Labor plans to reform the R&D tax incentive if it wins government but isn’t going as far as repealing the caps placed on rebates for low earning companies.

In July last year, the federal Liberal government capped annual refunds at $4m and lifetime claims at $40m for companies with less than $20m turnover.

This has impacted small caps in several sectors, including biotech and resources.

Labor is, however, planning to tinker with the R&D tax incentive.

 

The changes

Labor is proposing a 10 per cent premium tax concession for businesses that collaborate with universities and other publicly-funded research institutions.

The premium could be claimed by companies that:

  • Cooperate with a university or the CSIRO to develop an innovative new product;
  • Embed industry researchers within a university facility;
  • Employ recent PhD graduates in their first three years of employment; or
  • Hire PhD students to do industrial research with a company.

As well as reforming the R&D tax incentive, Labor plans to undertake “the first root and branch review of Australia’s research sector in 30 years”.

Labor will also establish tripartite innovation councils in industries such as food and fibre, electric vehicles, steel, and the built environment.

The goal is to reach a national target of devoting 3 per cent of GDP to research and development by 2030.

 

Aussie R&D spend pretty poor

As a percentage of GDP, business R&D in Australia — as well as gross expenditure in R&D — has been in decline for a decade, after peaking in 2008-09, according to Universities Australia.

The country’s expenditure on R&D — around 1.88 per cent of GDP — now lags behind most of the OECD, as well as the OECD average of 2.38 per cent.

Universities Australia welcomed the promise of a 10 per cent premium tax concession.

“Since 2015, Universities Australia has advocated for a premium tax concession for businesses collaborating with our nation’s universities on research and development,” CEO Catriona Jackson said.

“A premium tax concession would boost the number of businesses that tap into the wealth of expertise inside universities and enhance innovation in Australia.”

A number of small cap biotech and resources companies already work with universities.

It’s usually par for the course for biotechs to work with research institutions for clinical trials, but two that are in the process of doing that right now are Orthocell (ASX:OCC) and Cynata Therapeutics (ASX:CYP).

Early data from Orthocell’s Phase III trial of its CelGro technology in patients with damaged nerves has shown that patients have regained sensation and muscle function in affected limbs, reporting an 83 per cent improvement in muscle power.

Orthocell’s CelGro technology makes collagen scaffolds. The technique involves using collagen — the glue that holds our bodies together — as frameworks on which cells and tissues can grow.

Meanwhile, Cynata is starting a phase II trial testing its stem cell product CYP-002 in patients with critical limb ischaemia. Recruitment is expected to begin before the end of the calendar year

 

Here’s what a couple of biotechs had to say on Labor’s proposed changes:

Recce Pharmaceuticals (ASX:RCE) is an Australian biotech developing a range of synthetic antibiotics aimed at fighting the scourge of superbugs.

“In the case of developing new antibiotics, the Australian market’s globally about 3 per cent, USA 50 per cent – it takes real financial initiatives to keep that technology and skill-set local,” director James Graham told Stockhead. 

“Australia’s the world’s most isolated, yet has the most generous R&D rebate of anywhere in the world. It’s basic economics that if you have commercially orientated research in government departments, private enterprise will follow.”

Steven Yatomi-Clarke, CEO of targeted cancer drug developer Prescient Therapeutics (ASX:PTX), said anything that fosters collaboration is welcome.

“And this might help build upon Australia’s great record of basic research and hopefully encourage much needed improvement in our translational research capabilities,” he told Stockhead.

“However, if these definitions don’t encompass clinical trials, an unintended consequence of this policy might be to disincentive companies in progressing research beyond the pre-clinical stage. We will merely have more early stage research still hitting the similar eventual bottlenecks.

“From my experience, the limiting step is not a willingness of industry to collaborate with research institutions; it is quite the opposite.

“Research institutes often talk a big game about collaboration but have little practical vision about accommodating it and often have tech transfer & IP policies that are so uncommercial they become self-defeating.”

 

Resources-Uni collaborations on the rise

An increasing number of resource companies are working with universities and the CSIRO.

Archer Exploration (ASX:AXE) is taking the graphite from its Campoona mine in South Australia and turning it into graphene for use in a bunch of different things like biosensors and batteries.

The company is currently working with the University of Sydney to develop and commercialise room-temperature quantum computing technology.

Several other junior resources companies will partner with academics as part of the proposed new Future Batteries Industries Cooperative Research Centre (FBI CRC) being established in Western Australia.

The research partnership of 58 industry, academic and government partners will address industry-identified gaps in the battery industries value chain.

Juniors connected to the initiative include Protean Energy (ASX:POW), Clean TeQ (ASX:CLQ), Kibaran Resources (ASX:KNL), Volt Resources (ASX:VRC), FYI Resources (ASX:FYI), Cobalt Blue (ASX:COB) and Australian Vanadium (ASX:AVL).

 

At Stockhead, we tell is like it is. While Cynata Therapeutics and Protean Energy are Stockhead advertisers, they did not sponsor this article.