Bruising Budget strengthens resolve

The biotech sector is regrouping after the bruising Federal Budget on Tuesday night delivered a round of cuts for biotechnology, including measures to reduce the R&D Tax Incentive and abolish the Innovation Investment Fund (IIF) and Commercialisation Australia (CA).

AusBiotech believes this three-pronged reduction in the support for the burgeoning innovation industry is concerning, and the value of the new measures will be dependent on the detail.

Among new programs announced, a new $20 billion Medical Research Future Fund (MRFF) will be established and represent the biggest medical research fund of its kind in the world. While the fund was welcomed as a great investment for Australia, the lack of detail left the biotech sector wondering if and how the commercialisation of such research would occur.

Given the support for commercialisation that has been removed in this Budget, the level of difficulty in translation is believed to have gotten even greater.

AusBiotech is urging the government to consider the dedication of a portion of the MRFF proceeds to the translation of research, in line with the McKeon Review recommendations. A key element of the report was the strengthening of commercial pathways to ensure the translation of research outcomes into health and economic benefits for the Australian community, and it recommends that funding address the twin “valleys of death in commercialising research and called for the establishment a Translational Biotech Fund”.

There was no resolution to Employee Share Schemes (ESSs), which has proven to be a major issue for biotechnology companies, especially start-ups, since changes were made in 2009. The will to repair ESSs appears to be a supported issue by both sides of government, and yet, there is no move to fix this measure, which will have a small budgetary impact and large benefit for small and medium-sized innovation companies.

AusBiotech will ramp up efforts to advocate for a translational provision to the MRFF and continue its advocacy on further tax reform to seek a repeal to the 2009 ESS changes and implement the Australia Innovation and Manufacturing (AIM) Incentive, a ‘patent box’-style incentive that allows a lower tax rate on profits derived from patents.

Other key announcements in the Budget were:

• Reducing the rate of the R&D Tax Incentive by 1.5 percentage points to save $620 million over four years, by reducing the rates of the refundable and non-refundable offsets by 1.5 percentage points, effective from 1 July 2014.
• The government announced it would establish the biggest medical research fund of its kind in the world, the $20 billion Medical Research Future Fund (MRFF). Every dollar of savings from health in this Budget will be invested to build this fund, until the fund reaches $20 billion.
• The Entrepreneurs’ Infrastructure Programme (EIP) will offer market and industry information; business management advice and skills from experienced private sector providers; access to researchers and innovators to re-engineer business operations, products and services; connections with supply chains and potential markets; and commercialisation advice through specialist sector expertise.
• The government will achieve savings of $845.6 million over five years by ceasing various programs from 1 January 2015, including Commercialisation Australia, the Innovation Investment Fund and the Industry Innovation Precincts; and reducing funding to cooperative research centres.
• The government will provide $50 million over three years to establish the Manufacturing Transition Grants Programme (MTPG) to assist Australian manufacturers to transition to higher value manufacturing activities and/or niche activities which result in a new end product and improve a firm’s competitiveness.

The Budget papers can be accessed at http://www.budget.gov.au/2014-15/index.htm