CHAIR —Welcome. The committee has before it your written submission. Are there any changes you wish to make to that?

Mr Scott —I have an addition to put to that which I will pass to the committee now.

CHAIR —Thank you. I invite you to make a brief opening statement.

Mr Scott —I am a businessman and not an academic. I do not have a doctorate, as was on the list. I am a director of Biotron, but I am not here to represent Biotron. I became involved in research through a friendship with Professor Gage. We agreed to address the problem of diminishing research funding. As a result, I spent four years full time and unpaid in learning about the biotech industry, about universities and about research funding. Biotron succeeded and has raised $12 million to fund intermediate research. I developed an interest in commercialising research and also, in the longer term, in providing funds for research and funds for universities, in providing rewards for researchers, in addressing the export of our talented scientists, and also in creating significant economic benefits to Australia as a whole.

I now have a blueprint for funding research, not just biotech, and I am working with other universities to build businesses. I prepared the key points that I have just handed to the committee to help focus the discussion. The core is to recognise that there are three stages of research: basic, intermediate and applied. This country needs to provide for intermediate research.

Senator CARR —Do you have any knowledge as to why Professor Gage is not here today?

Mr Scott —No. When I spoke to him last on the phone we were to meet here. He lives in Canberra. I came from a fair distance away.

Senator CARR —You were anticipating him to be here today?

Mr Scott —Yes. We just tried his home and he is not home.

Senator CARR —He is just running a bit late. We hope that is all it is.

Mr Scott —An absentminded professor.

Senator CARR —The difficulty is that Professor Gage has detailed knowledge of some of the events that have led to the establishment of the company. There are some other questions I will have to try to pursue with you.

Mr Scott —In terms of establishment of the company, I was probably the principal who established that company so I can answer many of your questions, other than of a scientific nature. I am not a scientist.

Senator CARR —Yes, I appreciate the point. You are essentially a businessman seeking to raise capital for the exploitation of research discoveries. Would that be a fair description of your role?

Mr Scott —I am seeking to get funding for research in this country for benefit in a much broader scale. I have devised a way that I think we can develop research so that it creates its own funding on an ongoing basis. It needs significant change in thinking. It needs us to understand that there is this intermediate stage and provide for it.

Senator CARR —You are doing this because you believe that the funding that has been provided has been inadequate. Would that be a fair description of your submission?

Mr Scott —Yes.

Senator CARR —I noticed in the `Key points: commercialisation of research' document that you have tabled today—and I thank you for that; it appears very helpful—you say:

Venture Capitalists can maximise their financial benefits to the detriment of researchers and Universities—without putting anything back—because researchers have few alternative funding sources. The Federal Government's plan to make funds available through VCs—

venture capitalists—

is inappropriate. VCs do not invest in Intermediate Research. Government funds—

referring to public funds—

should be channelled to Intermediate Research.

Can you enlarge on that statement please?

Mr Scott —I believe basic research should be funded by government, as the previous professors have said. People should be allowed to explore their horizons. There comes a point when something has commercial potential—and this is where I define `intermediate research': from the time something has commercial potential until the time it becomes commercially viable. You cannot get funding in this country for that stage of research. Venture capitalists do not want to know you. Pharmaceutical companies say, `Go away until it has become commercially valuable and then we'll take it up.' You cannot get funding. That is what I set out to try and beat by establishing Biotron. Does that answer your question?

Senator CARR —That is how I thought your response would run. I appreciate that. In a number of points made here and public comments that are being made it is suggested that the seven per cent that has been returned to the university in the Biotron company does not represent an appropriate return to the university for the use of its reputation and the access to the John Curtin Medical School facilities and other research programs. Could you explain to us on what basis you determined the figure of seven per cent?

Mr Scott —I originally did that in discussion with Anutech. But the reason that it is lower than I am now negotiating, as I move forward to work with other universities, is that neither the university nor Anutech were doing anything to help this research. In fact, we had to get this company up almost in spite of the university. Professor Gage had his discovery of C9 and could not get the funding for the patent for that drug until I intervened on behalf of Biotron. Admittedly at that stage we had no funds. To get funding for the patent I had to take on the responsibility that we would repay that funding if and when we were floated.

Senator CARR —When you are discussing these matters with other universities you are suggesting that a figure higher than seven per cent is appropriate?

Mr Scott —Yes.

Senator CARR —What sort of figure?

