The future of Australia’s pharmaceutical industry will depend on moving away from activities that are vulnerable to growing competition from low-cost competitors and from out-licensing early-stage discoveries, and towards a significant increase in the sector’s value-added component, the government has been told.

To enable this, the government should provide co-investment for the sector through a strategic fund, covering both expansion-stage and large-scale projects, and at the very least provide support for the innovative biomedical science industries, says the final report of the Pharmaceuticals Industry Strategy Group (PISG). In a 10-year plan aimed at securing the industry’s future, the PISG puts forward measures to boost Australia as a location for clinical trials and attract investment in high-value R&D and specialised manufacturing activity.

In its assessment, the PISG notes that the nation’s drug sector currently employs 40,000 people, “exhibits an R&D intensity four times that of the Australian manufacturing industry,” spends more than A$860 million a year on R&D, has a turnover in excess of A$18 billion and is the country’s second-largest manufacturing export provider.

However, it adds, the sector has recently experienced a decline in manufacturing value-added and a low level of capital expenditure in comparison with turnover, indicating that it currently adds less value, on average, than the global industry. It also has a weak track record of taking products into later-stage development. Moreover, because the manufacturing and R&D operations of many Australian R&D subsidiaries are small by global standards, their long-term future is far from secure in the current global economic climate, it says.

The industry’s ability to make the transition to a sustainable, globally-competitive position will depend largely on the efforts of companies and their employees, but the government will have a role to play, says the report, which calls for the recommendations made in recent reviews of the national innovation, higher education and tax systems to be implemented. However, these alone are insufficient and more industry-specific action from the government is also required, says the report.

It also goes on to challenge previous evaluations of government investments in pharmaceutical R&D, manufacturing and infrastructure. These have undervalued the broader benefits, it says, because they measured purely “the knowledge spillovers that accrued at the half-way point of previous programmes and did not take account of the full range of social benefits. A more robust programme evaluation methodology that captured the long-term benefits inherent in investing in R&D and sustainable value-added infrastructure would have shown a more positive result.”

The report was welcomed by Ian Chalmers, chief executive of the research-based industry group Medicines Australia, who urged the government to implement its recommendations “without delay. These measures will help defend Australia’s pharmaceuticals industry from further job losses and contribute to its long-term viability,” he said.

Senator Kim Carr, Minister for Innovation, Industry, Science and Research, who established the PISG last May, described the report’s recommendations as thorough and balanced, and added: “the government is committed to setting the right conditions to boost the growth of knowledge-intensive, globally-integrated industries, like pharmaceuticals, that deliver economic and social benefits to the community.”