Australasian Biotechnology (backfiles)
AusBiotech
ISSN: 1036-7128
1997
Australasian Biotechnology,
Volume 7 Number 3, May/June 1997, pp.172-178

ABA POLICY SUBMISSIONS

Code Number: AU97026 Size of Files: Text: 28.1K Graphics: No associated graphics files

Policy Submissions No. 1 and 2

The Directors of the Australian Biotechnology Association have decided to use the journal to disseminate full details of submissions made by the Directors from time to time to government and other bodies in Australia. These views are the formal view of the Association on these matters, and are the majority view of the elected Directors at the date of the submission. Most Submissions represent a unanimous view of Directors. W~ere this is not the case, we will seek to report the minority dissenting view appropriately. The Editors may from time to time, because of space reasons, condense Submissions. In this issue, we report two Submissions. We seek readers' support or criticism of Submissions. Readers can best do this by a letter to the Editor, or by privately contacting the President of the ABA.

Position Paper No. 1

Needs of the Biotechnology Industry in Australia

Submission to the Mortimer Inquiry - April, 1997

Biotechnology is Becoming a Major Driver of Economic Growth Overseas

Knowledge-based industries are becoming major components of the leading world economies. Governments and investment funds internationally look to investment in new and emerging technologies since the growth rates can be quite substantial and there is also a high rate of job creation. Biotechnology, after a relatively long incubation period, is emerging as one of the leading new technologies that impacts on a range of industries, including pharmaceuticals, agriculture, animal health, diagnostics, food, horticulture, forestry and mining.

While Australia has been well placed technologically in biotechnology it is missing the boat with respect to commercialisation. There are major structural problems in our financial and legislative environments that adversely affect the creation of companies, jobs~and wealth, not only in biotechnology but in the commercialisation of most high technology.

While this paper is limited to a consideration of the biotechnology industry, its conclusions are probably applicable to most innovative high technology industries in this country.

Major developments in North America, Europe and Asia

In the United States last year, more than USS 4 billion was raised on the stock market for investment in biotechnology companies, making 1996 a record year for investment in this industry. This is an enormous sum, representing the equivalent of one hundred $40 million companies, but for anyone who has travelled in the US recently this is not surprising given the maturity of the industry there. In Canada, there were 224 companies at the beginning of 1997 compared to 121 in 1994.

Europe is also experiencing a surge in investment in biotechnology. The UK is especially strong and now that Germany is emerging from the Green- imposed de facto moratorium on biotechnology, the Kohl government has made it a priority to strengthen significantly ventures in biotechnology. There have also been major initiatives in Asia is the past few years, including especially in Singapore, Malaysia and Korea while Japan has always been relatively strong.

Commercialisation of Biotechnology in Australia is in Crisis

Weak Investment in Australia

Unfortunately, the situation in Australia is far from optimistic. One way of measuring investment activity is to plot the number of new ventures. Based on information in ABA's Directory of Australian Biotechnology Companies (1996), there is just one company from a total of thirty seven that has had its origins in the last five years. None have been started in the past three years. While the ABA Directory lists only companies that are members of ABA, it is possible that there may be new companies that are not members of the ABA, but their number is still likely to be extremely small, especially when compared to what is happening internationally, and even when compared to what took place in Australia in the 1980s. In addition, if one considers the companies that were rounded in the 1980's, most are starved for investment.

This lack of activity in generating and developing new businesses is confirmation that the Australian-based industry is suffering from a severe lack of investment. Indeed, one is tempted to assert that Australia is not just performing poorly in biotechnology but that we are in fact in crisis.

Without private investment we all suffer, whether we work in universities, CSIRO or industry. Without private money to invest in public sector research, projects lie dormant, jobs are not created, scientists' career paths remain within the public sector and in the long term we will end up with a net negative trade balance in the industry sectors that are dependent on biotechnology. This depressing economic future is not far off given the large number of high value biotechnology products that are in the late stages of development overseas and that will hit our shores in the next few years.

