The R&D Tax Credit Aspects of Novel Uses for Genetically Engineered Organisms



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        Genetic engineering is the manipulation of an organism's genome through biotechnology. It involves the mutation, insertion, or deletion of genes. Since the first recombinant DNA molecules were produced in 1972, significant progress has been made, resulting in a wide range of genetically modified organisms (GMO), which includes microorganisms, plants, and animals.

        Even though bacteria were the first organisms to be genetically altered, novel uses for this class of GMO never cease to be discovered. This article will present recent breakthroughs in the genetic engineering of microorganisms, particularly those that represent promising answers to modern-day challenges. It will also discuss the tax credit opportunity available for companies engaged in developing innovative uses for genetically modified organisms.



The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On January 2, 2013, President Obama signed the bill extending the R&D Tax Credit for 2012 and 2013 tax years.


Modified Reputation

        For over a century, bacteria have been surrounded by a notoriously bad reputation. The word itself is frequently associated with diseases and contamination. Even more so as recent research has proved the role of these microorganisms in disorders such as stomach ulcers, heart attacks, and strokes, not to mention the growing bacterial resistance to antibiotics.

        However, ongoing R&D efforts point towards a future where the bad guys may become heroes. Novel developments in biotechnology, particularly in the field of genetic engineering, have proved that bacteria can be central to overcoming challenges facing humankind.

The following paragraphs will present a few domains in which innovative uses of genetically modified bacteria have recently been developed.

  1. Energy Generation
    Despite governmental incentives, such as the Congressional mandate requiring a determined amount of biofuel to be blended into U.S. gasoline and diesel supplies, high costs and increased carbon dioxide emissions have undermined biofuels' position as a real competitor to fossil fuels. This unfavorable scenario, however, may be changing.

    Using genetic engineering, UCLA researchers have altered the way certain bacteria process sugar, increasing the amount of biofuel that can be generated from sugar by 50 percent. The Benefits are multiple: 1) Lower costs due to the reduced amount of corn or biomass necessary to produce a gallon of biofuel; 2) Reduction of land used to produce corn or biomass and consequent decrease of CO2 emissions involved in farming; and 2) Reduction of greenhouse gas emissions due to the optimization of carbon use during the fermentation process.

    While UCLA research focuses on boosting efficiency in the production of biofuel from corn and biomass, the KTH Royal Institute of Technology in Stockholm is working on an alternative biofuel produced by cyanobacteria, also known as blue-green algae. Using genetic engineering, Swedish researchers have altered the algae's natural metabolism. The modified genome "tricks" cells into producing butanol, a hydrocarbon-like fuel for motor vehicles.

    Butanol production can allegedly be 20 times more efficient than conventional biofuels. When considering corn ethanol, for instance, the ability to produce fuel using genetically modified cyanobacteria could be the answer to fluctuating costs of corn, limited arable land availability, and high transportation costs. More importantly, raw materials involved in the production of fuel based on cyanobacteria are virtually infinite, namely, sunlight, carbon dioxide, and seawater.

    Significant R&D efforts are still necessary to make biofuel from blue-green algae commercially available. According to Paul Hudson, researcher at the School of Biotechnology at KTH, there could be a decade before the necessary production improvements are accomplished.

    In South Korea, researchers have successfully used genetically modified E. coli bacteria to produce gasoline. The process consists of turning glucose or waste biomass directly into petrol, eliminating intermediary steps. The resulting product is allegedly identical to the commercially available fuel, both in structure and chemical properties. Although considerable advances are still necessary, particularly regarding scalability, we may one day be driving around in bacteria-powered cars.

  2. Innovative Materials and Production Processes
    Since 2007, Tepha Inc., a medical device company from Cambridge, MA, has commercialized an innovative suture made out of a polymer produced by genetically modified bacteria. The polyester sutures can be the answer to the long-lasting problem of reopening wounds due to the loss of suture strength. Not only are they absorbable but they also constitute a more flexible and far stronger alternative to conventional sutures.

    Based on compounds synthesized by genetically engineered E. coli bacteria, Tepha's suture was the first plastic of its kind to receive FDA approval. While other materials often break down into inflammatory compounds in the body, the polyester sutures do not cause inflammation as they break down into biocompatible products.

