Medical research grants revamp could hit biotech SMEs hard

The federal government’s changes to medical research grants could have an adverse affect on biotech SMEs, according to the president of the Association of Australian Medical Research Institutes.

Due to recent changes in the payment schedule of research grants, the sector is facing an immediate $140 million cashflow deficit, says Professor Brendan Crabb.

Payments will now be paid in arrears rather than upfront. They will also be paid on a monthly basis rather than quarterly. This means the AMRI will receive 11 payments a year instead of 12.

According to Crabb, this will translate into a $70 million reduction in research outlays this year.

“What’s prompted the change? You’ve got to ask the government,” Crabb told StartupSmart.

“Obviously we are in tighter financial times – we the Australian people and the Australian government – and the sector understands that.

“[However,] what this change has meant is a tangible decrease in medical research funding through the NHMRC [National Health and Medical Research Council] and the MRCF [Medical Research Commercialisation Fund].

“That will have an impact on output and, while it’s impossible to quantify what affect that would have on start-ups, if the reduced medical research funding affects output… then you’d expect that to have a negative, rather than positive, effect on start-ups.”

Crabb says there are other factors compounding the problem.

“The first of them being relatively flat NHMRC and MRCF budgets… and the prospect it will remain flat for some years to come,” he says.

“There’s one significant pressure. Another is in many states, particularly here in Victoria where around half of Australia’s medical research efforts are, we’re receiving less potential investment, so there’s a second pressure.

“Thirdly, the university sector has to swallow last year’s mid-term budgets, which effectively cut funding. All of these things have compounded the pressures that the sector’s already under.”

Crabb believes the changes in the payment schedule of research grants is an attempt by the federal government to make a $70 million saving for the upcoming federal budget in May.

However, the NHMRC has insisted this is not the case.

“It is no longer appropriate for the Australian government to incur interest by making payments three months in advance of an activity,” a spokesperson told The Australian Financial Review.

“Payment in arrears removes the unnecessary interest cost to the Commonwealth, and is more consistent with the cash requirements for funding NHMRC grants.”

In the 2011-12 federal budget, funding for the sector remained at $746 million. The NHMRC declined to comment on whether the council is expecting a cut in next month’s budget.

This article first appeared on StartupSmart.