Australian Opportunities need Support and Promotion

There is therefore a real and urgent need for a

strengthening and promoting of opportunities in Australian biotechnology.

Although Australia has many advantages (eg. well funded and world class public science, access to high growth markets of South East Asia, favourable regulatory climate, positive public attitudes to biotechnology, etc.) we lack some key ingredients, the main ones of which are addressed below.

NEED 1. Commitment by government to knowledge-based industries that are grounded in R&D

Our future is dependent on how well we develop knowledge-based industries. Yet it is not clear at all that the federal government understands this. This is worrying since companies that are innovative and knowledge-based, be they start-ups or existing, including most biotechnology companies, require a high degree of nurturing and patience. Whether we like it or not, in Australia, given the absence of a viable venture capital market and the culturally engrained reluctance of business to invest in such companies, government policy is a vital ingredient in encouraging investment and in contributing to the nurture of new enterprises.

Based on the actions of the government in 1996 industry doubts that the government understands the need to create an environment that is supportive of the setting up and nurturing of knowledge-based enterprises. While it is accepted that the balancing of the budget is important, without a well spelt out vision of what government can and should be doing for industry, any cost cutting measures will ipso facto be quite arbitrary and may in the long run be quite detrimental to balancing the books. Most of the actions of the government in the R & D area in 1996 indicate that they have been focussed on short term costs rather than investment for the future. The main question being asked: will there be a longer term vision that drives good policy?

Without a vision and without a commitment to creating an environment supportive of knowledgebased industry, many opportunities will be lost and Australia will be left behind in terms of world competitiveness.

There are several examples of governments being committed and pro-active in developing their biotechnology industries. Some of these examples are listed in an article in BioWorld Financial Watch and are summarised below:

UK initiatives

The UK government has launched a programme called "Biotechnology Crudsade". Part of this process involves a multi-million pound business education programme, dubbed "Biotechnology means Business", which seeks to help existing industries identify ways biotechnology may make their business activities more efficient and profitable, while possibly creating new markets for the biotech sector. More specifically for entrepreneurs the Department of Trade and Industry is funding a team of financial experts which can help new companies access the most appropriate sources of funds. Most importantly the DTI is committed to ensuring that government departments don't introduce contradictory or conflicting legislation, while pushing for more pragmatic legislation at the EU level.

Germany

DM 900 million has been earmarked by the Research Minister to make Germany a world power in biotechnology. In addition, there are moves to encourage entrepreneurship and build the infrastructure for successful commercialisation of biotechnology, setting the year 2000 as a target date. This involves steps to encourage start-ups.

One specific initiative was a national competition to raise public awareness and to pump money and expertise into the fledgling sector. To encourage efforts to develop and integrate biotech research, development and commercialisation activities within regions, the government offered three DM 50 million prizes.

France

FFr 6 billion has been paid by the French government into the BioAvenir project, which attempts to marry publicly funded research institutes and small independent research firms to the commercial might of Rhone-Poulenc.

In addition, France has always had a very pragmatic approach to regulation which allows for streamlined product development and also creates a favourable and more certain environment for investment.

These are just some examples of governments being committed to promoting and developing a new industry. In Australia, however, we are heading in the opposite direction. The Biotechnology Section, consisting of 5-6 staff, that was a part of DIST was disbanded by the Howard government in 1996. Also lost was a proposed $1 million support programme targeted exclusively to the biotechnology industry that was to contribute to progressive policy development and industry promotion. And, of course, there has been the termination of Syndication and the reduction of the 150 % deductibility for R&D to 125 % that affects all high technology R&D.

While the examples of government initiatives given above may or may not be appropriate for Australia, the main point is that initiatives need to be generated if Australia is not to become a major net importer of the products of biotechnology.

