Australians can be proud of our innovative medical research, for example, developing penicillin as an antibiotic, the bionic ear, the cervical cancer vaccine, and many others. However, Australia’s expenditure on R&D healthcare as a percentage of GDP is below the OECD average and well below leading nations such as South Korea, Israel, Taiwan, and Japan.

Thankfully, successive governments have introduced financial incentives to encourage medical research from both local and international companies. While originally piecemeal, these are coming together as a cohesive platform. 

Existing government incentives include the R&D tax incentive (RDTI), the Medical Research Commercialisation Fund (MRCF), the $20 billion Medical Research Future Fund, and the $1.3 billion Modern Manufacturing Initiative (MMI), which nominated medical products as one of six manufacturing priorities. With $700 million under management and both private and governmental investors, the MRCF is Australia’s largest life sciences investment fund.

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Following beneficial reforms to the R&D tax incentives (RDTI), which took effect on 1 July 2021, small companies are eligible for a rebate, allowing them to claim up to 43.5 per cent of the costs relating to research and development. The rebate may exceed the tax they pay. Larger companies may claim a tax refund of up to 38.5 per cent of R&D costs. 

Patent box

The latest piece of the puzzle is the patent box proposal, which provides for a lower tax rate for income derived from medical patents. The bill is currently before Parliament.

It is an Australian government initiative designed to encourage investment in medical and biotechnology innovation in Australia. Assuming the proposal passes into law, then from 1 July 2022, income derived from Australian medical and biotech patents will be taxed at a concessional corporate tax rate of 17 per cent, rather than the usual 30 per cent tax rate for large companies. There will likely also need to be substantive IP development activities in Australia to take advantage of the patent box. Combined with the RDTI, the patent box will provide an additional incentive to have IP ownership and substantive IP development activities in Australia.

Multinational companies will view the patent box as an incentive to not only undertake R&D activities in Australia and claim the RDTI, but to also own and commercialise the results of the R&D activities in Australia. The two incentives, acting in tandem, will strongly encourage foreign investment in healthcare R&D, and to go beyond R&D to manufacturing and sales activities.

The 17 per cent tax rate is low enough to be attractive. While it is higher than available rates in some countries, it compares favourably to the USA. Under current law, corporations in the United States pay federal corporate income taxes levied at a 21 per cent rate plus state corporate taxes that range from zero to 11.5 per cent, resulting in a combined average top tax rate of 25.8 per cent in 2021.

Clinical trials

The implementation of clinical trials is a fast-growing sector in Australia. Unfortunately, one difficulty with the Australian regulatory system is that each Australian state operates its own clinical trial system. At a recent webinar directed to US companies, representatives from each of NSW, Victoria, and Queensland were in competition, trying to entice US companies to conduct the trials in their state. Each state runs different approval systems. This is competitive federalism to the extreme.

We need harmonisation. Australian states need to move to one system with one entry portal. Otherwise, we risk losing the growth in clinical trials which we currently have obtained. The Australian states should recognise that we’re competing with other countries such as Singapore and South Korea, not other states.

Telehealth

Over the past two years, we’ve seen the easing of Australian regulation to allow both pharmaceutical scripts and doctor consultations to be delivered remotely. Telehealth was fast-tracked as a result of the pandemic and has resulted in more than 86 million telephone and video consultations since it was introduced in 2020, with $4.4 billion in Medicare benefits paid. In December 2021, the federal government announced that it would invest over $100 million over four years to support telehealth services. With developments in technology, digital transformation will unlock the benefits of remote care: timelier for patients; reduced hospitalisation; and a decrease in the burden on healthcare providers. This will allow people living in remote and rural Australia access to the best medical care, some of it delivered remotely.

The way forward would be a hybrid model, with a mix of remote and in-person care. Telehealth needs to be extended beyond consultations. We need to get to the point where healthcare services are delivered remotely to in person in their home, with a nurse or paramedic in physical attendance if necessary.

Patient data

Another key area is the need for patient data to be pooled, so medical researchers can identify patterns in the data. This assists researchers in developing methods to predict or diagnose illness, and leads to improvements in clinical care. For example, after the ban in Scotland in 2006 on smoking in public places, data on new births were pooled. From an analysis of the data, researchers identified that the smoking ban resulted in fewer premature births. Subsequently, the smoking ban was extended across the UK.

In Australia, much patient data is locked in silos and not pooled or shared with researchers. Data may be held in hospital records or in GP records and not released.

In the USA, under the Health Insurance Portability and Accountability Act (HIPAA), healthcare organisations are able to sell or give patient data to researchers, provided they de-identify the records. They don’t need patient consent to do so.

Australian healthcare organisations should be encouraged to sell or give patient data to researchers, but to do so with sufficient safeguards so as to protect patient privacy.

In 2022, the healthcare sector shows real promise in the areas of medical research, clinical trials, telehealth, and the unlocking of patient data. Growth in all of these sectors can be enhanced by judicious government decision making in an election year.

Ben McLaughlin is a partner at Baker McKenzie.