Draft R&D Tax Incentive Determination on clinical trials (Phase 0-III) for an unapproved therapeutic good.

RSM Australia Response to the Draft R&D Tax
Incentive Determination on clinical trials (Phase
0-III) for an unapproved therapeutic good:
February 2022
Recent legislative reforms have allowed for the introduction of “determinations” (public,
binding notifiable instruments) in the administration of Australia’s Research and
Development Tax Incentive. The first R&D Tax Incentive determination in development
deals with clinical trials (Phase 0, I, II and III) for unapproved therapeutic goods and a
draft determination was released for public consultation in January 2022. Feedback was
sought to ensure the determination:
• Is robust and relevant when adopted; and
• Can facilitate clinical trials research and development in Australia.

RSM Australia (RSM) is one of the largest nationally owned accounting firms and forms
part of RSM International, the sixth-largest international accounting and consulting
organisation worldwide. In Australia, RSM is one of the fastest-growing mid-tier firms,
with over 170 Directors/Principals and over 1,250 staff operating from 32 locations
across Australia. Our staff operate across a range of industries, public, private,
Government and not-for-profit sectors. RSM provides audit, tax and a wide variety of
corporate financial and advisory accounting services.

RSM’s service offerings include R&D Tax Services for a broad array of industries and
technologies, including the biotechnology, pharmaceutical and medical device sectors,
and RSM assists entities ranging from start-ups to SMEs, ASX-listed companies and
multinationals. RSM has previously made submissions to the many Reviews, Reports and
Papers since 2014 that have ultimately resulted in the legislative changes to the R&D
Tax Incentive scheme enacted since the May 2020 Budget. RSM staff participated in
public hearings before the Senate Economics Legislation Committee into a precursor of
the enacted Bill that were held in November 2018. Most recently, the analysis underlying
these submissions and hearings, combined with extensive experience in supporting
clients in accessing the R&D Tax Incentive was applied in responding to Treasury’s
discussion paper regarding the proposed Patent Box regime.

In summary, RSM’s views on the Draft Determination are as follows. The Determination
in question is a generally positive move, offering a simplified registration process for
certain Core Activities for which the experimental activity(ies) is a, or a series of related,
clinical trials. There are however some potential pitfalls with the process, with the
definitions used in the Determination not necessarily those used in common practice:

1. Some clinical trials, such as those evaluating diagnostic tests or medical devices are
not covered because of the terminology chosen in the Determination rather than any
inherent probability they do or do not meet eligibility criteria for a Core Activity. In
this context it should be noted that Clinical Trials are experiments conducted with
human subjects that require the approval of a Human Research Ethics Committee
(HREC) prior to their commencement: it is generally considered unethical to conduct
experiments with human subjects in an unscientific manner, or for which the
outcome is already known [1,2].
2. Certain aspects of conducting a clinical trial, for example obtaining HREC and
regulatory approval, reporting requirements and manufacture of the unapproved
therapeutic good(s) for use in a Clinical Trial, can be considered outside the definition
of a Core Activity. It is however not clear from the draft determination how these are
to be assessed. We suggest the simplest approach is to include any Supporting
Activity that satisfies the dominant purpose test for a Clinical Trial be included,
regardless of its exact nature.
3. It is unclear from the draft how the Determination could be applied to the
advanced/overseas finding process. The anecdotal evidence of our clients’
experiences strongly suggests the need for some clarity, which will chiefly revolve
around the mechanism by which such Clinical Trials are recognised.

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4. We think the approach of not apply the Determination to Clinical Trials conducted
with generic drugs, instead requiring such activities to be registered in the existing
manner, is correct. Determining whether the Bioequivalence studies conducted with
such drugs meets the definition of a Core Activity is best done on a case-by-case
basis, rather than by a blanket approval. This approach however overlooks how the
Determination might apply to Biosimilars – a version of an already registered
biological medicine (e.g. recombinant protein medicines, vaccines, or polysaccharides
such as low molecular weight heparins) [3]. It is unclear how Clinical Trials
evaluating safety and efficacy of Biosimilars are treated by the Determination.
5. The definitions of Clinical Trials and their conduct in a highly regulated environment
both in Australia and overseas offers good assurance that an experimental activity so
defined will also meet the definition of a Core Activity. Where definitions are less
certain we think the approach to not ‘determine’ is the best approach and instead
rely on the existing process. We cannot imagine another class of experimental
activities that will be so clearly eligible in their entirety that they will also be
amenable to similar treatment. Furthermore we think that attempting to use
Determinations to exclude certain activities entirely would be counter-productive: the
existing legislated exclusions are sufficient.

A number of questions were included with the consultation paper. Our responses to
these are provided below.