    R&D efforts are currently underway to apply the polymer to other medical devices, such as stents, surgical meshes, and multifilament fibers.

    San Diego-based Genomatica Inc. has also been engaged in the innovative use of genetically modified bacteria, particularly bio-based chemical production. The company won the Materials Category of the 2011 Wall Street Journal Technology Innovation Award for the production of basic chemicals using bioengineered microorganisms. Their ultimate objective is to conceive renewable and cost-effective alternatives to fossil fuels used in conventional chemical manufacturing, enabling a transition from petroleum-based feedstocks to sustainable ones. The company is currently working on the bio-based production of a range of intermediate and basic chemicals, such as butanediol, butadiene, and BDO.

    Genomatica is also developing an innovative recycling technique based on genetically engineered bacteria. The process consists of breaking waste material into synthesis gas, a combination of hydrogen and carbon monoxide, which is then processed by genetically modified microbes. The resulting waste would contain useful chemicals that can eventually substitute petroleum in plastic manufacturing. While converting garbage into plastic would be a huge step into reducing dependence on oil, the scalability and profitability of this project remain to be proved.

    A recent doctoral study at the Aalto University in Finland demonstrated that genetically modified bacteria could also be efficient producers of rare sugars. Used as low-calorie sweeteners and as precursors of anti-cancer and antiviral medicines, rare sugars have gained importance despite high production costs. With the help of gene technology, Finnish scientists were able to use engineered bacteria to generate the enzymes necessary to produce three rare sugars, namely, xylitol, l-xylulose and l-xylose. Initial results were promising, particularly regarding process efficiency and simplification.

  3. Health
    Genetically engineered bacteria can also become heroes of the medical world. A recent effort from the Nanyang Technological University in Singapore resulted in the creation of modified E. coli bacteria capable of seeking out and destroying cells of P. aeruginosa, the microbe behind many illnesses, including pneumonia.

    For now, tests have only been run on mice, however, results are highly promising particularly when it comes to the accuracy of genetically engineered E. coli. which, contrary to most conventional antibiotics, do not kill pathogenic microbes and beneficial bacteria indiscriminately. Moreover, the novel genetically constructed substance is particularly effective due to its ability to break continuous sheets of bacteria, known as biofilms. R&D efforts are underway to expand targeting ability beyond P. aeruginosa and, most importantly, to turn this innovative approach into deployable medicine.

  4. Environment
    Oil spills have caused the degradation of numerous ecosystems, particularly marine ones. Cleanup and recovery remain challenging and can take weeks, months, or even years. In many cases, bioremediation has been considered the ultimate response to such disasters. Alcanivorax borkumensis, for instance, is a commonly used oil-degrading bacterium.

    Genetic modifications could open the way to more efficient responses to oil spills. For decades, R&D efforts have sought ways to genetically enhance microbes' ability to process oil spills, whether in land or sea. Although expectations are high, further research is necessary to demonstrate the superiority of engineered organisms over naturally occurring ones.

    Engineered bacteria have also shown promise in the control of herbicides, as demonstrated by a group of scientists from Georgia. The target: atrazine, a controversial herbicide commonly used on cornfields and sugar plantations. Prohibited in Europe, it is one of the contaminants most frequently found in U.S. water. The weapon: genetically modified E. coli bacteria capable of detecting, pursuing, and neutralizing the herbicide. Although it may take time before the atrazine-hunting bacteria becomes commercially available, this project points to a future where seek-and-destroy microbes may be created to tackle different environmental contaminants.



Conclusion

        In times where superbugs threaten the world with unprecedented resistance to drugs, it is somewhat difficult to picture bacteria as the "good guys". Nonetheless, ongoing R&D efforts have demonstrated the crucial role such microorganisms can play in solving the problems facing humankind. Genetic engineering has enabled the creation of innovative approaches to a wide range of challenges, from energy generation to medicine. Companies engaging in the development of novel uses for genetically modified organisms may be entitled to significant R&D tax credits.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Jacob Goldman is the VP of Operations at R&D Tax Savers.

Andressa Bonafé is a Tax Analyst with R&D Tax Savers.


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