We therefore propose that

    - the government make a positive, whole-ofgovernment political commitment to the future commercialisation of biotechnology. [This is not an attempt to pick winners in the usual sense, but is an acknowledgement that general assistance is required in a broad market/technology sector.]

    - in conjunction with the Australian Biotechnology Association and other relevant bodies, the government fund a detailed analysis of the weaknesses in the biotechnology commercialisation process, and that emanating from this analysis

    - a range of initiatives and specific costed proposals, be they tax based or not, be put to government for rapid approval

In the absence of the results of this more extensive review, we have identifed the following two issues (viz. Financing and Management) as being obvious targets for assistance.

NEED 2 Financing the commercialisation of later stage R&D

Government incentives play vital role in commercialisation

As alluded to above, Australian public investment in R&D ranks close to the average of expenditure by OECD countries. Government expenditure on CSIRO, CRCs, universities, research institutes, basic research granting bodies etc., without being generous, is nonetheless at an essentially acceptable level. However, the country is not seeing the return from this investment to the degree it should because of the failure of the commercialisation process especially at the later stage of R&D. In advanced economies the private sector picks up high technology innovations at this stage, with government incentives playing a key role. Independent expert analysts of the worldwide biotechnology industry see a strong correlation between government attitudes and incentives and economic growth in this high-technology sector.

Commercialisation of R&D still requires support

Hence, Australian industry policy should focus on the stage of development at which there becomes a significant increased demand for investment which will not be met by current and proposed initiatives and which generally is the major disruption point in the commercialisation process. This gap was partly filled by R&D Syndication. The government is to be congratulated on the establishment of the Small Business Innovation Fund and the allocation of $130 million of START money to this fund. However, the commercialisation funding gap still will not be fully bridged and further incentives should be considered. Venture capital is very expensive and tends to invest relatively late in the development process. There are bound to be many worthwhile product opportunities that miss out on support under current and proposed arrangements, ie. there is still a funding gap which disrupts the commercialisation process.

Science and industry policy that overlooks tax issues is not a science and industry policy

Any review of technology funding and support that does not include Treasury is bound to be inadequate and self-limiting from the outset. When the consultations with industry on the possibility of setting up the START scheme were taking place, it was stated that tax schemes and incentives were off-limits as far as the government was concerned. The Stocker review of Science funding also excludes tax issues. For the government to take this ostrichlike position overlooks investment issues that are an integral part of every day decisions in the real world and sends the signal that despite some window dressing the government is not serious about promoting high technology industry.

Therefore, tax-based incentives should be a part of industry policy.

Current capital gains tax structure acts as a disincentive for investment in high technology in favour of old established industries

It is usually the case that investment in an emerging new technology company is made with a view to reaping a capital gain rather than a dividend. From the perspecitve of the investor an investment in shares paying fully flanked dividends had the attraction of significant tax relief. Such dividends are the province of well established companies generating taxable profits. Investment in emerging high technology companies carries inherent risk and the prospect of capital gains taxation at full marginal rates. This combination of tax situations provides a hefty disincentive to high risk technology investmen~

While current capital gains tax measures may be appropriate for traditional areas of investment (eg. property), there should be CGT concessions on the creation of new wealth as a result of investment in high technology ventures. The Tax Department is concerned about foregoing revenue. However, Treasury needs to appreciate that without incentives of this nature there will not be any future revenue to forego because the wealth will not have been created in the first place.

Under the current arrangements, it is hardly surprising that Australia suffers from the funding gap identified elsewhere. Our competitor nations offer much more investor friendly treatment of capital gains. It has been shown in the USA that as capital gains tax rates are changed then venture capital availability moves in the opposite direction.

Small Business Innovation Fund needs careful implementation

With respect to the Small Business Innovation Fund proposal, we understand that approximately six funds are to be set up. We would argue that funds should be specialists in the technology/market sectors in which they are investing and this expertise should be technical and marketing as well as financial. It is most notable in the USA that fund managers really understand the technology that they are investing in and hence can make highly discriminating decisions. Given the high level of public money invested in biotechnology R&D and the extent to which this sector is starved of investment, we believe that biotechnology should rate a high priority under the SBIF.

