PERTH, Australia – Industry stakeholders praised Australia's federal budget for 2018-2019, released late last week, because the government said it was seeing results from investments pumped into the medical technology and pharmaceuticals sector, and it will continue to invest more.

"The Australian economy is now pulling out of one of the toughest periods we have faced in generations," said Treasurer Scott Morrison in presenting the budget.

"During this difficult time, the government has been working to strengthen the Australian economy and get the budget back on track. And we've been making real progress."

Officials released a new 21st century medical industry plan that will "create more jobs in this fast-growing sector of our economy," Morrison added. "The health sector represents 7 percent of our economy and 14 percent of jobs.

"Our plan will provide more support for medical research projects, new diagnostic tools, clinical trials of new drugs, scientific collaboration, and development of new medical technologies that can be sold overseas.

"In particular, we will back Australian medical scientists through the largest single investment of the Medical Research Future Fund to date of A$500 million [US$376.8 million] over 10 years for Australia to become a world leader in genomic research."

MTPConnect, the Australian Government Industry Growth Centre for the medical technology, biotechnology and pharmaceutical (MTP) sector said it welcomed the government's targeted focus on economic growth to drive ongoing innovation, research translation, industry-research collaboration and commercialization in the Australian MTP sector.

MTPConnect CEO Sue MacLeman said that the budget provides welcome reforms and support for the MTP sector.

The government has delivered investment of A$2.4 billion in growing Australia's research science capability, and an additional A$1.9 billion in Australia's national research infrastructure over 12 years to ensure the country has the tools to develop and commercialize first-to-market products.

A total of A$20 million was slated to help local and regional small and medium-sized enterprises (SMEs) work together in Export Hubs that will enable access to export markets and global supply chains, working directly with the Industry Growth Centers to deliver high impact in international markets.

A critical announcement for the MTP sector relates to the reforms of the R&D Tax Incentive (RDTI). Those reforms are designed to encourage additional investment in R&D and ensure RDTI long-term sustainability.

Clinical trials exempted from R&D tax cap

Although industry was wary of the government's plan to dismantle the RDTI, the resulting policy leaves the clinical trials sector exempt from a A$4 million annual cap placed on the RDTI.

The federal budget unveiled a comprehensive plan for "better targeting the research and development tax incentive," including a coupling of the incentive to each company's tax rate, and for larger companies, a graduating reward premium for higher intensity and an increased cap.

AusBiotech said it was relieved by the government's careful approach to imposing a much-feared annual cap, with the exemption of clinical trials from the A$4 million cap on the annual refundable amount a welcome development.

"AusBiotech welcomes the recognition of the critical role that R&D expenditure plays in clinical trials for developing life-changing and saving medicines and medical devices. By exempting clinical trials from a A$4 million cap and encouraging higher intensity in R&D, Australia will keep its hard-won momentum in clinical trials and continue its growth in commercializing medical research," AusBiotech CEO Glenn Cross said.

Oneventures Managing Partner Anne-Marie Birkill said the firm was a strong advocate for the R&D tax incentive, because it provides much-needed funding to research-intensive companies to ensure they achieve their R&D objectives.

"We have many examples of companies that have continued to undertake R&D in Australia rather than moving to less expensive jurisdictions because the R&D tax incentive makes undertaking R&D in Australia economically viable," she said.

"Ideally, we would prefer there was no cap for research-intensive companies; however, we are realists and understand the government cannot have an uncapped and ever-expanding obligation."

R&D tax incentive overhaul

Part of the RDTI overhaul will focus on improving integrity of the program by ensuring that ineligible R&D claims are denied, while at the same time refocusing support for larger companies undertaking additional, higher intensity R&D.

Beginning July 1, the government will introduce a A$4 million annual cap on cash refunds for R&D claimants with aggregated annual turnover less than A$20 million.

A new R&D premium will be awarded to companies with annual turnover of A$20 million or more to provide higher rates of R&D support for higher R&D intensity. The R&D premium will provide multiple rates of nonrefundable R&D tax offsets, increasing with the intensity of the company's incremental R&D expenditure.

That premium was developed to provide stronger incentives for larger companies to increase their overall R&D intensity in Australia. To that end, the A$100 million R&D expenditure threshold will be bumped up to A$150 million, allowing larger companies to continue to be rewarded for additional R&D.

The health numbers

The 2018 budget increases health spending by A$12.4 billion to A$78.8 billion, which is roughly 16 percent of the total A$488.6 billion budget.

The health budget slates A$6 billion for Australia's health and medical research sector, including A$3.5 billion for the National Health and Medical Research Council, A$2 billion from the Medical Research Future Fund and A$500 million from the Biomedical Translation Fund.

A 21st Century Medical Industry Growth Plan will deliver A$1.3 billion to support Australia as a global health industry leader in medical technology, biotechnology and pharmaceuticals. The Growth Plan includes a 10-year A$500 million commitment to the Genomics Health Futures Mission that will help tailor treatments for patients.

The first genomics project will provide A$20 million for a pre-conception screening trial for rare and debilitating birth disorders including spinal muscular atrophy, fragile X and cystic fibrosis.

$1.4 billion for PBS listings

Medicines Australia, the association that represents multinational pharma companies operating in Australia, said that it welcomed the announcement of A$1.4 billion for the listing of innovative medicines on the Pharmaceutical Benefits Scheme (PBS), and the commitment to list all new medicines recommended by the Pharmaceutical Benefits Advisory Committee.

New PBS listings include a A$703.6 million subsidy for Novartis AG's Kisqali (ribociclib) for metastatic breast cancer. Without the subsidy, patients would pay A$71,820 per year.

Biogen Inc.'s Spinraza (nusinersen) will also be listed on the PBS for spinal muscular atrophy. Without the PBS subsidy, patients would pay more than A$367,850 per year.

Those new listings mean patients will have access to those medicines, paying a maximum of A$39.50 per prescription.