Tax reform story not over for biotech industry

Building on the success of the Research and Development (R&D) Tax Incentive, industry leaders are calling for further tax reform to provide incentives for innovative manufacturing and investment, according to the Biotechnology Industry Position Survey 2013.

Appropriate support from the federal government was the top-line issue for respondents, who urge the government to support access to capital via policy instruments and programs.

The R&D Tax Incentive remains a top priority for the industry, with 66% of respondents having already seen the benefits of the policy or identify that it will have a positive impact in the future. Among the most pressing public policy issues, respondents repeatedly expressed concern that the R&D Tax Incentive would be reduced or withdrawn - and the industry urges further tax reform to provide incentives for manufacturing and to encourage long-term investment in home-grown technologies.

Of the 24 companies that raised capital in 2012, an overwhelming 87.5% did so by issuing (diluting) equity. The capital raised was for the dominant purpose of research and development, working capital or commercialisation - all critical to the survival of a biotechnology company. The industry is keen to see the government support non-diluting forms of capital, especially the intact preservation of the R&D Tax Incentive, and to continue beyond that with tax reform.

However, biotechnology and medical technology manufacturers are not especially assisted by the R&D Tax Incentive, as it phases out as a product or IP reaches commercialisation. This is the point at which Australian IP is most vulnerable to being sold overseas and the resulting community benefits going with it.

The industry’s high-tech manufacturers are pursuing a tax incentive to support export-oriented local production. Such a program would, unlike a direct grant, require companies to generate economic benefits for Australia (income) before they would be eligible for the incentive.

The majority of responding companies (60.7%) are manufacturing, with 37.5% manufacturing in Australia and 35.7% manufacturing overseas, with a crossover of 12.5% that manufacture both locally and overseas.

Dr Anna Lavelle, CEO of AusBiotech, said: “Innovation, wealth creation and job creation should be bipartisan issues regardless of who wins the federal election.

“The R&D Tax Incentive is a great foundation for innovation to nation-build for Australia, but the tax reform story is not over for innovation. Australian policymakers and businesses needed to do more to make manufacturing and investing in industries of the future more competitive globally and attractive.”

The survey, undertaken by AusBiotech and Grant Thornton Australia, provides an industry snapshot, direct from the industry’s CEOs and senior managers on three topics: sentiment, funding and public policy.

The sentiment section of the annual Biotechnology Industry Position Survey showed the positive sentiment for the industry’s future continues, while the operating environment (economic and public policy) remains a concern. The key findings were:

• Consistent with previous years’ findings, the Australian operating environment (economic and public policy) remains a key concern with only 16% (24% in 2012) of respondents identifying the environment as conducive to growing a biotechnology company and 38% indicating that the operating environment is working against the growth of companies.
• The reported level of support from the federal government for the biotechnology industry, on a scale of 1 to 10 with 10 being most supportive, saw 68% of respondents indicate the level of support at 5 or lower.
• The competition for capital is high, with 71% of companies planning to raise capital in the coming 12 months. For a significant portion of companies the requirement to raise capital in the short term is apparent, with 37% of companies holding less than 12 months’ cash.
• With capital at a premium, it is no surprise non-cash remuneration remains a significant component of most companies’ remuneration strategy, with only 20% of companies using cash-only remuneration strategies.
• The expansionary sentiment towards employment persists, with only 7% of companies planning to decrease staff numbers during 2013, while 55% have flagged an intention to be a net hirer of staff.