President Joe Biden proposed speeding biomedical and health research with government help through the creation of the Advanced Research Projects Agency for Health (ARPA-H).
There are several considerations for companies that receive ARPA-H funding, including grant compliance and how to account for the tax impacts.
Background
Public Law 117-103, enacted March 15, 2022, authorizes the establishment of ARPA-H within the US Department of Health and Human Services (HHS).
Recent advances in biomedical and health sciences—from immunotherapy to treat cancer, to COVID-19 vaccines—demonstrate the strengths and successes of biomedical enterprise. These advances are an opportunity to revolutionize preventing, treating, and curing diseases including cancer, Alzheimer’s, and others.
What Is the Purpose of ARPA-H?
ARPA-H will support transformative high-risk, high-reward research to drive biomedical and health breakthroughs—ranging from molecular to societal—that would provide transformative solutions for all patients.
The current biomedical research ecosystem has historically been driven by two components:
- Fundamental research. This is largely supported by the National Institutes of Health (NIH), a component of HHS, that has made great progress in uncovering the underlying mechanisms of health and disease
- Biopharmaceutical research. This industry has created products for patients in a multitude of disease areas
Often a critical gap remains. Some of the best ideas, which could yield bold breakthroughs, don’t fit well into either half of the current system for various reasons:
- Risk
- Cost
- Time frame
- Focus doesn’t suit academia
- Need for complex coordination
- Near-term market opportunity is too small
- Scope is too broad
The purpose of ARPA-H will be to support promising opportunities that fall in this gap.
Who Does ARPA-H Impact?
ARPA-H funding shouldn’t detract from what’s already working well across the NIH. ARPA-H funding will be complementary to and distinct from ongoing NIH and other agency efforts in a way that strengthens and helps catalyze transformative discoveries.
ARPA-H could fund programs and projects that undertake challenges ranging from the molecular to the societal, with the potential to transform entire areas of medicine and health by:
- Tackling bold challenges requiring large-scale sustained coordination
- Creating new capabilities
- Supporting high-risk exploration that could establish entirely new paradigms
- Overcoming market failures through critical solutions, including financial incentives
Most NIH proposals are curiosity driven but ARPA-H ideas would be largely use-driven research—research directed at solving a practical problem. This funding will open the door to many companies looking to expand their research efforts in a way that wasn’t possible previously.
How Will ARPA-H Funding be Used?
ARPA-H funding would be used to address various challenges:
- Support for complex R&D requiring large-scale, sustained, cross-sector coordination
- Creation of new capabilities such as technologies, data resources, or disease models
- Support for high-risk exploration
- Commercialization of biomedical innovations using financial incentives and other mechanisms.
Most ARPA-H awards would support industry, university, and nonprofit research and may involve other federal agencies. The proposed agency structure would be operationally distinct from the National Institutes of Health (NIH) Institutes and Centers, (IC)s, but ARPA-H would coordinate with NIH ICs and other HHS agencies such as the Food and Drug Administration.
Funds may be used for activities directly related to the research:
- Salaries and benefits for research trainees
- Research supplies
- Equipment and facility needs
Funds may not be used for:
- Faculty salaries
- Course buyouts
- Administrative staff
- Seminar speakers
- Conferences
Consultant costs may be considered. Generally, subcontracts are not permitted. Funds aren’t provided for facilities and administrative expenses such as payroll, building depreciation, or utilities. All funds must be expended by the end of the project period.
What Do Life Sciences Organizations Need to Know About ARPA-H Funding?
Some considerations around these grants include taxability, basics of maintaining compliance, and what to know before accepting a grant.
Are Grants Taxable?
Yes, grants are generally considered to be taxable income to the recipient. The timing of the revenue recognition is dependent on a few items, namely:
- Company’s financial revenue recognition policy
- Company’s tax revenue recognition policy, which may be different from financial statement purposes
- Timing of received funds
Some additional tax considerations include:
- R&D tax credits. Some grant recipients may qualify for R&D credits. Grant income should be counted against qualifying expenses when calculating the R&D credit.
- State apportionment. Grant income may be sourced to various states depending on the company’s state-by-state presence. Revenue sourcing can be complex; be sure to consult your tax advisor.
Overview of Grant Compliance
ARPA-H funding can come in the form of federal research grants, contracts including multi-year contracts, cooperative agreements, prizes, or other transactions.
Grants and cooperative agreements are subject to the uniform administrative requirements, cost principles, and audit requirements for federal awards under part 200 of Title 2, Code of Federal Regulations.
Contracts awarded would be subject to Federal Acquisition Regulation. Given ARPA-H funds are governed by certain federal regulations, funding is subject to many federal compliance requirements that recipients should be aware of.
Maintaining compliance with these requirements enables recipients to fund operations, apply for future funding, and avoid disciplinary actions.
NIH recipients are responsible for complying with all requirements of the federal award. Recipients can refer to the NIH Grants Policy Statement, which aids in interpreting the statutory and regulatory requirements and is intended to be compliant with governing statutes and the requirements of 2 CFR Part 200.
Considerations Before Applying for a Federal Grant
ARPA-H appoints program managers to identify important needs not filled through traditional research or commercial activity or requiring a high-risk and high-reward solution to a projected problem.
Ideas could arise from the program managers themselves, patients or their advocates, providers, the academic research community, industry, or federal agencies. The program manager will focus on a key problem or idea and develop a program to address it.
Evaluations by program managers will be based on several criteria.
Alignment with ARPA–H
Projects should align with ARPA-H’s mission and vision for advancing use-driven scientific breakthroughs in the biomedical sciences and health as well as promote health equity.
Merit and Significance
- Proposed projects should advance research in the field:
- Does it challenge the current state of art?
- Will it overcome a barrier to advancing research in its field?
- Is this a major question or problem?
Innovation and Differentiators
- Does the project leverage new theories, tools, or applications to advance the field?
- Will the project shift the current paradigm in the field? Are technical or intellectual innovations included in the proposal?
- Does the PI leverage individual or institutional differentiators?
Feasibility and Approach
The proposed research plans, methods, and analyses should be appropriate:
- Will the methods and analyses achieve project objectives?
- Does the proposal include adequate resources such as expertise, tools, and equipment?
- How will success be measured?
- Can the project be completed on time?
We’re Here to Help
For guidance on grant compliance or understanding how to prepare for ARPA-H funding, contact your Moss Adams professional.
You can also visit our Life Sciences Practice page for additional resources.