START scheme limited in scope

The START scheme will have far less impact on commercialization of high technology than was originally hoped for. As mentioned already, it suffers from the major disadvantage of not being integrated into the tax system and will not adequately replace the final "loop-hole tightened" version of the Syndication scheme. In addition, the maximum grant has dropped from $15 million to $4 million after only one round, making the scheme barely distinguishable from the existing scheme that had a $2 million cap. Such sums are not adequate for the later stage development and commercialization projects that the scheme was supposedly meant to support. The size of grants should therefore be increased in recognition of the sizable cost of development.

While we believe it is important that any grant has matching private investment at risk, we consider it counter-productive that this matching cash be required at the time of application. Companies are denied the opportunity to use the grant to leverage additional cash from private sources. Few of the targeted SMEs will be able to meet this grant requirement. The matching private contribution should therefore not be necessary at the time of application but be in place before the draw down of the grant.

In addition, companies should be allowed to contribute tax losses as their matching contribution.

A mechanism that still guarantees private money being put at risk should also be found that would allow government assistance under the START programme of products that are part of research institutes or CRCs since START money is for companies only.

NEED 3 Lack of commercially driven technology managers

Since Australia traditionally has not established industries relevant to biotechnology (eg. pharmaceutical industry), there are very few managers who are well trained in commercial development of high technology products. It is important that a technology project is managed on a commercial and technical basis, not just technical.

Without good managers to underpin the next generation of technology development, it becomes a vicious circle of missed opportunities. We there- fore propose that there should be investment in the education and training of technology managers. Such training should involve support of both academic and on the job training and exposure to overseas technology management.

Position Paper No. 2

Submission on Gene Technology Regulation from the ABA

February, 1997

Preamble

ABA Directors have a unanimous view that a clear path to market should be available for products of biotechnology. Gene technology has been well accepted in the medical field and new medicines employing the technology have been on sale for over a decade. The initial public acceptance of the new approach was aided by Creutfeldt-Jacob disease arising i~n patients treated with protein products of cadaver origin receiving significant publicity about the time the first products of the new technology came to market. A perception of improved product safety arose in the public mind and the introduction of new biotechnology drugs has proceeded with little opposition.

Biotechnology products are now entering new areas and in particular impinging upon the food chain in both animal and plant areas plus micro-organisms used in production of foods. This has engendered a whole new debate which has centered around product safety and labelling. The debate over the introduction of bovine Somatotrophin (bST) by Monsanto for enhanced milk production and now "roundup ready" soybeans has been widely reported. An Australian company destroyed what would have been the first large transgenic animals (pigs) introduced into the world food chain after finding the path to market unclear and littered with possible litigation. A comprehensive legal opinion commissioned by the firm concluded that the animals were definitively pigs and potentially saleable under the prevailing requirements for pigs but their sale might be challenged by ideologically motivated groups on the grounds of being "offensive" under the terms of the food act.

More food products are likely and as commodities like soybeans are genetically engineered, with the resultant product indistinguishable from the non engineered, and widely distributed in the food chain the need for a definitive government position on these products becomes increasingly important.

ABA members have considerable experience with both the technology and the debates which have arisen. We are also direct participants in the Aus- tralian Genetic Manipulation Advisory Committee (GMAC) approach and have seen how the issues are handled in other countries. The general view is that the Australian GMAC sytem has served its purpose well. There has been essentially no abuse of the voluntary nature of the system and one or two oversights have been identified and corrected.

It is doubtful if a compulsory system would have been more successful or engendered a higher level of compliance. Why change it?

