companies throughout the state, an increase of about $2 million over 2013 awards.
Within the I-99 Innovation Corridor KIZ, which includes Centre, Bedford and Blair counties, 14 companies were awarded more than $1.07 million in Pennsylvania tax credits, including eight companies receiving awards for the first time totaling $549,844.
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All but two of the 14 companies are in Centre County.
State College-based Indigo Biosciences is one of those companies. Indigo got its start in the Chamber of Business and Industry of Centre County business incubator at Innovation Park and now operates out of the Zetachron facility near Science Park Road.
Indigo’s testing and screening technology determines how various compounds affect the receptors inside a cell’s nucleus. Its innovative products and services are designed to improve the speed, cost and risk of the drug discovery process, helping clients validate products and identify potential product side effects.
As the company continues to execute its business model and move from the startup stage to a profitable business, CEO Fred Marroni said, the KIZ program is a “big deal.”
The most recent tax-credit award enabled Indigo to invest in capital equipment, something the company might not otherwise have been able to do.
“You need a certain amount of equipment to grow,” Marroni said, stressing that growth can be a long process for new businesses, particularly for research-centric companies.
“For Indigo, it took from 2007 to 2013 to become profitable,” Marroni noted, adding that 2014 was the first year that the company had a positive cash flow.
“Keystone Innovation Zone tax credits helped us get a better foothold. To company shareholders, this was instrumental. It keeps their investment from being diluted and reduces the amount of fundraising that is needed to support product development.”
Marroni said he hopes the state will maintain the KIZ program.
Indigo plans additional capital equipment purchases in 2015, which will continue to ensure that the company builds on early success in the biotechnology, food, agriculture and nutri-ceutical industries, as well as in the pharmaceutical field.
“We have a love for science, that’s what we do here,” Marroni said. “We want to stay and grow in State College because of the access to faculty, talent and capital.”
State College-based BioMagnetic Solutions LLC is another local company that received tax credits in 2014.
Chief Operating Officer and Vice President of Business Development Ted Liberti called the KIZ program a momentum builder for technology companies.
Under the leadership of CEO and chief scientist Paul Liberti, BioMagnetic is building on Paul Liberti’s prior work developing biologically active nano-magnetic particles and systems for rare cell isolation.
This early work was honed into CellSearch, the world’s first FDA-approved system for isolating circulating tumor cells from the bloodstream. Part of BioMagnetic’s work is building a better platform to serve the cutting-edge cancer cell therapy research in the effort to cure cancer.
“The Keystone Innovation Zone program is crucial to helping life science and technology firms go to the next level,” he said.
Whether through state programs such as KIZ or support organizations like Ben Franklin Technology Partners, Ted Liberti said, early-stage assistance for research entrepreneurs is critical.
“We have a lot of really good technology companies in Centre County,” he said. “We ask them to dig deep into their own pockets, use their resources, their networks — beg, borrow and steal to get up and running.”
Ted Liberti said the revenue that flows back to qualifying companies through the KIZ program is money that can be invested back into the business, through equipment purchases or hiring, etc. Smaller developing companies also can grow from selling their KIZ-realized tax credits.
For BioMagnetic, the latest tax-credit award enabled the company to hire an additional scientist.
“When you bring on new people, you have more momentum, more results, and the more you can hone your product,” Liberti said. “The ability to hire that extra person is huge.”
Liberti also said the KIZ program means a lot more for business in Centre County, as opposed to larger metropolitan areas such as Pittsburgh and Philadelphia.
“Where the program’s limits are the same, KIZ funds provide a higher economic multiplier effect in Centre County versus other higher cost entrepreneurial zones,” he said.
Liberti said KIZ funds are tax dollars well spent because they encourage job growth that boosts the tax base and improves an area’s economic vitality by attracting top talent to central Pennsylvania.
That aspect is also important to BioMagnetic Solutions.
“We are very excited to be advancing this research in State College, near Penn State,” Liberti said.