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Economics References Committee
24/08/2015
Australia's innovation system

MITCHELSON, Ms Roslyn (Ros), Industry Policy Manager, Medical Technology Association of Australia

TEGEN, Ms Susi, Chief Executive Officer, Medical Technology Association of Australia

[10:02]

Evidence was taken via teleconference—

CHAIR: Welcome. I want to thank you for your submission, which we have called submission 125. We have a fair few questions for you, but before we go to them, do you have any brief remarks or an opening statement?

Ms Tegen : First of all we would like to thank both sides of government for their interest. There is a very strong interest in the med-tech industry, particularly because we have a turnover of about $10.2 billion per annum in the industry and we include over 500 medical technology companies around Australia. If you are putting it in context, the automotive manufacturing industry had revenue of about $11 billion in the period of 2011-12, with employment around 16,000, whereas we have about 19,000 people. We are a fairly large industry, and it will be growing considering we have an ageing population and we also have a lot of comorbidity issues. We represent those companies from the very small, one to two people, to very large international companies, and we are represented in every state. Those companies produce products that are in the area of diagnostic, prevention, treatment, management of disease and disability for our patients. Many of our companies are exporters as much as they are importers.

If I may, to give you a little bit more of the background, in order for the med tech industry to meet the needs of the population I was just speaking about, we require an environment for industry but also for our patients above all to deliver and access the devices. We see ourselves as a partner in delivery of health care and as a solutions based organisation and group of organisations to look at population health and to see how we can save lives and keep people in the workforce and in the community for longer periods of time. This is where the med tech industry blueprint in particular fits in because we work along the value chain of the med tech devices and also the patient journey—so anything from research and development to manufacturing, to the commercialisation, to the education and the training and employment industries. We obviously work in health but we also work in trade and taxation to make sure that the environment for companies is right so that we can really develop this industry. In terms of the patient journey, we need to make sure that our companies are involved in population health planning, rather than looking at last year's budget and adding CPI or adding a few more bits where we meet the needs of the community because healthcare delivery is changing. It is changing because there are patient needs, there are patient drivers in terms of how patients want to be looked after, there are financial limitations by state, federal and local community health budgets. So in general, healthcare delivery and access needs to be right and the med tech blueprint is part of that.

CHAIR: Ms Mitchelson, do you want to add anything?

Ms Mitchelson : We do need more global success stories in Australia, rather than the two we currently have. The fact that there are only two is an indication of what is missing. At the moment, we have 722 Australian companies that are considered med tech manufactures, of which 85 are producing technology that is considered to be above a class 1, which is the lowest risk medical technology.

Senator KIM CARR: I have been quite a strong supporter of the medical technology industry, although I must challenge your assumptions about the automotive industry. I think you mentioned a figure of 16,000 employed. The figure I have is well in excess of 40,000—a minor point of difference.

In regard to the position of the Medical Technology Association, what public and government investment policies do you think should be pursued? If we start to drill down to the different approaches in regard to investment in research, investment in development and investment in commercialisation, the three big buzzwords, how do you reckon the policy should shift?

Ms Tegen : That is the thing. From a governance perspective, there needs to be leadership across the whole value chain, not only investment in employment or research. The government has spent millions of dollars on research and it has not actually changed. You have spent $8 billion on research and development and yet only 1.5 per cent of that has ended up in commercialisation. That is why we are saying 'the blueprint'. If you are looking at an industry as a whole, no different from a value chain, you really need to say, 'What is it that provides the right environment?' It is the taxation environment. It is the research and development space. For example, if there is money spent on research and development, there should also be a component of research and development KPIs about working with industry and about commercialisation—not about how many devices and not about, 'How many reports can we write?' and, 'How many citations do we get?' I think that is one area.

The second area is: what sort of support we can provide—and it is not always financial—in terms of R&D tax incentives and in terms of keeping our IP in Australia so that we can actually make more money that can be put back into research and development? We have put forward an AIM incentive, which is based on the taxation incentive in the UK but has also been adopted in 11 other countries. It is about reducing the income taxation rate for IP from 30 per cent to 10 per cent. Then you have the area of workforce. Do we have the right workforce which actually understands how to commercialise, not just how to research? We are working with schools and universities to make sure that we have an uptake of science and maths subjects and that they understand that the med-tech industry is a wonderful opportunity to develop a career.

We also need to work with universities, which we are currently doing, in developing courses that show and support the development of business skills and commercialisation skills, and even just being able to develop a business plan, which is not generally within a researcher's remit. In addition to that, we then work with the manufacturers. How do we make their environment right? That, again, is a policy environment. We have inconsistencies in so many of those areas across the value chain in different state jurisdictions. We have countries nearby—there would not be one month that I do not get calls from Singapore asking me whether we have companies that would like to set up in Singapore. They are providing not just incentives but the right policy environment, where companies can link with universities and are supported to link with universities' R&D. They are supported in setting up manufacturing plantations. They are supported in terms of not only the taxation but also the employment situation. They are supported in terms of international relationships for research. They work across the whole value chain, and that is something that we really lack in Australia. There is no blueprint. There is no road map for what makes a perfect environment for med-tech to be the partner in population health needs.