Mr Scott —It depends on the project, the area of research, the people that are involved, how advanced it is, how much the university wants to participate. As a rule of thumb, I am suggesting that researchers and university should share about 30 per cent of a final corporate structure. I say `final' because the way research is funded at the moment, a company is formed and a shareholding is decided, shall we say, and funding emerges. But it is only a tiny bit of funding and as more is needed so more of the company is sold off. I am trying to establish a situation where I create a final picture and work in partnership with the university and the researchers to achieve that final partnership.

Senator CARR —When you say 30 per cent you are indicating that the holding of the university plus the staff members should total 30 per cent?

Mr Scott —Yes.

Senator CARR —Which is about what you have in the company prospectus for Biotron, don't you?

Mr Scott —I think that is pretty close—yes.

Senator CARR —So it is in fact not higher?

Mr Scott —In the Biotron case the researchers' share of the 30 per cent is higher than in my current model. In this case, because the university was doing virtually nothing, it was really Professor Gage that drove the thing from the university's perspective, I saw no problem in the fact that the greater share went to the researchers who were providing not just their future intellectual property but the drive to get the thing up through the university.

Senator CARR —This is where I have a problem. You are saying that publicly funded research ought to be the property of individuals?

Mr Scott —No. I believe publicly funded research, which is basic research, should be shared between the university and the researcher. Currently, in most Australian situations, the IP belongs to the university. The problem there is that it flows by ruling but there is no means of even knowing that intellectual property is emerging. Many of the commercial arms of universities, and certainly the administration of universities, have no idea when there is a commercial project emerging.

Senator CARR —The argument then runs that the proposition you put before us leads to a conflict of interest, a conflict between researchers who are members of publicly funded members of staff—that is, as an academic, to the rest of the academic community, as a major shareholder in a private company with commercial imperatives and possibly a company director. Would you agree that there is a potential for a conflict of interest in those various roles?

Mr Scott —Yes, there is a potential and I spent a considerable amount of time trying to overcome that. I did it in this way. Basic research should continue, and in the case of Biotron it does—the professors work at their basic research through most of their time. The universities have decreed that academic staff can take a one day per week external consulting role, and the senior researchers involved with Biotron consult to it one day a week. It is interesting that the previous professors said that it would be fine if a company was established in the innovations building. That is exactly what Biotron has done. It is a company that is established, pays for its premises, employs all the people and conducts its own intermediate research. The professors work one day a week to supervise that staff paid for by the company.

Senator CARR —So they take a 20 per cent pay cut to do that, do they?

Mr Scott —It is an additional 20 per cent. Interestingly I think it is appropriate because I found significant problems when I came to interface the pay structures between the researchers employed in a company as opposed to the researchers paid in an academic arena.

Senator CARR —It is quite clear that academic salaries are woefully low.

Mr Scott —Yes.

Senator CARR —The question I am getting to is: what is the responsibility of the public institution and the individual whose work is financed by the public institution and who may arguably be in a situation—and presumably you would like to see that arise—where they personally enrich themselves?

Mr Scott —Their responsibility for the four days that they are presumed to work for the university is to work in basic research, to explore the frontiers of science, providing they can get enough money to do it—and that is a real problem. But it is certainly built into my blueprint and the model of the way the companies work that, yes, if success happens, the researchers will reap rewards. But so will the university; and I have written into the corporate rules that a percentage of profit of the company will be reinvested in other research. I want to see the company succeeding and being able to plough money back into research and into universities.

Senator CARR —Can I go through a few problems that have been drawn to our attention—

Mr Scott —Fine, by all means.

Senator CARR —by Dr Waring, for instance, and others. I want to emphasise to you that we are not making judgments here as to right or wrong, we are trying to establish arguments and allowing people to put arguments forward.

Mr Scott —Yes.

Senator CARR —Dr Waring brings to our attention that:

the swing to commercialisation of scientific research has the capacity to irreparably damage basic Australian science. This move for research groups to seek more and more commercial funding is driven by the gross under funding of public Universities ...

I presume you would agree with that component but would not necessarily agree that there would be irreparable damage to `basic Australian science'. Is that the case? Would you say that there is a possible threat from this model to basic Australian science?

Mr Scott —Not in the model that I propose. I propose that basic research continues as it does now, with no change. What I propose is that, when they come to a project having a commercial potential, if the scientists and the university agree to the change, they go through the change into intermediate research. That change brings two things at that point: if they want to go ahead and commercialise it because they cannot get funding in any other way, then they have to develop some commercial sense—they have to go through the change of being commercial. Their research for that work has to be focused on commercial outcomes.

Senator CARR —I will go through a few other points. It said that there is:

[middot]An increase in application driven research rather than basic research. This leads to “copy cat” or “bandwagon” projects—

and examples are cited here of highly desirable outcomes with regard to vaccine projects, which may in fact be driven by commercial imperatives rather than the quest for new discoveries. The second point is:

the proliferation of inappropriate projects for PhD students that are often based on securing a particular outcome rather than seeking new knowledge ...

