Vertex gets clawed after sales of much-touted hepatitis C drug drop

It sounds kind of hostile, but “clawback” is an economic development term. Instead of using flat-out tax breaks to lure companies that promise new jobs, the Massachusetts Life Science Initiative now holds firms to their promises.  If they don’t generate jobs, companies have to pay back the state.

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Boston Redevelopment Authority.

So, Vertex, the Cambridge biotech that just built a $800 million headquarters in the Seaport District, will have to return some of our money.

From the Globe:

With the drug’s sales dropping sharply, Vertex said it is cutting about 17 percent of its total workforce, or 370 jobs — including 175 in Massachusetts — and will return $4.4 million in state tax incentives it received for promising to create jobs.

The company may yet become an anchor of the state biotech sector. But to do so, executives will need to make good on their plans to build a multi-drug pipeline — something few in the high-risk biotech business have done. The first test will be winning approval for a portfolio of cystic fibrosis drugs.

The city of Boston also contributed to the project.

Clawbacks provide taxpayers a way of making sure their investment in development subsidies pays off in the form of real public benefits, and allow governments to recoup their money if it does not. The concept of a clawback may seem like common sense. However, with the way many subsidy deals are currently structured, companies often face no penalties if they fail to deliver on promised jobs or investment. A company’s plan to create public benefits may be regarded by both corporate executives and public officials as more of a goal than an enforceable commitment. Governments often take a “good faith” approach, assuming the company has done and will continue to do its best, and letting it off the hook if it falls short. 

Often, companies will threaten to relocate unless they win tax breaks. Vertex was considering its move at the time the state was setting up its life science subsidy program. From Nature Network Boston:

For Josh Boger, the head of Vertex Pharmaceuticals, the need for incentives from the state is real. “I’m the one who regularly gets detailed reports about how much more favorable things would be if we moved Vertex to another state,” said Boger, who is also the current chair of BIO, the national association of biotechnology companies.

As Vertex looks to expand its headquarters, Boger has been listening to pitches from other states, as well as other countries. “Am I looking at Massachusetts? Yes,” he said. “That doesn’t mean that I’m not looking elsewhere.”

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