More than a dozen ASX-listed small cap biotechs will lose out if the federal government goes ahead with a proposed overhaul of R&D refunds, says industry lobby group AusBiotech.

Treasurer Scott Morrison has flagged an overhaul of the R&D tax incentive scheme in the upcoming budget, capping annual refunds at $4 million and lifetime claims at $40 million for companies with less than $20 million turnover.

That would immediately punish as many as 13 ASX-listed biotechs which have claimed more that since January 2017, says Australia’s peak biotechnology industry association AusBiotech.

Scroll down for a list of affected ASX-listed small cap biotechs.

“Seventeen per cent of ASX-listed medical technology and pharmaceutical companies that claim the refundable component will be affected immediately, with potential flow-on limitations to their R&D programs,”AusBiotech says.

“Another 9 per cent are in the danger zone.”

One biotech that would be affected is Viralytics (ASX:VLA) – the immune-oncology junior that was recently acquired by pharma giant Merck for $500 million.

A month before the takeover announcement, Viralytics received a $6.4 million R&D tax refund, which it said would fund its clinical activities into 2020.

Here is a list of notable ASX-listed biotech small caps that could be affected by the changes:

ASX code Name R&D refunds since 2017 Cash in the kitty Dec 31 ($) Market Cap ($)
BLT BENITEC BIOPHARMA $5.6M/$4M 10.27M 41.03M
BNO BIONOMICS $6.8M 32.02M 270.30M
KZA KAZIA THERAPEUTICS $4.4M/$4M 6.64M 37.03M
LBT LBT INNOVATIONS $4M 4.23M 26.58M
MX1 MICRO-X $7.5M 4.10M 53.41M
PBT PRANA BIOTECHNOLOGY $4.8M 19.91M 24.03M
RCE RECCE PHARMA $5.6M 1.13M 12.29M
UBI UNIVERSAL BIOSENSORS $9.5M/$7.5M 26.3M 49.42M
VLA VIRALYTICS $4.3M/$6.5M 22.02M 470.26M
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Mr Morrison believes the tax incentive “has been taken for a ride by some and integrity needs to be restored”.

But AusBiotech chief Glenn Cross says the measures will inhibit med tech and pharma research — which only makes up 8 per cent of current claims.

“The R&D Tax Incentive (RDTI) has been critical to Australia’s success in attracting more investment for the commercialisation of medical research because it stretches our medical research dollars further,” he said.

“By fostering a strong Australian medical technology, pharmaceutical and life sciences R&D sector, we are encouraging the long-term investment in Australia that creates highly-skilled jobs, attracts clinical trials and grows the economy we need.”

The program — which offers a 43.5 per cent refundable tax offset for companies with turnover of less than $20 million — accounts for a third of government spending on science and innovation.

Biotech Daily editor and long-time industry commentator David Langsam told Stockhead there were more financially sound means to curb spending.

“Putting a cap on the incentive is simply the government moving the goal posts. They are taking away money from the innovative companies that are already running on the smell of an oily rag,” he said.

“There should be a means test instead of a cap so that companies paying extravagant sums to their execs receive less of a refund but those that deserve it are given the chance to thrive.”

AusBiotech says the life sciences sector has more to lose than other industries because of its long timeline to commercialisation — on average 10 to 15 years.

The average total approval costs for a biotech are $1.5 billion to $2.2 billion, AusBiotech says.

“A $40 million lifetime cap will disadvantage companies developing these life-saving and life-changing technologies,” Mr Cross said.

 

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