Support for innovation - real or rhetoric?

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The Turnbull government's approach to innovation will be tested in the months ahead. Is it real or just rhetoric?

Malcolm Turnbull replaced Tony Abbott as prime minister in 2015 and actively promoted 'innovation' as fundamental to Australia's future prosperity.

"...we all understand that our future prosperity depends on us being more productive and more competitive, more technologically sophisticated perhaps above all more innovative in the years ahead, that is clear," he told a meeting of ‘Economic Leaders’ convened by his new government in October 2015.

Medical innovation has consistently been at the centre of government's policy focus, certainly its rhetoric, with both the prime minister, his health and innovation ministers, positioning it as central to its own strategic agenda.

As recent as yesterday, industry and innovation minister Senator Arthur Sinodinos used question time to spruik the importance of investment in science and research.

"We have had a sustained period of economic growth in the last 25 years, which has delivered jobs and improved living standards. On average we enjoy some of the longest lives, best quality services and most liveable communities in the world. But as we look forward to 2030 considerable changes await. It is essential we invigorate our growing markets if we are to have a prosperous future. Our science and research capability is core to that prosperity," he said.

Health minister Greg Hunt is also being vocal in highlighting the importance of health and medical research.

The government also has the Medical Research Future Fund already making distributions - its first was the $250 million Biomedical Translation Fund.

Yet the extent of its commitment to innovation might be tested in the coming months.

It will officially respond to the review of the R&D Tax Incentive and the Productivity Commission's report on intellectual property.

The review of the popular R&D Tax Incentive recommended changes to the program. The one of most concern to the sector is the proposed $2 million cap on annual cash claims.

One of the primary advantages of the R&D Tax Incentive is that it provides non-diluting capital to small and medium enterprises.

This is a significant benefit to companies in the life sciences sector because of very long pre-revenue product development timelines. The need to raise capital to fund the high-cost development process, often through premature public offerings, can risk undermining the financial sustainability of companies and dilute the investment of early shareholders, who can often be the scientists responsible for the original innovation.

The R&D Tax Incentive provides cash, reflecting significant upfront investment in R&D, which helps address the unique circumstances of early stage life science companies.

Every organisation supporting the research-based sector, notably Medicines Australia and AusBiotech, have warned against the proposed cap. They believe it will have a devastating impact on the sector and the innovation eco-system, threatening investment in early stage companies and clinical trials, ultimately undermining government's wider policy agenda.

Most believe the truth behind the proposed cap is a savings target. More will probably be revealed in the May Budget, but the signs are not good, and the obvious point to make is government's commitment to Budget repair might trump its commitment to innovation.

The Productivity Commission's report on intellectual property poses a different but equally significant challenge.

Its recommendations to make wholesale changes to pharmaceutical patent law, particularly patent term extensions, arguably threatens Australia's global standing when it comes to intellectual property - a point made by the US Chamber of Commerce last week.

The patent term extension was introduced to compensate companies for the incredibly long drug development process largely driven by the demands of national regulators. The Productivity Commission is recommending a narrower interpretation of what constitutes regulatory delay, limiting it to the actual approval process.

It is almost inconceivable an Australian government of any political persuasion would proceed with the recommendation. In the eyes of the US it would almost certainly breach Australia's obligations under their bilateral trade agreement, triggering a retaliatory but entirely predictable response, and could have implications for any future trade agreement with a post-BREXIT UK.

Any decision to even countenance the recommendation, let alone adopt it, would along with proposed changes to the R&D Tax Incentive send the a very clear signal on the true extent of the Turnbull government’s support for pharmaceutical innovation.