NZ bioscience sector growing strongly

NZ bioscience sector growing strongly but faces constraints

New Zealand’s bioscience sector has grown more than 20% in two years and may be ahead of the OECD curve when it comes to focusing on bioeconomy areas expected to deliver the largest gross value by 2030.

Furthermore the volume of bioscience patents jumped, with 365 patents granted between 2007 and 2009, pushing New Zealand’s OECD ranking to 10th for biotechnology applications per capita.

But the sector is constrained by a lack of access to investment capital after startup and a punitive tax system covering the sale of patents that encourages their registration offshore.

Those are some of the major findings of the 2010 Bioscience Industry Report presented by NZBIO. The report uses Statistics New Zealand data from 2009 and was commissioned by the Ministry of Science and Innovation. It is the third in a biennial series on the growth of New Zealand’s bioscience-based industries.

In the report the data has been aligned for the first time with the way the OECD measures biotechnology data, enabling comparisons between the New Zealand sector and other countries. In previous New Zealand surveys companies “self-selected” and the full extent of the application of biotechnology across the economy may not have been captured.

Key findings, using the adjusted data, include that the sector grew by more than 20% between 2007 and 2009 and has had compound annual growth rate of 14% since 2005, which compares favourably with most OECD countries. Employment growth has followed.

The report says the truly startling growth, however, occurred in net profit of the “dedicated group”, which was more than three-fold.

Dedicated bioscience organisations focus 78% of their expenditure on primary applications within the bioeconomy (including animal, foods and human health, plant and marine biosciences), 8% on health (including biomedical science and drug discovery) and 13% on industry and the environment (including bioprocessing and biomanufacturing).

This aligns very closely with the value of New Zealand’s trade in primary (76%), health (9%) and industry and the environment (16%).

“These organisations decreased their expenditure while increasing exports and total revenue. Bioscience in New Zealand is maturing and providing increasing economic contribution,” the report concludes.

Measured over New Zealand’s biologically based economy (including farming, forestry and horticulture), the combined income and expenditure of organisations using bioscience is said to have contributed $7 billion to the economy.

New Zealand’s bioscience sector has three groups:

• The Dedicated group (40%) includes those for which bioscience is the main activity and are focused on the production of bioscience goods and services

• The Active group (46%) operates in fields other than bioscience, but uses bioscience processes for the manufacture of products

• The Research group (14%) consists of organisations involved in bioscience research and development and includes the higher education sector, government and privately-owned research institutes.

The OECD predicts that by 2030 the potential share of Gross Value Added (GVA) resulting from biotechnology will skewed toward Industry and Agriculture rather than Health. The report concludes New Zealand may be ‘ahead of the curve’ and well placed to capture share of future potential value.

That position is supported by government investment. Over the two year period from 2008 to 2010 the New Zealand Government invested a total of $426 million (average of $213 million per annum) in bioscience research via the government funding agencies Foundation for Research Science and Technology and the Health Research Council.

The relative balance of the government investments is weighted by value towards Primary Industry outcomes (49% of grants value). However, Industry and Environment outcomes are also strongly supported (33% of grants value).

The largest market potential over the next decade is expected to be in biochemicals, biopolymers and biofuels. New Zealand’s strength in forestry and agriculture and extremophile microorganisms supports bioscience organisations engaged in each of these industrial bioscience areas.
However, the report highlights the stark contrast of the tax treatment of patents to other forms of assets such as intellectual property that is not protected by patent (know-how, trademarks, trade secrets, brands, or rental property). It concludes the tax treatment of the proceeds from a sale of a patent “provides a disincentive for early stage investment into innovative companies incorporated in New Zealand.

“It is often a condition of overseas investors that the intellectual property (including patents) of a New Zealand company is moved into an offshore entity before they will invest, or while the value is still low. In this way, very young companies are driven overseas – potentially taking their staff, jobs, activities and assets with them.”

When it comes to investment the report says the lack of large amounts of overseas investment in New Zealand’s bioscience sector may have been relatively cushioned from the effects of the global financial crisis that drive the contraction of the sector overseas.

However, that upside is outweighed by the fact that access to capital remains the single major constraint to bioscience research and commercialisation and this constraint has intensified over the past two years.

Angel investment in New Zealand was strong for 2009 at around $50 million and compared favourably with other venture capital strongholds of a similar population size such as Boston, USA. Early seed and start-up stages attract over 70% of the angel investment, the average investment size is around $500,000 and over half of all investments are for less than $250,000.

But it is widely accepted that early and expansion stage capital is difficult to obtain in New Zealand. Combined with the almost complete lack of venture capital (VC) investment this highlights the crucial lack of follow-on financing in the $2 million to $5 million range required by high growth start-ups to move to their next stage of development.

Ends
To see the full report go to the NZBIO website: http://www.nzbio.org.nz/page/industry-reports.aspx

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