In the past many industries were seen—I am not sure how to say it—as the devil. I am sure there would be a few smiles around the table! Is Nick Xenophon there?

CHAIR: Nick is here in spirit!

Ms Tegen : In the past we have been able to get away with governments trying to deal with everything, whether they are state or federal governments. In no way can we deal with the future of our health and education needs through only government being relied upon to come up with the money. First of all, there will not be enough taxation income. Look at what is happening in places like Japan, where there will be one person working for I think about four people that are retired. We will not have the money, so we will have to have really good partnerships at the grassroots to come up with solutions to problems. As an example, we have been looking at Tasmania and working with the Tasmanian government on how it is that we can meet the needs of that particular population up in the north-west that has some major issues in terms of diabetes, obesity, illiteracy rates that we know are costing the health budget the most. It is not about saying, 'Here are some companies that can sell you some devices.' It is about saying, 'We are here just to help you with your planning. You can go out to whomever you want to deal with those issues, but in the end here are some data that we have; here is some data that you have.'

You asked me the question: how do we best allocate? Government's role is to make sure that the environment is right for the med-tech sector to do well in the areas of research and development; commercialisation; manufacturing; finance and taxation; employment; training of the right people, whether it is through the university or the VET sector; health care delivery; and then trade—for example, we have been quite involved in the Trans-Pacific Partnership Agreement. It is about the environment. The government has the remit and the skills and the capacity to see whether we can get some consistency across the states and also to ensure that the policy environment is right for companies and the community.

Senator KIM CARR: Investment attraction is clearly very important, but what is the coordinating agency within the Commonwealth that undertakes that role?

Ms Tegen : Investment from overseas?

Senator KIM CARR: Yes. What is the coordinating agency for investment attraction to Australia in the Commonwealth of Australia at the moment?

Ms Tegen : We have worked quite a bit with Austrade. I will use Singapore as an example. We are working with the South Australian government at the moment and Austrade in Singapore. We are providing them with quite a bit of background about the things that work well in Australia, what sort of opportunities there are, the linkages with universities and with industry. We are also telling them about what is going on in terms of the TGA and what the regulatory environment is. We are looking at TGA transparency, so that companies are able to come to Australia.

In terms of the federal government, it is more Austrade and the state governments that we have been working with to support them to bring industry into Australia. We also have companies and industry organisations contacting us directly in terms of whether we see any opportunities, and then we contact the different organisations within Australia. I am on the board, on behalf of the MTAA, of the newly formed APACMed committee, which is the equivalent of ours, and that is for the whole of the Asia-Pacific. First of all, we work from a flow perspective for companies. If we have small companies wanting to go to Asia, we work with them and APACMed. If we have companies in the Asia-Pacific that are looking at our area, we try to facilitate that process.

Ms Mitchelson : I would just like to add to that. It goes back to our comments about having the right environment. While there may be one lead agency that has responsibility for investment attraction, it is the responsibility of all the other government departments that we work with—for example, health, education employment—to have the right policies and environments in place as well for those multinationals or other organisations that would be interested in investing in Australia. It is not just that one agency may take the lead.I think every department, certainly those we are involved with, needs to take responsibility for creating the right environment for that investment attraction.

Ms Tegen : There is a really good opportunity for governments to start working across portfolios and I have to say that Minister Ian Macfarlane has been particularly good in this area. He has started to work with the Minister for Small Business, the Minister for Education and the Minister for Health. I think they realise that there are not enough funds around and that unless you start getting our policies aligned, you are actually going to duplicate. You will also probably not use your money as efficiently. That is why it is so important also to work across state and federal. The South Australian and the New South Wales governments in particular get this. The Victorian government is just about to have a review of their med tech sector. We have worked with the Victorian government quite a bit but they have had some changes, so they are still working towards that. There are so many opportunities if ministers are willing to work across—

Senator KIM CARR: Can I come back to this point. I have spoken to a large number of companies over many years—I am not saying this as a party-political point—and they say that the contrast between the approach we take in this country by comparison to what occurs in other countries is that the other countries go out looking for investment whereas we wait for people to come to us. Would you agree with that proposition?

Ms Tegen : It is true and we do not—

Senator KIM CARR: The point is we can talk the leg off a chair about what governments would like to do but it is what they actually do that matters. I recall Investing Australia used to be the substantial unit within Austrade when I first came in as minister for innovation. It had 40 people in it. It was subsequently transferred back to the department of innovation with four people in it. Somehow or another the extra 36 bodies disappeared. How do we go out to contact companies that want to spend money here, rather than waiting for companies to come to talk to us?

