Urgent COVID-19 response package needed to support and protect $170b life sciences sector
May 8, 2020
Potential initiatives include broadening JobKeeper eligibility, fast tracking R&D Tax Incentive payments, and diverting a proportion of MRFF funding to biotech commercialisation
A COVID-19 response package to support Australia’s suffering life science sector, valued at over $170b, is urgently needed says Dr Chris Nave, CEO of Australia’s largest life science investment fund, the Medical Research Commercialisation Fund (MRCF).
With majority of the county’s biotech and medtech companies not eligible for the JobKeeper wage subsidy, coupled with vital investment capital rapidly drying up, R&D companies are in trouble and many will struggle to survive the current crisis without access to government support, Dr Nave continues.
“While the JobKeeper policy is vitally important for so many sectors, it does not support pre-revenue innovation companies still in the product development phase for their technology,” Dr Chris Nave says.
“While I’m confident this is not a deliberate omission by the government, biotechnology is a unique sector and therefore requires a unique response. If a lifeline is extended quickly, the sector will be in a position to deliver on its potential of providing significant wealth and medical benefits to Australia in the years after this crisis has passed.”
“Medical science and research will ultimately provide a solution to COVID-19, and we’re fortunate to be resourced with research capability here in Australia to be a leading part of the global response. It is only because of years of forward thinking and investment by successive Australian governments that we are in this position, and we must utilise this to support our industry right now when it needs it most.”
Last year 161 life science companies were listed on the ASX with a combined market capitalisation of approximately $170b, employing just under quarter of a million Australians*.
The MRCF proposes the following initiatives to support the life sciences sector:
- Change the eligibility of the JobKeeper wage subsidy scheme so that pre-revenue companies, with genuine R&D programs that have been disrupted by COVID-19 can access the wage subsidy scheme and keep staff employed. Under current rules, companies are only eligible if they can demonstrate a 30 percent loss of income, which does not apply to pre-revenue R&D companies.
- Fast track R&D Tax Incentive (RDTI) payments for the 2019/2020 financial year or provide quarterly instalments based on projections from July 2020. Under the scheme, which provides a 43.5 percent rebate for investment in R&D made by businesses with a turnover of less than $20m, companies must have pre-registered R&D activities for this year which are offset in their annual tax return for the year ending June 30th. Most companies will not receive the cash rebate for this year until October to December, or early 2021, which is too long to wait for cash strapped companies.
- Scrap controversial legislative changes to the RDTI agreed in the April 2019 Federal Budget which would cut $1.35b to the programme and were due to be passed into law before June 30th this year. Because of the current economic turmoil, this is unlikely to happen and is an opportunity for a rethink by the current Senate committee tasked with making changes to the RDTI Bill. Capital availability is going to be a major challenge for innovation industries over the next 6 to 12 months and uncertainty around pillar programs like the RDTI further erodes investment confidence.
- Free up a proportion of the $20b Medical Research Future Fund (MRFF), which supports Australian health and medical research, to make it available to fund the commercialisation of promising Australian discoveries in recognition that capital availability to the sector is rapidly evaporating due to COVID-19 and this poses a real risk to promising start ups reliant on investment capital to survive.
“For the next 6 to 12 months it’s going to be challenging for biotech and all innovation companies to raise capital from their traditional sources – superfunds, venture capital, private equity and high-net-worth individuals – as all have experienced heavy financial struggles due to COVID-19, Dr Nave says. “In particular, legislation in response to COVID-19 allowing people to access up to $40,000 of their superannuation funds early, has some of our leading superfunds looking carefully at asset allocations to ensure they have sufficient capital in liquid assets to meet these calls. This, understandably, will divert capital away from biotech investment at a time when it is much needed.
“To overcome this short-term credit crunch, government-backed capital should be used to bridge the funding gap and accessing capital from the MRFF and RDTI scheme seems an obvious choice. Both could pivot for this purpose with little required in additional funding or policy change.”
Australia’s bright biotech future
Only in March did CSL Limited, Australia’s largest biotech company, overtake The Commonwealth Bank and BHP, the world’s largest mining company, to become Australia’s most valuable company.
“While this was a watershed moment for Australia and shows a vision of what biotech can deliver, it’s important to remember that CSL is over 100 years old and it is 26 years since it was publicly listed,” Dr Nave says. “It takes decades to build a global biotechnology company and it is often well over a decade before a biotech is generating revenue.
“In our current situation, we could see promising companies on the same path as CSL lost for good due to a short-term liquidity crisis at the expense of future job and wealth creation. This would be an absolute tragedy for the nation.”
Industry body AusBiotech, is seeking a class ruling on the JobKeeper wage subsidy scheme from the Tax Commissioner, formally requesting that biotech companies be included.
In addition, leading Australian tech figures, including Atlassian co-founder Scott Farquhar and AirTree Ventures founder Daniel Petre, are supporting a petition to suspend the senate inquiry into the RDTI changes for at least six months and introduce a six-month moratorium on tax office claw-backs against recipients for the scheme. Over 3,700 have signed the petition.