Listed medical device makers Cochlear and ResMed are preparing to pump more money into research, in a bid to expand their footprints in key markets, one year on from the start of the coronavirus pandemic.
Cochlear, the $12 billion hearing implant maker, spent $185 million (14 per cent of sales revenue) on research and development last year and that dollar figure is going up, according to chief executive Dig Howitt.
Cochlear chief executive Dig Howitt says R&D will increase in the coming year. Credit:Rhett Wyman
“In 2021/22 we intend to increase our investment in R&D compared to 2020/21.”
Meanwhile, ResMed’s chief financial officer Brett Sandercock says the ventilator maker is also increasing its research expenditure each year. The company secured a win after the October federal budget revealed the government had committed $2 billion to the research and development tax incentive scheme and rolled back controversial plans to cap some offsets.
Biotech companies of all sizes had long resisted the government’s plan to “retarget” the incentives scheme, including stricter caps on refunds and offsets. When they simplified these changes in the October budget, it resulted in billions flowing back into the system and companies like ResMed believe they will benefit.
“Under the new rules, ResMed will benefit from an incremental tax offset of 16.5c per additional dollar spent on R&D – up from 8.5c under the prior rules,” Mr Sandercock said. ResMed has long argued that changes to the incentives will boost Australia’s competitiveness on a global scale.
“Now more than ever, Australia needs to be seen as an attractive place for international businesses to invest.”
Cochlear had also lobbied hard for a rethink of the federal government’s research and development tax offsets scheme.
Mr Howitt said the change in caps for eligible expenditure will lead to Cochlear getting increased rebates once those changes come through.
“We will invest this rebate in growing the business,” he said.
Chief executive of lobby group AusBiotech, Lorraine Chiriou, said uncertainty over the research offsets policy in recent years has tempered enthusiasm for investments.
“All Australians – from bench, to business, to bedside – will benefit when this declining trajectory is reversed. Supporting [research] supports the country’s overall GDP, and will facilitate an environment that encourages businesses to invest in additional R&D to retain and grow Australian innovation,” she said.
Investors and industry experts says the Australian government should also brace for an increase in research and development tax incentive claims over the next two years as research investment and pent-up demand from trials paused throughout the pandemic leads to a boost in projects.
Managing partner of Australian venture capital firm OneVentures, Dr Paul Kelly, believes policymakers should be preparing for an increase in claims for offsets from biotech companies in the coming years.
“There have been delays in clinical trials, including across borders. There is going to be significant catch-up in 2021-2022,” he said.
When considering the price tag of that research to governments, however, the flow-on effects of this research have to be considered, he said.
“That substantial increase is also funding jobs and increasing expertise. The contract research organisations are really doing very well out of this.”
Prime Minister Scott Morrison at the University of Queensland. Medical research has been front and centre throughout the COVID-19 pandemic. Credit:Darren England/AAP (pool)
In the 2020 financial year, reported spending across the top 10 ASX-listed companies by market cap was $1.9 billion, up from $1.7 billion in 2019.
This is led by blood plasma giant CSL, which spent $US921.8 million ($1.3 billion) in 2020. CSL, which has a broad pipeline of research projects including its work on coronavirus treatments, told investors last year it expects to spend between 10 and 11 per cent of its revenues on R&D into the next year.
Australia’s research and development incentives scheme has also proved critical for small cap biotechs and unlisted firms, because many are yet to generate any revenue and receive direct refunds or cash offsets for their spending.
For businesses in the commercialisation stage, these refunds ticked upwards in 2020. COVID nasal spray developer Starpharma received a $5.7 million refund for costs over the past financial year, up from $4.9 million the year prior.
Cancer imaging startup Telix Pharmaceuticals reported a $5.8 million offset for the half, up from $5.3 million the same time last year.
Cash has been splashed throughout 2020 in hopes that Australia’s medical research prowess can help power the post-COVID economic recovery, particularly in Sydney and Melbourne.
When asked whether there will be greater scrutiny over research tax claims amid as R&D accelerates, a spokesman for the department of industry, science, energy and resources said the onus was on companies to ensure any claims they made were for genuine research activities.
“The department will continue to take a risk-based approach to reviewing applications and may examine registrations to ensure they comply with the eligibility requirements of the program, in line with standard practice,” they said in a statement.
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