The pressure for change is coming from two sources. As products move into the marketplace the companies concerned are seeking relief from potential frivolous litigation such as that foreshadowed in the legal opinion concerning the sale of transgenic pigs. Those opposed to gene technology on non scientific grounds are spuriously raising the spectre of safety, and recruiting consumer organisations to their cause under the banners of safety and choice. The latter issue becomes labelling.

ABA Position

It is the ABA position that the debate should remain firmly focused on safety. Moral and ethical issues must be left out. They involve personal viewpoints and cannot hope to be successfully accomodated in any legislation. As mainstream food commodities like soybeans and sugar come to use gene technology in their production those wishing to avoid the new technology are at liberty to set up specialized production streams such as the existing Halal or organic products which meet specialized requirements. Mainstream food must retain the ability to introduce the best technology if our production is to meet the needs of a growing population at acceptable cost.

GMAC was set up to monitor safety issues related to gene technology. As previously stated it has worked and compliance has been high. Those seeking to introduce new gene technology products are not going to take a conscious decision to ignore GMAC requirements as the potential for adverse publicity is sufficient to seriously undermine any product launch. What is required is for Government to make a simple policy statement along the following lines.

Government has been aware for some years of the important advances in knowledge being made in gene technology and the impact both present and future on a wide range of medical and agricultural products (including food) and environmental systems. Since the mid seventies a voluntary group has operated to monitor gene safety. Since 1988 this group has been known as GMAC and operated under the auspices of the Federal Government. GMAC has proven effective and enjoyed widespread support in the scientific and industrial community. It provides an effective scientific monitoring of the new technology and has done an effective job in protecting the public interest. GMAC formally reports to the responsible Minister annually.

As more products of gene technology come to market the government believes that so long as the high level of compliance enjoyed by GMAC continues there is no need for new legislation designed to provide new rules for the practice of this technology or for special treatment of the products developed from it. Existing consumer protection legislation provides sufficient protection and recourse for the public should unsafe or ineffective products be introduced or environements damaged. The terms of reference of existing agencies such as Australia & New Zealand Food Authority (ANZFA), National Registration Authority (NRA), Environmental Protection Authority (EPA) or Therapeutic Goods Administration (TGA) will be expanded to include products derived from gene technology. These agencies will be responsible for making the final decision to approve the commercialization of products developed by gene technology, using GMAC as their technical advisor.

Products produced using gene technology can be introduced into the Australian marketplace with confidence provided they meet contemporary safety standards as evidenced by GMAC assessment and meet the merchantability requirements which apply to all products. At this time the Government has no evidence to suggest products of gene technology should be treated differently to products produced by other means.

While supporting retention of the GMAC system the ABA submits that this body should retain a science focus and be primarily concerned with safety and environmental issues related to releases. If, for transparency reasons, (which the ABA acknowledges as important) it is necessary to widen the membership of GMAC then it is suggested that observer status rather than full membership be offered to non scientific appointees. Note that ABA members maintaining Institutional Biosafety Committees as part of the GMAC system have had difficulty recruiting the required lay member and finding people who are able to both understand and contribute to discussion of issues.

If Government decides that legislation is necessary and decides to replace GMAC with the compulsory system which has been previously canvassed and referred to as a Gene Technology Authority (GTA) then the ABA has the following concerns. Since there is no scientific evidence to warrant such a body it is essential that its terms of reference be tightly specified to prevent the eventual creation of a large and expensive bureaucracy which intrudes into the biological research fabric of the nation. Inevitably our research and its outcomes will become uncompetitive with other nations. Germany has already experienced such an outcome in the gene technology area and has suffered both economic loss and the migration of technology and business. On the other hand progressive economies such as that in California now enjoy some 20% of their new jobs in the biotechnology arena. Regulation of biotechnology in the USA is science based and managed by their agency equivalents of the TGA, NRA and EPA. Regulation, including labelling, is of the product rather than the process.

Copyright 1997 Australian Biotechnology Association Ltd.

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