Australia's Life Sciences innovation rating

By Stuart Roberts, Senior Analyst, stuart@ndfresearch.com, +61 447 247 909 (October 2017)

In Life Sciences, governments often play a key supportive role. Our basic belief is that the Life Sciences sector of a country lives or dies primarily on the quality of its entrepreneurs and the companies they build. We don't believe that governments can create a Gilead, an Amgen, a Celgene or a Shire. However, the relatively short history of the Life Science industry has shown, again and again, that government support is vital to creating the conditions in which such companies can start, get funding, and prosper. Governments have traditionally supported the Life Sciences sector in their country in a variety of ways, such as:

Funding basic research;
Encouraging investment via tax incentives;
Providing a regulatory framework that ensures the high quality of the products;
Building infrastructure which emerging companies can use.

The US has been a pioneer of supportive public policy for the Life Sciences. The early history of biotech in the United States showed the world that government had a positive role to play in turning medical science into industry. Specifically, it was three pieces of Federal legislation that kick-started commercial biotech in America:

The Bayh-Dole Act of 1980. For many decades the US Federal government had provided significant funding for basic medical research through the National Institutes of Health as well as other agencies. Bayh-Dole, signed into law by President Jimmy Carter in the dying days of his Presidency, allowed the recipients of such Federal funding to retain the title to any patents that the research generated. This radical piece of legislation, coming as it did only around six months after biotech patenting was found to be Constitutional in Diamond v. Chakrabarty, signaled to a new generation of would-be American bio-entrepreneurs and bio-investors that their country was open for business.
The Orphan Drug Act of 1983. By providing incentives for the development of drugs for rare diseases, this Act made it easier for the companies which Bayh-Dole had helped to start - companies like Amgen and Genzyme - to get their products on to the market.
The Waxman-Hatch Act of 1984. This remarkable piece of legislation single-handedly created the US generic drug industry at the same time as it established certainty around the duration of market exclusivity which new drugs would enjoy.

Subsequent legislative developments in America, such as the Prescription Drug User Fee Act of 1992, the Food and Drug Administration Modernization Act of 1997, the GAIN Act of 2012 or the 21st Century Cures Act of 2016, have all provided regulatory or funding mechanisms favourable to the continued growth of the vibrant US Life Sciences scene.

Since the 1990s, many other countries have engaged in Life Sciences public policy innovation. America's success in creating new life saving products, not to mention new high-paying jobs, encouraged many other countries to look at ways to foster their own Life Science sectors. The result has sometimes been policies radically different to those of the US. We think, for example, of the Israeli government's creation, virtually from scratch, of a venture capital market in the 1990s, or Japan's recent reforms that allow regenerative medicine products to gain approval after Phase 2. We believe that such public policy experimentation has been good for the sector worldwide, by providing governments and industry leaders with alternative models to follow, and by showing that the Life Sciences need not be simply an American phenomenon.

Having a high level of economic freedom should be an important Life Sciences public policy goal. Generally speaking, the higher the level of economic freedom in a country, the more likely it is to be an active player in the biotech and medical device field. That's because economic freedom makes it easier for people and capital to enter new industries, and the longer a country has enjoyed a high level of economic freedom, the more likely it is that the country will have a pool of talented entrepreneurs and financiers. It's no surprise that the biotech industry was born in the United States, which has always ranked high on economic freedom, so that all it required to get the industry started was a favourable regulatory framework via the acts of Congress noted above.

The best public policy measures are the indirect ones. Governments are generally not good at 'picking winners'. We argue, therefore, that the best policy measures are those which use other people's money and talent. When Ireland and Singapore attract pharma companies into their respective countries, initially just to make drug raw materials, those pharmas tend to bring skills and ideas with them, which the government didn't have to pay for, but which have the potential to create the next generation of home grown pharmas.

Australia's governments have been somewhat supportive of the country's emerging Life Sciences sector. Australia's Federal government supports basic medical research through the Commonwealth Scientific and Industrial Research Organisation (CSIRO), as well as through the significant funding which maintains a world-class network of universities. Since the 1980s the government has also adopted various policy initiatives helpful to commercial biotech and medical device companies:

The government's R&D Tax Incentive, first introduced in 1985, provides a cash refund or tax deduction to eligible firms undertaking R&D. Currently this Incentive currently takes the form of a 43.5% tax offset for businesses with an aggregate turnover of less than A$20m, available as a cash rebate if the business is in losses.
Biotech and medical device companies often benefit from small 'linkage grants' issued by a Federal government agency called the Australian Research Council.
Recently the Federal government has established the Biomedical Translation Fund with more than A$500m in assets, half of which came from the government matched by private sector investors. This fund is being used to invest in the early-stage commercialisation efforts.

