Towards 3% R&D - Medical manufacturing to propel the economy by Dig Howitt of Cochlear

Australia’s R&D effort is focused around medical technologies and here in our editorial series – Towards 3% R&D – Turbocharging Australia’s Innovation Effort – Dig Howitt of Cochlear outlines the way ahead to support innovation in the sector.

Cochlear has long been a pioneer in innovation. It has reshaped hearing technology and made substantial contributions to the economy and society.

Cochlear is a global company with a proudly Australian heritage and is frequently held up as a successful example of Australian innovation following Professor Graeme Clark inventing the multi-channel cochlear implant.

The current policy debate on the future of innovation and manufacturing in Australia is important. To agree the best way forward, it’s useful to reflect on the history of how Professor Clark’s innovation navigated the research translation phase to become the Cochlear we know today.

Professor Graeme Clark started the development of the cochlear implant at the University of Melbourne in 1967, driven by his desire to help his father’s hearing loss.

In the mid-1970s, a telethon was held to generate funding to take Professor Clark’s invention from prototype to the first patient.

The operation was successful, but there were questions over the business case and prospects of the technology.

The commercialisation of the cochlear implant was supported by $4 million of direct grants from the Federal Government. These grants were milestone based and supported the highest risk phases of commercialisation.

Without these grants Cochlear may have fallen over or seen the offshoring of its intellectual property.

@AuManufacturing is publishing contributions from readers for our series – Towards 3% R&D – turbocharging our national innovation effort – over a, month and in an e-Book, and we urge you to contribute. Call Peter Roberts, 0419 140679 or write to [email protected].

Today, Cochlear has a global workforce of over 5,000 employees, with over 40 percent based in Australia.

Its hearing implants are distributed to people in more than 180 countries worldwide. Cochlear contributes over $700 million annually to the Australian economy, primarily through employee wages, local supplier transactions, dividends and corporate taxes, with over 70 percent of its global corporate tax paid in Australia.

This demonstrates the benefit of translating research into globally successful products in Australia.

Small, targeted grants or investments at key early stages of commercialisation can be important to get companies started, but these companies only grow and thrive if the core capabilities and policy settings are in place to enable businesses to compete in a global market.

We strongly believe that more can be done to reap the benefits of local innovation and advanced manufacturing.

Critically, we need to reach a consensus, so policy settings span far more than just one political cycle and industry can act with confidence that Governments’ will deliver sustained productivity enhancing policy.

A Future Made in Australia

The Government’s proposed Future Made in Australia Act needs to be carefully targeted and accompanied by a policy environment that is internationally competitive and enables business in industries where we do have a comparative advantage to thrive.

Grants and loans aren’t enough on their own — the government needs to address longstanding inefficiencies in the tax system.

In addition, an increasingly complex regulatory burden, including in industrial relations, makes it difficult for Australian manufacturers to be internationally competitive.

Australia has global leaders in biotech, including CSL, Resmed and Cochlear, and is a top 10 country for medical research.

There are a lot of advantages in being a biotech company in Australia. These include the high standard of medical research, the ability to conduct clinical trials, access to qualified graduates and a strong local healthcare system.

Cochlear has been able to draw on this local expertise to support our global expansion. However, these strengths alone aren’t enough.

Global competition for the commercialisation of medical research is fierce.

Nations vie for the opportunity to capitalise on research mobility, recognising the potential for job creation, local business growth, and tax revenue generation.

Sustained investment and a competitive economic environment are essential for international business competitiveness.

The Tech Council noted in its 2023 paper ‘More shots on goal’ that the Australian tax system currently provides greater incentives to invest in a forklift than in developing software.

Such misalignments hinder economic objectives and innovation. Additionally, the decision to eliminate the patent box for medical innovation in the last budget was a missed opportunity to make Australia a more attractive place to invest in and commericalise R&D.

With so many things going right for medical innovation on the research side, the right policies and incentives from the Government could be the boost that ensures advanced medical manufacturing plays a key role in propelling Australia’s growth.

Dig Howitt is CEO and President of Cochlear Limited.

Also today:
Towards 3% R&D – intelligent systems for defence innovation by Saeid Navahandi

This series is brought to you through the support of our principal sponsor, public accounting, tax, consulting and business advisory BDO, and R&D tax incentive consultancy Michael Johnson Associates.