R&D Tax Credit will boost small biotechs

The long awaited R&D Tax Credit will give a crucial boost to small innovative Australian biotechnology companies, says Karen Sinclair, Immediate Past President at Licensing Executives Society in Australia & New Zealand (LESANZ).

“The Bill has the potential to reinvigorate the microcap end of the market,” Sinclair told ALS. “It gives more certainty to that end of the market.”

As big pharma is struggling to adapt to the changing market, with blockbuster drugs falling out of patent protection and their own internal R&D failing to provide replacements, Australian biotechs are well placed to develop the next generation of drugs that will be snapped up by hungry pharmaceutical companies.

According to Sinclair, the R&D Tax Credit gives smaller biotechs the boost they need to invest in risky research and development to produce that next generation of products.

“It should provide opportunities for smaller biotechs to fill that pipeline.”

One of the provisions that will particularly aid smaller biotechs is the quarterly payments of the credit, which is set to begin in 2014.

“Cash flow so significant,” said Sinclair. “Innovative biotechs have been struggling with funding. To know that the Tax Credit is a quarterly payment instead of waiting all year will be enormously valuable.”

However, the Bill isn’t without its shortcomings.

“While there’s a very big plus around the quarterly payment of the credit, a possible minus of is the exclusion of experimental developments from the definition of what is going to be eligible.”

According to Sinclair, there is still some uncertainty over precisely what kinds of research will be covered by the Tax Credit, and how terms like “dominant purpose” will be defined. “There’s still a lot of room for bureaucrats to cause grief.”

Overall, though, the announcement that the R&D Tax Credit will take effect from 1 July 2011 is good news for biotechs, says Sinclair. “It’s really great that its going through.”

The Bill was introduced announced in 2009, but took until Wednesday to get sufficient crossbench support to drive it through the Senate, which it is expected to do in August this year.