Budget review: Here's what ASX biotech players thought of the 'patent box'

The federal government’s “patent box” initiative caught the eye of Australia’s biotech sector in Tuesday night’s Budget.

Speaking with Stockhead, a number of ASX biotechs were broadly positive about the announcement.

However, some industry players say that while it’s a good start, more needs to be done to really move the needle in biotech R&D.

Under the scheme, income derived from patents that have been developed in Australia will be taxed at a rate of only 17 per cent — well below the corporate tax rate of 30 per cent.

Steven Yatomi-Clarke, CEO of cancer-fighting biotech Prescient Therapeutics (ASX:PTX), said the initiative marked a positive step in terms of the diversification of Australia’s economy.

“Australia is lucky to be rich in resources, but has long been overly reliant on extractive industries,” he said.

However, the country has “barely scratched the surface in commercialising innovation, including our rich heritage in medical research”.

In that context, the patent box (together with the R&D incentive scheme) will “serve as important planks in this endeavour, by creating an environment that not only fosters innovation, but rewards its commercialisation”.

Dimerix (ASX:DXB) CEO Nina Webster was also broadly positive, but added that more can be done to foster medical research innovation in the domestic market.

“The concept is a good one to promote development and commercialisation of our great innovation in medicine, and I support it in general,” Webster told Stockhead.

The government has pledged $206.4m towards the scheme, which will apply to all patents submitted after Budget night (May 11). And it won’t come into effect until July 1, 2022.

That also makes it a bit one-dimensional for companies with existing treatments under development, Webster added.

“It’s early in my assessment (of the Budget), but I’m not convinced it’s enough to really support and encourage medical product development here in Australia,” she told Stockhead.

The July 2022 start date reflects a relative lack of urgency, because it typically takes longer than 12 months to get a patent approved in the first place, she added.

In addition, “most of the drug-development companies that are currently working on critical and important medicines will see no benefit, as the patent is filed long before we start clinical development”, Webster said.

Those sentiments were broadly echoed by Sam Wright, Finance Director of clinical stage cancer therapeutics company PharmAust (ASX:PAA).

Wright said any moves by the government to ultimately help PAA reduce its tax burden will result in improved competitiveness.

“Of course it only applies to patents in a very specific industry — and only to those submitted after May 11 2021 — but it is still an initiative that’s welcomed by PharmAust and no doubt its peers,” Wright said.

But Brian Leedman, non-executive chair at Neurotech International (ASX:NTI), feels the patent box is more relevant for companies with established revenues.

However, “most Australian biotechs are still in the R&D stage and so there is no benefit for them”, he said.

“The likes of CSL and Cochlear will be very pleased with this new initiative but if we want to develop the next big Australian biotechs, we should be providing more incentives to spend more on R&D to create valuable patents that will one day generate big export revenues.”

‘Real change’

For David Langsam, editor of Biotech Daily, the patent box is a breakthrough of sorts on the government’s part, but it doesn’t amount to any “real change in policy”.

While the concept itself isn’t a backward step, Langsam said the government’s biotech policy would ideally evolve to initiatives that are “a lot more clever than just a simple tax cut”.

One suggestion would be a much more aggressive tax rebate — up to 150 per cent — to help promote financing for the difficult early stages of new drug development.

He attributed the concept to Leon Serry, the founder of Circadian (now Opthea (ASX:OPT)) and considered a doyen of Australia’s biotech sector.

“The idea is for a tax break to encourage investing in the long term towards Phase 3 trials,” Langsam said.

“For example, it’s very hard for a lot of Australian companies to afford those large-scale 2-300 patient trials.”

“So what i’m suggesting is much higher rate. For example’s sake, say you invest $10,000, you can write $15,000 off your tax bill.”

“That would cover long term expenses which would assist in funding big events like Phase 3 trials,” Langsam said.

He also suggested the addition of an independent committee to assess applications under the existing R&D tax incentive scheme, “to make sure the technology is worthy of taxpayers’ money”.

Broadly speaking, Langsam and Webster were still supportive of the patent box initiative, but they would like to see more.

“I think it really needs to apply to products currently in development; so include patents that have already been applied for which are still some time away from commercialisation,” Webster concluded.