How to spend the taxpayer's money wisely

Melbourne Business School's Mike Vitale completed a survey for the NSW government recently, assessing the value of a biotech seed fund it established five years ago. The results were positive all around. Kate McDonald reports.

Professor Michael Vitale raised more than a few eyebrows at the 2006 Biotechnology Summit in Sydney in July when he asked the audience to consider the proposition that start-up biotechnology companies should not receive public money unless the project was linked to health outcomes.

Not that he necessarily believes the proposition, but it was amusing and informative to see what the industry thought. He thought he was close to being hanged, but it did raise very interesting questions about the administration of public money and the industry's desire to have it.

"This is public money after all, and unless you could demonstrate some plausible link between what you were doing and health outcomes - there's the hypothesis that you shouldn't be given any money," he says.

"What the industry would say is that this is very long-term stuff, it's fundamental research here and it may not be linked to any outcome. It's very hard to measure. I accept both of those things but I just think we are spending public money and the public has a right to an acquittal of their money.

"If all it is is a continuation of basic research, that has implications. This is particularly true of companies but for a researcher in a university, part of that person's salary is devoted to doing that basic research.

"I think one could expect that curiosity-based research could be done with that money but for a company to ask for money or to be given money without demonstrating any link to health outcomes, I think it's harder to defend."

Vitale has had a long interest in public program evaluation and last year completed a project for the NSW Department of State and Regional Development (DSRD) to evaluate a seed funding program it ran called Bio Business.

The program ran for five years and involved grant money of $11 million to both early stage and established biotechs in NSW.

There were three parts to the program: a proof of concept grant, a non-research establishment costs grant, and a high-growth business grant.

"These were targeted at different sorts of companies," Vitale says. "The proof of concept program basically piggy-backed on the [federal government's] BIF program. If you got a Commonwealth grant and were a NSW company you got topping up of up to 20 per cent of the grant.

"The non-research establishment costs were for very new companies, and the high-growth business grant was for companies that were around longer and had higher sales revenues."

While Vitale and his research assistants were coming in after the fact by having to conduct a survey without previously defined outcomes, the data he received was very consistent.

That data showed that with a modest injection of funds and very small administration costs, this sort of program can be very successful. He found that, on the whole, the companies assisted were bringing out new products, creating more employment and bringing significant new investment into NSW. There was an improvement in exports that, while not large, was increasing.

"This program was administered in a very proactive way," Vitale says. "Any company that fit the criteria was hunted down and given the money. DSRD literally did not know of a single company that was eligible that didn't receive funding.

"Each of the programs that we looked at took somewhere between $2.5 and $4 million in investment. Each of the companies that received those grants were able on average to bring in significant new investment and they were able to bring in increased revenue.

"The philosophical question is that you can't really attribute that all to the grant - some of it certainly, how much of it is hard to say."

So, while this type of government program is successful, is the biotech sector too reliant on public money?

"While I think government support is absolutely essential in getting the sector going, it's not a recipe for sustainable success."

The Bio Business fund has been allocated an extra $25 million over the next five years.