The Biotechnology Industry Organisation is asking the US Government for a financial stimulus for small biotech companies that are struggling during the credit crunch.

The industries’ executives want a change in tax law so that companies can claim a tax rebate upfront in exchange for giving up funds the companies could take when they start becoming profitable. Should the proposal be approved, billions of dollars could be made available to the biotech industry on the proviso that the money would be used on R&D.

Speaking to Bloomberg.com, Matt Gardner, President and Chief Executive of BayBio said: “Most of these companies have not yet had their first product approved. They don’t have any revenue, and they are accumulating these operating losses. This change would allow them to convert some of these losses back into future research spending, which is a very good thing for the economy.”

Since the credit crunch started to take hold, biotech, especially the small companies, have seen investor cash dry up putting many companies in worrying positions including have to make staff cuts and even bankruptcies. According to the BIO, 120 of the 370 publicly traded US biotechs have less than six months of cash in their pockets to pull them through.

According to BIO, under the proposal put to Congress, a company with $100 million in net operating losses would be entitled to $35 million in taxes when it starts becoming profitable, meaning it could receive $20 million upfront cash to go towards R&D.

However, critics have attacked the proposal saying it is risky as many biotech companies never become profitable.

The US proposal comes a week after the UK biotech sector presented a dossier to the British Government with a number of recommendations necessary for the “survival and future viability” of the industry, including financial stimulus.