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Australasian Biotechnology (backfiles)
AusBiotech
ISSN: 1036-7128
Vol. 8, Num. 2, 1998
Australasian Biotechnology,
Volume 8 Number 2, March/April 1998, pp. 81-83

The Biotechnology Revolution - A Unique Opportunity for Australia

by Dr. Nick Birrell,

Chief Executive Officer, County Investment Management Limited*

Code Number:AU98015
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While the biotechnology revolution will pose many challenges, both practical and ethical, to all nations, Australia has the opportunity not only to rise to these challenges, but also to prosper from them. With some vision from Government, providing a suitable policy environment, and from business, in grasping the opportunity, Australia may be at the centre of "Genome Valley", the 21st century equivalent of today's icon of successful technological development, Silicon Valley.

There is little doubt that exploitation of General Purpose Technologies (GPTs) such as electronic circuits, the heart of information technology, can drive a nation's economic prosperity. This is evidenced by the extraordinary economic growth generated by the United States' Silicon Valley.

The strong position of the United States in information technology arguably stems from the hundreds of billions of dollars of U.S. Government expenditure on research and development as a result of the space and arms races. As is generally the case with GPTs, the benefits of this investment have spilled over into related fields giving the United States unrivalled superiority in commercial information technology.

While the Australian Government's initiatives to catch up in information technology are admirable, they are 40 years too late to capture the most high value advantage; this is the time that it has taken Silicon Valley to develop from its roots to the information technology powerhouse that it is today.

The emergence of biotechnology as the undoubted GPT of the 21st century presents Australia with the opportunity to be at the forefront of the next economic revolution.

However this opportunity has not been lost on other countries and Australia will not go unchallenged as countries vie for the brass ring. The executive summary of a supplement to the United States President's Fiscal Year 1994 Budget, which included a 1994 Biotechnology Research budget of US $4.3 billion, states:

Biotechnology is a burgeoning industry worldwide, and analysts are predicting that it will have a profound impact on health care, agriculture, energy and environmental management. By the year 2000, the biotechnology industry is projected to have sales reaching $50 billion in the United States. Development and production of biotechnological products will create thousands of new jobs and promote renewed economic growth, and has the potential of helping address agricultural, environmental, and health concerns in developing countries.

Notwithstanding this formidable competition, Australia has a remarkably strong starting point from which to benefit from the biotechnology revolution with strengths and an environment reminiscent of the early information technology days of Silicon Valley.

According to the "World Competitiveness Yearbook", a publication which analyses a number of factors that impact on a country's competitive position, Australian is ranked 18th out of 46 countries in terms of overall competitiveness. In the Science and Technology category, Australia's highest rankings are: 10th in number of patents in force, 12th in total expenditure on research and development, and 12th for Nobel prizes.

In reference to medical research however, Australia's record is exemplary:

Australia's health and medical researchers produce about ten times more knowledge than would be expected for the size of our population and the money invested. We have had three [now four] Nobel Laureates in medicine and our scientists regularly win the world's most prestigious research awards.

Australian health and medical research is also well organised. The history of support for medical research has led to the development of a wealth of world leading research centres and institutes, a number of which have produced work at the leading edge of the biotechnology revolution.

Another advantage for Australia in the forthcoming revolution is the close cooperation between Australian universities, research institutes and companies aiming to exploit biotechnology research. Cooperative Research Centres (CRC) provide a government sponsored forum for such cooperation. Commercial arrangements between biotechnology companies and research institutes are also common.

These strengths in medical research and biotechnology create the opportunity for Australia to build a stronger, diversified economy by being a leader in the GPT of the 21st century. However, within the global trade and business environment envisaged in the 21st century, biotechnology is likely to be dominated by a relatively small number of transnational corporations, in competition with one another.

Australia must vigorously nurture the intellectual capital that provides so much of its strength in medical technology and rigorously protect and exploit the intellectual property that results from the wise application of this intellectual capital if it is to take advantage of the economic opportunities which emerge with biotechnology.

An article in The Economist which analyses the genesis of Silicon Valley attributes the region's success to several intangible cultural factors as well as the very tangible factors of financing.

Financial Resources for Technological Development and access to Venture Capital are two of several factors identified by The Economist analysis as integral to the success of developing a GPT. With respect to these factors Australia is not strongly placed at a global level. The same "World Competitiveness Handbook" which ranked Australia highly in overall competitiveness and Science and Technology ranks Australia 22/46 on Financial Resources for Technological Development and 31/46 on Venture Capital.

