The next wave: Unlock research results, says report

By SIMON COLLINS

Biotechnology "trapped" in New Zealand's crown research institutes should be opened up to local investors, says a major report.

The 110-page report for Industry NZ, by former ANZ Securities chief executive Dr William Randall, says the Government's requirement for the institutes to earn a profit makes them less willing to collaborate with local companies.

All technology developed in the institutes should be "contestable" at the point where it becomes of potentially commercial value.

Dr Randall's report, published on the website of the industry group Biotenz, will be presented to a Biotenz conference in Wellington on Tuesday to which the research institutes have been invited.

It follows an April report by Statistics New Zealand which for the first time put numbers to New Zealand's biotech industry, estimating that in June 1999 it employed 2727 people, spent $405 million and earned $475 million a year.

Another report by Waikato University economist Dan Marsh found that the Government spends about $100 million annually on biotech research through its crown institutes and universities.

Such research is being done at eight of the country's nine crown institutes.

The latest review comes just before the Royal Commission on Genetic Modification reports on July 27. A moratorium on field trials of new organisms is in place until August.

Dr Randall, now an independent consultant who recently completed a doctorate in marine biology at Auckland University, identifies 129 private sector biotech companies in New Zealand, 42 per cent of them in Auckland.

But he says most of the intellectual property in biotech is being developed in the crown research institutes (CRIs) and universities using Government grants.

Since the institutes were set up a decade ago, they have been required to earn a commercial rate of return on their capital, but they have not had to pay dividends.

Dr Randall says this means the institutes' capital has increased through retained earnings, forcing them to earn higher profits to maintain the same rate of return on capital of about 10 per cent.

This has also given them incentives to minimise their assets. For example, AgResearch's balance sheet for last year showed the value of patents and licences as only $67,000, even though its revenue statement showed royalties of $13 million.

Dr Randall says this treatment reinforces the industry view that the institutes are "tying up" their intellectual property (IP).

"They have no requirement to put this stuff out there," he says.

Instead, they tend to try to commercialise their ideas themselves through subsidiaries, often going direct to big multinational partners.

"Use of overseas venture capitalists to take New Zealand IP to market not only deprives the Government of employment gains and tax revenues, but it fails to build a base of local venture capital/financial expertise."

Dr Randall says technology developed with Government grants should belong to the Government, rather than to the institutes. The Government should then decide how to commercialise it.

"If they [institutes] were called to account for all their intellectual property and all their commercialisable ideas, it should be at least referred to on their balance sheets or in a separate vehicle where it can become contestable.

"Say a CRI produced a fantastic new idea, such as a new variety of rye grass. They [the Government] then said they would have to make that contestable, so other people could come in.

"It might be a venture capitalist from overseas. It might be the Government. It might be [listed company] Genesis that says, 'We'll purchase this'."

He says whoever bought the technology would still have to work with the institute to commercialise it, but this process would make sure the technology was developed most effectively.

Dr Randall also calls for Australian-style tax incentives for research and development.

"Tax incentives are not going to help a company that is not profitable. Some of your really small ones couldn't care less about that," he says.

"But if you want to encourage big companies coming in, then I think you need to look at all these things that might be inducements."

In particular, he advocates incentives to induce big pharmaceutical companies to develop new medicines in New Zealand.

Dr Randall says the biotech industry is "highly fragmented and inefficiently networked," interacting with a range of state organisations such as Trade NZ, Industry NZ and the Foundation for Research, Science and Technology.

He proposes "a single Government working group" to be a contact point for the industry. He also suggests a joint industry website and Government-supported local and national trade shows.

But the director of the Association of Crown Research Institutes, Dr Sean Devine, says Dr Randall and other critics have failed to cite any actual examples where institutes have failed to commercialise technology effectively.

"People say CRIs hang on to IP, but they will only do that if no one is prepared to give them some money for it or come to a deal.

"The industries that are moaning about this are those that really don't want to take on the risk of creating intellectual property. They only want it when it is all solid."

Dr Devine says all CRI deals with foreign companies have to be approved by ministers through the institutes' annual corporate plans.

On the accounting issue, he says AgResearch plans to put a more accurate value on its intellectual property, but this is difficult because future returns from patents and licences are unpredictable.

Biotenz chairman William Rolleston says the problem is that institutes must earn year-by-year profits on research that may take a decade to come up with commercial results.

"Perhaps there should be a direction from the Government to CRIs that they should have a portfolio of high- and low-risk projects - that it's all right to invest in the longer term and not have a return on that money within a 12-month period."

A recent Ministry of Research, Science and Technology paper, Making CRIs into More Effective Drivers of Socio-economic Transformation, also suggests that requiring institutes to be profitable creates "perverse" effects on what is meant to be their main aim of "carrying out research for the benefit of NZ."

"CRIs' views on the nature of benefit to New Zealand are strongly skewed by their own interests in earning increased revenue," says the ministry paper.

"This is not surprising given that the Government sets precise targets for return on revenue but leaves unspecified its own views on benefit to New Zealand.

"In this situation, the strongest reference point for CRIs becomes, quite naturally, financial performance."

Biotenz will follow up Tuesday's conference with a larger gathering in Christchurch on August 24, to which it will invite cabinet ministers, officials, CRIs and universities.

Links

Biotenz

CRI discussion paper