While it's pleasing that there are some government support mechanisms for biotech in Australia, we don't believe this regime particularly distinguishes Australia from the dozens of countries it competes with, which are more actively building their Life Science capability.

We believe Australia's public policy support of Life Sciences could improve. We ranked a cross-section of 23 of the major countries involved in Life Sciences globally - Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Ireland, Israel, Japan, South Korea, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, Taiwan, the UK and the US. Our ranking is based on what we think each government's commitment is to the Life Sciences sector, giving each country a score out of 100. Australia comes roughly mid-range on our metrics. We believe there are at least seven initiatives the Australian government can take to strengthen the sector, including:

Establishing a 'Patent Box' system as in the UK (see below);
Investing in infrastructure, such as dedicated co-working spaces for biotech and medical device companies, as well as wet lab space for use by startups;
Expanding the 'Compassionate Use' system for experimental drugs and medical devices, with increasing use of accelerated approval by the Therapeutic Goods Administration;
Expediting immigration reviews, and providing income tax incentives, when bringing skilled Life Sciences talent to Australia;
Funding AusBiotech as a recognised peak industry body;
Supplementing investment in early-stage medical device development, where Australia has shown special expertise through success stories such as Cochlear and ResMed.
Extending programmes like the Biomedical Translation Fund so there is not only more VC money, but a diversity of VC players, something Yozma was able to achieve in the 1990s though its daring provision of risk guarantees.

Feedback? Please get in touch. There are many ways in which to judge the quality of public policy in Life Sciences. We haven't seen any other efforts to date to rank countries on such policies. Please let us know anything you think we’ve overlooked or wrongly evaluated.