Although these weaknesses and others can be attributed to the private sector the Australian Government does have a role to play. Internationally non-competitive capital gains tax is often cited as a major impediment to the development of a high-technology sector in Australia. When compared with the U.S. Government's contribution to semi-conductor research - one of the factors contributing to the success of Silicon Valley - the Government must bear some responsibility for Australia's poor competitive position in Financial Resources for Technological Development.

Tax reform, especially to capital gains tax, is necessary to encouraging innovation and investment in high-risk research. Financing of technological development and venture capital funding are two factors inhibiting Australia's ability to exploit biotechnology as a GPT. The Australian venture capital industry is quite immature and while Government initiatives such as the R&D Start Program and Innovation Investment Funds are to be applauded, the funding is insignificant when compared, for example, to the $US4.3 billion budget allocation to biotechnology.

The financing of medical biotechnology research through to the point of human application is a lengthy, enormously expensive process. As a result, Australia does not have the financial resources to take many of its basic research innovations through to final application. For this reason, much Australian biotechnology intellectual property is being sold to overseas owners or is being developed in joint ventures between Australian and overseas companies. It is vital that Australia's biotechnology R&D institutions and companies are sufficiently well funded to negotiate arrangements that favourably protect their intellectual capital and bring a significant share of the economic benefit of their innovations to the Australian economy.

Development of the Genome Valley is a long-term prospect as the road from discovery to commercialisation can take many years. The benefits of research being funded by current generations may only be realised for subsequent generations. For this reason basic research is substantially publicly funded, with one of the purposes of government taxes being to invest intergenerationally.

The anticipated increase in health expenditure as a result of our ageing population provides a further incentive for the government to invest heavily in biotechnology research, as the government will undoubtedly be paying a large part of the growing future medical expenditure.

A budget allocation to medical research of 5% of total health expenditure as proposed by the Australian Society for Medical Research would involve doubling direct government support for NHMRC-administered peer-reviewed grants. To ensure that Australia reaches the `critical point', the point at which the economic benefits of a GPT begin to create wealth in diverse areas of the economy, it is the contention of this author that a major initiative such as this is imperative.

This initiative should be viewed as bringing forward an inevitable government expenditure as investment rather than recurrent expenditure with the objective being to reduce total future government expenditure as a proportion of GDP.

As individuals within the ageing population will not only benefit from advances in biotechnology but also be exposed to the costs of these advances, it is particularly appropriate that individuals make investments to mitigate their liability. It is essential that individuals' retirement savings reflect this expected growing liability.

For individuals with a long time to retirement, the long lead time for investment in the process should not be seen as a barrier. For such individuals, investment of some part of their superannuation savings in biotechnology research and commercialisation is appropriate.

The opportunity now exists for Australia to lead the world in biotechnology research and innovation, an area poised to transform global economies. However attainment of this goal is dependent on the creation of a suitable policy and business environment, and on a determined effort to overcome cultural and bureaucratic obstacles. These are tasks in which both Government and industry have critical roles to play.

*This article is an abridged version of a detailed research paper published by Dr Birrell in January 1998. The full text of the paper, together with appendices, is available on the County Investment Management website, at http://www.county.com.au/biotech.htm. The website also includes an online discussion facility, allowing readers of the paper to contribute their ideas and exchange ideas in an interactive format. Readers are encouraged to submit their comments through this forum.

Documentation of the comments in this article can be found in the following bibliography.

Bibliography

United States Budget for Fiscal Year 1996, Tables 9.7 and 9.8.

"Silicon Valley: How it really works", Business Week, August 18, 1997, Page 46.

"Survey: Silicon Valley", The Economist, March 29, 1997, Page 66.

"In the National Interest - Biotechnology for the 21st Century: Realizing the Promise", A Report by the Committee on Life Sciences and Health of the Federal Coordinating Council for Science, Engineering, and Technology (FCCSET).

"World Competitiveness Yearbook", IMD International, Switzerland, 1997.

"Towards a Strategic Plan for the NHMRC: June 1995 to December 1996", National Health and Medical Research Council, 1995.

For a review see The Australian Financial Review, 3 December, 1997, Page 39.

See, for example, "Australia's Role in Product Development", Health Care Herald, Page 2, Burdett, Buckeridge & Young, October 1997.

In the United States, significant amounts of money are also invested by the private sector on basic research in the belief that this will lead to shareholder benefits. See "Mr Gates Builds his Brains Trust", Fortune, Page 62, 8 December 1997.

The Society's Internet site can be found at www.medstv.unimelb.edu.au/ASMR .

Copyright 1998 Australian Biotechnology Association Ltd.

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