CSL calls on Morrison government for R&D stimulus reforms

Health giant CSL has called on the Morrison government to deliver consistent research and development incentives.

CSL spends about $1bn a year on drug trials to build its pipeline of blockbuster products.

Australia’s biggest health company, CSL, has called on the Morrison government to deliver consistent research and development incentives after four years of policy review and legislation that is yet to pass parliament.

CSL spends about $1bn a year on drug trials to build its pipeline of blockbuster products, and chief executive Paul Perreault says that investment will continue.

However, Mr Perreault said smaller, fledgling biotechs needed all the help they could get, particularly a consistent regulatory framework around research and development tax incentives.

“We are expanding our R&D presence here in Australia regardless of what the tax incentives are because it’s the right thing to do for the business, and globally we are investing more in R&D,” Mr Perreault told The Australian. “But the smaller biotechs that need assistance can ­really benefit from government policy being sustained.”

The Morrison government partially delivered R&D reform, raising the cap on eligible R&D expenditure from $100m to $150m late last year.

Federal Government R&D tax benefit

Mr Perreault welcomed that move, saying CSL would be “slightly better off”. But he said the calculation of R&D intensity in the draft legislation, which is now before the Senate, was not optimal because it included cost of goods sold in the definition of total expenditure.

This, Mr Perreault said, would produce inequitable outcomes, particularly for companies like CSL that did their R&D and manufacturing in Australia versus companies that only carried out R&D in Australia and manufactured overseas, so did not have high raw material or production costs.

“We want to achieve maximum intensity because of that incentive because we have large manufacturing outlays in Australia as well as the rest of the world. We have relayed to the government very clearly that the ­intensity formula is probably not optimal to the industry but, after four years of uncertainty, we ­really need regulatory certainty and we look forward to seeing the legislation being passed. That’s what we’re really after.”

Listed hearing implant maker Cochlear — which spends about 12 per cent of its annual revenue on R&D each year — backed the stand.

Chief operating officer Brent Cubis said the definition of “total expenditure” needed to be clarified or made more specific.

“Cochlear is aware of and recognises concern from other businesses that including costs of goods sold as part of total expenditure may lead to inequitable outcomes,” Mr Cubis said in a submission to the draft legislation on behalf of Cochlear.

“A business carrying out manufacturing as well as R&D in Australia would likely return a lower intensity ratio compared to a tech or software business spending the same amount on R&D but with significantly lower raw material and production costs and therefore likely lower proportional total expenditure.”

Global pharmaceutical giant GlaxoSmithKline, which spent $60m expanding its biggest Australian factory in Boronia, Melbourne, said the definition could be a disincentive to manufacturing in Australia. “There is a high cost base involved with advanced manufacturing. As a result, GSK has higher levels of annual expenditure in Australia than other companies that also conduct R&D in Australia, without a manufacturing presence.”