The Life Sciences Public Policy League Table

Rank	Country	NDF Research Policy score	Comment
1	South Korea	76	The government of President Moon Jae-In recently announced a plan for the seven years to 2026 that will see US$450m invested in the sector and the government form a US$900m fund for new drug development.
2	Sweden	72	Every four years Sweden presents a research policy bill that generally increases the government's level of R&D investment. Vinnova, the Swedish government agency that administers state funding for R&D, has medicine and bioscience as one of three strategic focuses. Sweden provides 25% percent reduction of taxable income for foreign key employees.
3	Switzerland	72	Switzerland relies on the fact that it has a very free economy and therefore is an attractive place to do business. That said, the Swiss National Science Foundation is mandated by the Swiss Federal Government to support basic research.
4	Israel	70	Israels' creation of Yozma (the word means 'initiative' in Hebrew) in 1993 gave the country ample VC funding to build a biotech sector. Yozma, in effect a 'fund of funds', used US$100m to establish ten venture capital funds where the Israeli government contributed up to 40% of the total capital investment. The rest came from foreign investors attracted by risk guarantees. Aside from VC money, Israel's biotech and medical device sector also benefits from the National Authority for Innovation, which invests US$400 p.a. in grants, incubators and other programs.
5	Japan	70	The government of Shinzo Abe has invested heavily in medical research, with initiatives such as the establishment of an Agency for Medical Research and Development (Japan's version of the NIH). A key plank in 'Abenomics' has been the promotion of regenerative medicine, with changes to drug regulation now allowing qualifying products to be approved at the end of Phase 2.
6	Finland	68	Finland's Research and Innovation Council, which is chaired by the Prime Minister, formulates innovation policy, with much of the research budget going out via Tekes, the Finnish Funding Agency for Technology and Innovation, as well as via the Academy of Finland, in open, competitive schemes. The strength of Tekes is that it finances R&D projects as well as projects in universities and research institutes. Finland national innovation fund, called Sitra, also invests in biotech.
7	Denmark	67	Denmark's Agency for Science, Technology and Innovation funds biotech research in the country, however the real strength of Denmark for Life Sciences in terms of public policy is a high levels of overall government effectiveness. That has made Medicon Valley one of the most attractive clusters in the world for Life Sciences.
8	United States	67	As we noted above, the US has traditionally provided incentives for drug and medical device developers through regulatory settings, while still maintaining the huge budget of the NIH. A classic case of regulatory encouragement was the Affordable Care Act in 2010. That Act may have been intended to provide universal healthcare, but it alsoextended patent protection for new biologics in return for creating the system that now governs approval of biosimilars.
9	Austria	64	The Austrian government has invested heavily in establishing Vienna has a Life Sciences hub, leveraging off that city's heritage of medical research. The focus here has mainly been research infrastructure. Austria has historically lagged in terms of creating new biotech companies, but a recent government initiative aimed at universities and research institutions called 'Spin-Off Austria' may change that.
10	Singapore	63	Singapore already has a very free economy, but the Singapore government has also chosen to invest heavily in Life Sciences infrastructure such as the Biopolis science park and various new research centres. It has also used the tax system to encourage Big Pharma to move to the City-State. The government funds basic research heavily through A*STAR, the Agency for Science, Technology and Research.
11	Germany	63	Germany's Federal government provides significant funding for medical research, in the order of €4.5bn p.a. The German state governments also offer R&D funding programs through their business development banks.
12	Taiwan	60	The Taiwanese government has been actively encouraging the development of the local biotechnology industry since 2007, proving investment credits, a framework on 'cross-strait co-operation' on drug and medical device development with mainland China, measures to encourage spin-outs from research institutes, among other measures.
13	Belgium	60	Belgium funds biotech at both the Federal level as well as via regional bodies such as Flanders Innovation & Entrepreneurship (VLAIO).
14	Netherlands	58	Three initiatives of the Dutch government have been important for encouraging the biotech sector - the WBSO (a reduction in payroll tax payable on R&D-related salaries), the RDA (deductions in income tax/corporation tax amounting to 60% of R&D costs) and the Innovation Box (reduction of corporate tax to just 5% on products developed using WBSO).
15	Australia	57	See our comments above.
16	France	56	France's Research Tax Credit system has helped fund biotech since 1983. In 2005 France started up a National Research Agency with a mandate to fund research projects not just in public research organisations and universities but also private companies. In 2009 a dedicated fund for biotech companies called InnoBio was created.
17	Canada	55	The Federal Government's Scientific Research and Experimental Development program (SR&ED) provides billions in R&D funding to companies large and small. A more recent initiative is the Innovative Superclusters Initiative, providing C$950m to direct support to small number of industry-led consortia over five years.
18	Norway	55	Norway is using its oil wealth to get the country ready for a more sustainable economy after the Norwegian Continental Shelf runs dry in, maybe, the 2060s. Innovation Norway, a state-owned company and national development bank, and the Research Council of Norway, a chief advisory body for the government on research policy issues, have channeled some of the oil money into biotech.
19	China	52	China's world class universities have created the talent and ideas, and the booming economy has created the capital, and now biotech and medical devices are regarded as priority sectors by the Chinese government. So far the government's main role has been to provide incentives such as dedicated regional biotech zones.
20	Ireland	51	Ireland's modern pharmaceutical industry was more or less built on the country's having one of the world’s lowest rates of corporate tax. Substantial investments in the last decade or so have come from companies as varied as Alexion, Bristol-Myers Squibb and Sanofi-Genzyme. The government recently established the National Institute for Bioprocessing Research and Training in order to maintain a skilled workforce.
21	UK	51	The UK provides R&D tax credits to companies, as well as an Enterprise Investment Scheme and a Seed Enterprise Investment Scheme that offer generous tax relief to individual investors. Like the Netherlands, it has a Patent Box regime that provides a reduction of corporate tax for income from patents, this one to 10%.
22	New Zealand	50	The New Zealand Venture Investment Fund, which invests in NZ tech companies alongside VC funds and angel investors, was broadly modeled after Israel's Yozma. The New Zealand government funds early stage companies through an agency called Callaghan Innovation, and funds basic research through various 'Crown Research Institutes' such as AgResearch.
23	Spain	47	Both national and regional governments fund biotech in Spain, with important agencies including Catalonia's ACCIO (Agency for Business Competitiveness) and the national government's CDTI (Centre for the Development of Industrial Technology), ENISA (Spanish National Innovation Company) and MINECO (the Ministry of Economy and Competitiveness).

Our methodology. We created a composite score out of 100 for each company in the above list, it which 20% reflected the level of Economic Freedom in the country (as per the Heritage Foundation rankings); 35% reflected the estimated effectiveness of the higher education, healthcare, and telecommunications sectors of the country (all being areas of national government responsibility and all having a bearing on the resources available to the he Life Sciences sector) as well as the quality-of-life in that country; and 45% reflected the estimated contribution of specific government initiatives to the level of R&D spending in the country. For each sub-measure the top-rated country was given a score of 100.