A third point is serious conflicts of interest, which we have canvassed—that is, the pursuit of monetary advantage as distinct from discoveries in their own right. Another point is:

[middot]A degradation of the status of science and scientists in the public eye because of exaggeration—

Mr Scott —But all that goes away. That is my whole point to government: you must draw a line at the end of basic research because you cannot fund it adequately, and you must look at intermediate research as another means of funding. Yes, with it will come commercial constraints, but not to the detriment of either science or the university. Professor Gage, had he been here, would be saying exactly that.

Senator CARR —Hopefully we will get to speak to him. The question arises as to whether or not there is a change in the nature of the university that inevitably will follow from this sort of privatisation model: we cannot necessarily expect research workers to be scrupulously honest in reporting facts that will adversely affect share prices. Why would academics be any different from the rest of the corporate world in that regard?

Mr Scott —In the corporate world, you need to be honest or you finish up in jail. In a public company, you cannot hide facts or give inappropriate or incorrect information, or you finish up in jail. The scientists that are associated with us must live by those rules as well. They are in a corporate world, and I would expect that, as human beings, they should be no different.

Senator CARR —Mr Scott, there are plenty of examples I could point to of failure of corporate governance in this country and of failure of regulatory authorities to actually detect what most citizens would call fraud. I also note the number of cases of fraud that are brought before courts of law in this country. Doesn't that suggest to you that the application of corporate values is not sufficient protection for Australia's intellectual property rights in this sort of environment?

Mr Scott —I do not know that I have spent a great deal of time trying to solve the problems of the law and corporations, but I think the answer comes in the integrity of the board of that company and in their proper running of it. Certainly, any board that I am associated with will function that way.

Senator CARR —I appreciate your personal approach, but with HIH currently the subject of a significant royal commission and many other company failures pointing to another course of action followed by some of our leading corporate players, you can understand my scepticism—

Mr Scott —Yes.

Senator CARR —when you said to me that we should apply a similar model.

Mr Scott —Are we going to stop commerce because there have been a couple of bad examples?

Senator CARR —No.

Mr Scott —We need to learn from those examples, and corporate law needs to be amended and tightened. I am as disgusted as anyone about those particular public cases.

Senator CARR —The question I am putting to you goes to this issue. It has been proposed to us that there are better models for the protection of our intellectual property rights which can prevent conflicts of interest arising.

Mr Scott —The first protection should be to fund patents. I know of people in universities who cannot get funding to patent their discoveries. I think that is just appalling.

Senator CARR —Have you read the comments that have been made about the Harvard Medical School's code of conduct with regard to the commercial exploitation of discoveries?

Mr Scott —I am aware that it is a very different situation for private universities. I have put my effort into trying to provide a solution in this country, where most of the universities are public universities.

Senator CARR —A question that arises is whether or not—and we are told this occurs at Harvard—scientists are prevented from working for companies in which they own shares. Would that be an appropriate model to pursue?

Mr Scott —Not in this country.

Senator CARR —Why not?

Mr Scott —I think that researchers should be rewarded for their success, particularly if the company that they are involved with has an obligation to return money into research and into universities.

Senator BRANDIS —Mr Scott, I was going to take up with you one of the observations you made in the paper you circulated to us this morning. Point 7 of the observations says:

7. The “commercial arm” of a University is generally staffed by academics; they need businesspeople/entrepreneurs.

I wondered if you would elaborate a little on that comment and, in particular, on how you would see that operating in a functional management sense.

Mr Scott —When I was first introduced to the funding—or the lack of funding—problem by Professor Gage and when I came up with the Biotron concept, I wondered why I was doing it. I thought that that is what a company like Anutech should have been in place to do, but I learnt over the three or four years that I stayed with it all that they just did not have the entrepreneurial people. They were not even aware of the research that Professor Gage was conducting. They owned the IP but were doing nothing about it. I think they need to get some people who are prepared to think innovatively about commercialising the research. At the moment, I do see that there has been an increase in commercialising over the last three or four years, but all it has done for the commercial arms of the universities is to get very early agreements with pharmaceutical companies or VC—venture capitalists—and, because these agreements are early, they give almost everything away. Virtually nothing comes back to the researchers or the university.

CHAIR —That concludes this session, thank you.

Mr Scott —I apologise on behalf of Professor Gage; I do not know where he is.

Senator CARR —We have been advised that he may have mistaken the day.

[10.20 a.m.]