AusBiotech Ltd. Release: Tax Reform Urgent As Biotechs Reluctantly Prepare To Leave Home

The AusBiotech annual survey of industry leaders says the policy environment is “tough and unsupportive”, capital is the life-blood of the industry and Australia is badly lacking, but improved policy is all about tax reform – leaving companies that are doing great work in growing jobs and revenue sources for the post-mining boom economy to go in search of a better business environment.

Taking the annual pulse of Australia’s biotechnology and medical technology industry, supported by Grant Thornton, the survey has revealed some key themes, perhaps none as stark as the need for local companies to work globally and, sadly, fight to keep their operations in Australia as the international environment gets more competitive and Australia’s policy environment fails to adequately respond.

Dr Anna Lavelle, CEO of AusBiotech: said: “The snapshot of 56 companies showed strong positive sentiment amongst biotech companies, but these same companies are preparing to leave home in search of an innovation-friendly environment with access to critical capital and/or competitive tax regimes.

Roundtable discussions (that supported the survey) demonstrated that CEOs are passionate about the benefit that the industry could add to Australia’s economy and want to keep and grow their companies in Australia. The R&D Tax Incentive was repeatedly cited as the only positive policy for biotechs, which was enabling reinvestment into research programs and bolstering clinical trial activity.

“Companies are developing exciting new technologies, which offer significant potential and current community benefit and spillover benefits to the economy with jobs and exports, but with a large appetite for capital. It would be a travesty if more of Australia’s world-class research ends up moving offshore, as companies are forced to consider the Australian innovation landscape and the advantages of leaving home.

“Cell therapies, specialised medial devices, biopharmaceuticals and other advanced manufacturing are precisely the sort of activity that Australia should excel in. We have all the ingredients of a comparative advantage - a highly-skilled workforce, world-class infrastructure, a good regulatory system and a healthy regard for IP - except we do not yet have a globally competitive tax environment.”

Dr Lavelle says the on-going lack of venture capital in Australia makes the right tax settings critical in keeping our innovation ecosystem alive.

Michael Cunningham, National Head of Life Sciences, Grant Thornton: “Compliance costs and a comparably small venture capital market continue to limit in a relative sense the funding options of junior biotechnology companies.” “Now is the time for this industry to take its rightful place as a leading Australian industry. This will only happen in an environment that supports innovation and encourage biotechnology companies to operate in Australia.”

Key findings of the survey:

• Improved policy is all about tax reform In an open question in what public policy issue most concerns companies at a Federal level, un-prompted, 19 out of 49 companies said tax. For the most part companies were concerned about possible tampering with the much-loved R&D Tax Incentive. Other responses were concerned that Australia was falling behind as it does not have a patent box tax incentive and restoration of the Employee Share Scheme provisions. When asked about the policy environment, an example of indicative responses said: “Only positive is R&D tax refund” and “[environment is] conducive only due to R&D Tax Incentive”.

• Cash is the life-blood of the industry

The competition for capital has returned to the similar levels reported in 2013 and 2012 when almost half of the responding companies reporting that they were intending to seek funding in the coming 12 months.

The percentage of companies with less than one year of cash increased significantly to 34% from 18.8% in 2014 to reach level just below that of 2013 (37.5%). With the prior year being a particularly strong period for capital raisings it is not surprising given the typical raising is for funding of 12 to 24 months that this result has weakened, and returned to levels similar to 2012 (34%). Companies with more than two years’ cash dropped from 29.3% to 18%.

• Employment indicators strong for high-skilled jobs

While there was a slight drop in the percentage of companies planning to hire staff (64% down from 69% last year), the majority of companies are hiring, with 36 companies provide 239 new jobs in 2015. The figures encompass 80 new jobs for scientists and clinical trial staff, which almost doubled from 41 jobs in the same vocation last year. Recruitment to sales and marketing jobs remained strong as did advanced manufacturing/production jobs (30 in 2015, up from 3 in 2014).

• A tough and unsupportive environment

The number of companies identifying the Australian operating environment (economic conditions and public policy) as conducive to growing a biotechnology company fell dramatically to 16%, reversing the gains noted in the previous survey when 35% called the environment conducive (16%: 2013 and 24%: 2012). A hard-to-ignore 39% of respondents felt the operating environment was working against the growth of biotech businesses, up from 27% last year. The key and most repeated issues are tax, regulation, red tape, access to patient investors.

• Sentiment strong despite business environment

Respondents to the annual biotech survey were the most positive they have been regarding how their companies were tracking with 69% reporting a good or excellent year. This is our second highest result since data collection began in 2011 and 10% above the prior year. In the year ahead 84% expect to grow, up from 79% last year.

The full report is available on the AusBiotech website:
http://www.ausbiotech.org/userfiles/File/_data/reports/2015%20BIOTECHNOLOGY%20REPORT%20-%20FINAL.pdf Eleven things that company CEOs would like policy makers to know about biotech…themes from the CEO roundtables 1. Australian biotech companies are doing great work.

2. New technologies need new thinking…and systems.

3. We can do what we do anywhere in the world: IP is extremely portable.

4. Manufacturing goes where the IP goes and IP goes where there are positive tax structures.

5. Innovation will die without access to capital and Australia’s on-going lack of VC makes other programs even more important.

6. Company CEOs don’t want to rely on government any more than government wants to be relied upon.

7. R&D Tax Incentive is the one bright spot and should not be weakened.

8. Offering comparative tax incentives is a no-brainer. Why do we want to be the biotech supermarket of the world? 9. Companies can and will move offshore if nothing improves.

10. Australia could be the world leader in regenerative cell manufacturing (but Japan will beat us with their 70% reimbursement offer.)

11. If the R&D Tax incentive keeps getting cut back, we will lose our clinical trials too.

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