Ms Tegen : I guess that is an example, first of all, of the federal government working with the state governments—the example I gave you about South Australia. I am not on either side, but I know that recently Mathias Cormann took a group of people over to Germany to look for companies to invest in Australia but also to promote the environment and to find out what was going on in Germany that they could bring back. That being said, when I said no, the environment is not right. It is all disjointed and I do not think it has anything to do with any one government. The fact is that this should be beyond any government. The environment should be right for the med tech sector to be the sector that everyone wants to invest in. One country which has done this really well is Ireland and obviously also Israel. Israel was a little bit different from us in terms of the structure they have. And Singapore has done it. Historically, Singapore has not been an innovation—

Senator KIM CARR: Has done very well, but can I ask you this: what is the difference in terms of the incentives provided in Ireland, Israel and Singapore in comparison to what is provided in this country?

Ms Tegen : One is about the policy environment. It is not all about incentives. One is about the policy environment for the industry to do well across all those things I was speaking about in the blueprint. The second one is about taxation incentives. Some of them are the same as the aim incentive that we mentioned before—that is about the IP. The other one is about employment and the education, component, making sure the right skills are there. The next one is about the jurisdictions getting together and really looking for investments. I know that, through their business chambers, AmCham and all those others, the European Chamber of Commerce in Singapore, they all actively seek investment and opportunities to open doors in those countries. It is not just one thing.

Senator KIM CARR: But it boils down to the business case.

Ms Tegen : It is the business case. It is making sure that whole value chain is right. It is not just one area. It usually takes about 12 to 15 years for a company to go from idea to commercialisation to making some money. While it is great to have the R&D tax incentive, which is fantastic, it takes a long time to get to the stage where you are making a little bit of money—it is 13 years—so there really should be incentives and support and policy all along that time frame. It goes beyond any government term. It has to be a concerted commitment from all sides of parliament and government.

Senator KIM CARR: Can I just turn to the question of the venture capital market in this country. How adequate do you think it is? What can be done to improve it?

Ms Tegen : It is not. First of all we have a very small population. From a wealth perspective we have a few people that earn quite a bit of money, but very few compared to most other countries. So that is one issue. It is our situation as a country. The second thing is that there are not enough incentives for people to support them, in terms of investing in a company. I can still remember—I think it was in the early seventies—people were given tax incentives to invest in the film industry. I was only very young, so I am very green on remembering exactly the amount, but I remember my parents investing in it. I remember them saying that it was a tax benefit as well as an investment in a very good industry. It is high risk for investors in our industry. We need to de-risk. People are not willing to invest for that period of time. It does take a lot less time over in the United States and some of the other places.

Ms Mitchelson : We are considered a high risk industry, perhaps not quite so high risk as the pharmaceuticals. Regardless of what sort of incentives there may be for venture capitalists to invest in our industry, government has to de-risk our industry in some way—things like the strategic growth centre or the previous industry innovation precincts. They were and are, potentially, mechanisms that can assist our industry to become more attractive to a venture capitalist. There are organisations such as muru-D, which is a Telstra innovation incubator organisation. They have set up in Singapore as well as supporting potential start-up companies in Australia. It is all about looking at de-risking our industry so it becomes more attractive to potential venture capitalists.

The government has already got the medical device commercialisation fund, which is part funded by Australian state governments and super funds. It is managed by Brandon Capital Partners. That is looking at the research that is coming out of medical research institutes and providing some financial assistance to help those research ideas become commercialised. There are pockets of money, but it is about understanding what the risks are that are preventing venture capitalists, regardless of whether there is any money available in Australia.

Ms Tegen : Yes. Part of that is also the fact that a venture capitalist looks at what is an impediment to getting this device or this particular solution into the market—for example, if it is going to take forever to get through the TGA process. It is quite interesting that New Zealand has no more recalls than Australia does in terms of devices. I am not saying, 'Let's go with the New Zealand system', but in the end you have to make sure that the environment is right for somebody to invest, because they want to get to the stage where they can sell that particular idea or device.

We are hoping that through the federal government's industry growth centre we will have the opportunity to get the blueprint off the ground. We would like it to be an industry blueprint. It is important, because it is the environment that has to be right. That is when we start getting the investment right. Obviously, we would like some incentives for the investors. Obviously, we would like the taxation support to be right. But it needs to be right at a federal level—and we are hoping the industry growth centre will take up the blueprint.

The New South Wales knowledge hubs with the New South Wales government have been quite interesting. They have been quite bold in their support of this. They have been very much involved in the workforce skills audit that is looking at who is currently working in the mid-tech environment and what we need in terms of universities and schools. They are also involved in the industry blueprint, because they understand that if we can get the environment right, not only do we have our own companies in a better environment to grow and thrive, but we will also attract investment.

Senator KIM CARR: Thank you very much.

CHAIR: Thank you so much, Ms Tegen and Ms Mitchelson. Thank you for that overview and for your submission.