Biotechnology companies and generic pharmaceuticals are the winners and celebrities are the Biggest Losers in some intellectual property-related measures in last night’s Australian Federal Budget.  Below, we set out the three key areas of interest from our first reading.

Swap it! Boost for generic and biosimilar awareness campaigns

The Budget will fund measures to increase the use of generic and biosimilar medicines; including the provision of over $5.0 million over three years from 2017‑18 to continue the biosimilar medicines awareness campaign established as part of the Pharmaceutical Benefits Scheme Access and Sustainability Package announced in May 2015. The Biosimilar Awareness Initiative, part of the Package, aims to support awareness of, and confidence in, the use of biosimilar medicines for healthcare professionals and consumers.

What these “measures” are remains to be seen, although the Government (supported by the TGA) continues to encourage the uptake and PBS substitution of biosimilar medicines to encourage PBS price reductions to assist in managing PBS expenditure

The Government estimates that the increased use of generic and biosimilar medicines will lead to a reduction in costs of $335.8 million over five years and says that saving will be redirected by the Government to fund “health policy priorities”.

“I’m a Celebrity Get Me Out of Here”: taxation and IP licensing changes for high profile individuals

Taxation change will see “high profile individuals” (actors, sportspeople, Sophie Monk) no longer able to take advantage of lower tax rates by licensing their fame or image to another entity.

At present, celebrities can licence the IP surrounding their likeness, fame and image to a separate entity, such as a trust – and the income from the use of their fame and image instead goes to the entity holding the licence.

In the words of the Budget itself:

“This creates opportunities to take advantage of different tax treatments and facilitates misreporting and incorrect tax outcomes … [the] measure will ensure that all remuneration (including payments and non-cash benefits) provided for the commercial exploitation of a person’s fame or image will be included in the assessable income of that individual … “

While the Budget papers describe the budget benefits of this measure as “unquantifiable”, at IP Whiteboard we expect to see a quantifiable increase in queries relating to IP licensing structures and taxation.

We may see more celebrities generating more Australian IP, however – the Budget does include an additional $140 million over four years from to attract international investment in Australian films. The increased funding will complement the existing ‘Location Offset’ component of the Australian Screen Production Incentive tax rebate.

Start-ups and back-downs: long awaited changes to the R&D tax incentive

In response to the findings of a 2016 review, the Government has announced significant reforms to the R&D tax incentive.

Treasurer Scott Morrison described the changes as a “refocusing the R&D tax incentive” to give more support to companies that invest a higher proportion of what they spend in R&D, over and above what others would just do anyway.  Australia’s biotechnology community’s initial reaction has been positive in response to particular changes which, as AusBiotech summarises, will see:

• clinical trials exempted from a $4 million cap for the refundable component;
• no lifetime cap for the refunds;
• 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.

In its changes to the R&D tax incentive, the federal government has chosen to target primarily big business rather than start-ups in its efforts to save $2.4 billion over the next four years.

Nonetheless, the start-up sector has expressed some concern to SmartCompany.  For companies with annual turnover of less than $20 million, a $4 million cap has been imposed on the cash refund available.  Research-heavy start-ups, like emerging biotechnology companies, will be concerned as they, “frequently need to invest more than $4 million a year on R&D to establish a potential future revenue base”.  As reported in SmartCompany, StartupAus chief executive Alex McCauley warned prior to the budget that:

“…a $4 million cap would be of concern … for some in the sector it would create a threat that could lead to a move of some R&D activity offshore.”

Luckily, the cap excludes clinical trials.  The Government also appears to have rejected lower caps, which had been foreshadowed by some commentators.

A raft of compliance measures will also ensure that the R&D tax incentive has “enhanced integrity, enforcement and transparency” arrangements – the details of which remain to be seen.

Hopefully the measures will see some more Australian patent applications from Australian biotechnology companies in time – as the Budget will also provide $600,000 to fund the development of a detailed business case to “modernise IP Australia’s patents management system and streamline access to its services via digital channels.”

You can read more about the 2018-2019 Australian Federal Budget in an update by our Tax team here.