PERTH, Australia – Despite a Senate inquiry recommendation to hold off on introducing cuts to Australia’s Research and Development Tax Incentive (RDTI), a bill that recommends cuts was introduced in Parliament, sending shudders through the biotech industry. 

“Ausbiotech is deeply concerned that the RDTI Bill has been reintroduced, despite the Senate Committee’s recommendations to defer consideration of the bill until further examination and analysis of the impact is undertaken,” said Ausbiotech CEO Lorraine Chiroiu, adding that the Australian life sciences industry has been caught in the crossfire.

“The unique environment we work in, and the life-saving and life-improving benefits we bring, must be better considered before these changes cause long-term damage to the industry,” she said.

Proposed changes in the reintroduced RDTI reforms include:

  • Fixing the rate of the refundable R&D tax offset to 13.5%. That change would immediately hit small to medium enterprises with a 2.5% loss of refund if passed.  
  • A simplified R&D premium for conducting high-intensity R&D for companies with an annual turnover of more than AU$20 million (US$13.6 million). Despite being simplified from the last bill, the intensity measure still reduces the support for all but a few companies, Ausbiotech said, adding that it would prove hard to estimate in advance, which undermines the certainty that most companies have traditionally had in relation to future RDTI calculations.
  • An increase in the R&D expenditure threshold rate from $100 million to $150 million, which would only be applicable to a few companies.
  • Setting the claim gap at $4 million, with an exemption for clinical trials. Although the protection of clinical trials is a welcome change, it has been tempered by the high degree of confusion that remains about the definition of “clinical trial” and which expenditure would be eligible for the RDTI under the proposed changes, the association said.

Budget battle redux?

In its current form, the R&D tax incentive gives 43.5% of every dollar spent on R&D back to companies in a cash payment. That number was down in last year's budget, and industry was closely watching to see how it would be affected in the new budget.

Recent years have resulted in budget battles over the treasured R&D tax incentive, but the annual budget released in May 2019 made no mention of the RDTI at all. Another conspicuous oversight was that the word "innovation" was not mentioned even once in the federal budget, Brandon Capital Partners Managing Director Chris Nave told BioWorld Asia.

Nave said the RDTI remains a big incentive for companies bringing their clinical trials to Australia. He estimated that there are hundreds of U.S. companies that set up Australian subsidiaries to run trials in Australia to double their clinical trial dollars.

"Australia has made great strides in innovation the last eight to 10 years, and there is a tempo about it, and I'd hate to lose that momentum through policy changes that might seem popular in the short term but damage the economy in the long term," Nave said.

Medicines Australia members invest roughly AU$1 billion (US$697 million) in collaborative partnerships, many of which are with research institutes and universities, Medicines Australia CEO Liz de Somer said.

"Without policies such as the RDTI, there will be limited incentive for ongoing investment into Australia.

"Medicines Australia has long advocated for a strengthened R&D tax incentive that encourages investment from large companies," she added. "We have sought a bipartisan commitment to retain the R&D tax incentive in a form that supports clinical trials and removes the requirement for an intensity threshold for research-driven medicines and therapies."

Ausbiotech released a new report, R&D Tax Incentive: Additionality and spillovers for the life sciences industry, illustrating the negative effects that the biotech sector is now facing by the cuts proposed in the new bill.  

Bill threatens sustainability of businesses

According to the report, 63% of respondents said the RDTI materially influenced the decision to undertake R&D. Moreover, 61% of respondents said the proposed changes would not only affect their expenditure on R&D but would also threaten the sustainability of their businesses.

More than half of respondents said that changes would impact the amount of R&D their companies undertake in the future, and 29% anticipated a reduction in R&D.

“For the first time, biotech has hard evidence that the benefits that the industry’s R&D environment brings is different, and this distinction needs to be acknowledged and mitigated before any proposed changes to the RDTI go ahead,” Chiroiu said. “The sector brings significant social and economic contributions to Australia, and the impacts of the proposed changes will be felt across the ecosystem – from bench to business to bedside.”

Comparative research by the Centre for International Economics into the broader innovation sector found that only about one-third of R&D spending decisions were materially influenced by the RDTI program. The contrast between the results in that report and the 2016 data is explained by the original survey not including specific data on the life sciences sector, whereas the new survey and case studies are solely focused on this sector, Ausbiotech said.

The Senate Economics Legislation Committee found in February 2019 that the government should reconsider its proposed reforms of the RDTI.

The specific RDTI amendments in the original omnibus legislation were subsequently withdrawn but newly drafted legislation to enact changes to the RDTI is anticipated. The available dataset in the original CIE report – on which the previous recommendations for making changes to the RDTI were based – lacked the granularity needed to capture the particular sensitivities of biotechnology research and product development.

“The life sciences sector encompasses 1,852 organizations and more than 240,000 jobs, making it a significant industry for Australia’s economic growth with spillovers that offer enormous promise for our future,” the report said.

“R&D in the biotechnology sector is unique, both in its development challenges and in its output products. It is IP-based, heavily regulated and R&D-intensive and a highly globally mobile industry. Life sciences offers high value jobs and a growing and sustainable contribution to GDP. Its products provide the greatest public good; from cancer treatments to helping people hear, they are life-saving and life enhancing.”

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