1. Is the draft determination appropriate for providing more certainty of access to
the R&D Tax Incentive for clinical trials in Australia? How effective would the draft
determination be if it were finalised in its current state in providing certainty to
your business? Why?

It is a moot point whether the Draft Determination provides more certainty of access to
the R&D Tax Incentive for Clinical Trials in Australia. The heavily regulated environment
under which Clinical Trials are conducted means that ethical considerations around
experimenting with human subjects are paramount. Approval from an HREC is essential
before experimental work can commence ensuring that any Clinical Trial will meet the
criteria of being experimental, conducted according to scientific principles, will follow a
logical progression of work and will be conducted for the purpose of generating new
knowledge. This position has been reinforced by the tribunal decision in JLSP and
Innovation Australia (2016) AATA 23, with Frost SE holding that “[the definition of a
Core Activity]… is the essence of clinical … trials, and the only reliable way that
additional knowledge can be obtained” [4].

What the Draft Determination does offer is the potential for significant lessening of the
compliance burden around lodging R&D Tax Incentive claims for some Clinical Trials
conducted in Australia. As noted above, Clinical Trials are conducted in a heavily
regulated environment, with reporting, documentation and record-keeping requirements
that are guaranteed to exceed substantiation requirements underpinning an R&D Tax
Incentive claim. Condensing the information available into a format suitable for
presentation through the R&D Portal (the process for lodging a claim with AusIndustry)
can be a significant undertaking with a large associated cost for the claimant. By offering
greater certainty to claimants conducting some Clinical Trials, the Determination will
reduce this additional compliance burden and is a welcome move.

However, some problems remain with the Draft Determination (in its current form). For
example:

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• The definitions used are not necessarily in full alignment with common usage in the
Clinical Trial landscape;
• It is not clear if Supporting Activities are covered by the Draft Determination or not;
• It is also not clear if the Determination will apply to the advanced/overseas finding
process; and
• It is not clear if Biosimilars are included in the Determination or are excluded.
We will expand on these points in our responses to the following questions.

The remaining problems mean that the Draft Determination, if finalised in its current
form, would not remove the additional compliance burden noted above for a large
portion of our clients.

2. Should the draft determination be expanded? Specifically do you agree with the
scope of the draft determination including definitions? Do you consider it should
include additional clinical trials? Could it support you more with overseas and
advanced findings? How?

The Draft Determination should be expanded, specifically noting that the scope regarding
definitions is inadequate. Specifically, the definitions of trial ‘Phases’ in the Draft
Determination do not align with common usage. Pages 43-48 of the Australian Clinical
Trials Handbook [2] provide a good overview of current usage. Briefly, while Clinical
Trials with medicines are conducted in phases, Clinical Trials with Medical Devices or with
Diagnostic Tests are usually conducted in stages and can have other names (e.g. Pre-
Market Pilot, Pre-Market Pivotal, Post-Market, or Exploratory Phase, Challenge Phase,
Advanced Phase). Phase 0 trials are defined in the Australian Clinical Trials Handbook
but the term is not in widespread usage: Pilot or Exploratory Study are much more
readily recognised [2,5]. We suggest that clear definitions more in line with those in
widespread use will provide greater clarity for Companies using the Determination and
that additional types of Clinical Trials, all of which meet the definition of a Core Activity
as noted under 1. above, should be included in the Determination as well.

Further to this point, a Clinical Trial will be deemed a Phase IV trial if the therapeutic
good in question was approved for marketing internationally but was still an unapproved
therapeutic good in Australia, or if an approved therapeutic good was being evaluated for
an unapproved use, such as treatment of a disease or condition for which it had not
previously been considered. This inconsistency in the Draft Determination needs to be
resolved.

The Determination would also be greatly advantageous if it could be applied to
advanced/overseas finding applications. The mechanism by which this was possible
should be the same as the mechanism for its application to R&D Tax Incentive
registrations through the R&D Portal.

3. Do you see the potential for the first determination to be abused, undermining
the integrity of the R&D Tax Incentive? Do you consider people may try and apply
to register activities that are not core R&D activities? How?

Given the highly regulated environment under which Clinical Trials are conducted we
consider it is extremely unlikely that this Determination could be abused. The only
potential for abuse we see is if a too-restrictive definition of eligible Clinical Trial (e.g.
Phase 0, I, II, III only) is chosen, then a taxpayer might choose to amend the name of a
study to gain inclusivity for a specific activity. In this regard we note that the

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Therapeutic Goods Administration (TGA) does not advise on study design or whether a
study is defined as a ‘Clinical Trial’ if it is conducted through the Clinical Trial Notification
(CTN) scheme, as most trials (notably early phase studies) are in Australia.

4. Do you consider the finalised determination should identify and require
compliance with any specific framework, guideline or standard, such as the
Australian Guideline for Good Clinical Practice? Why/why not? If yes, what should
be specified?

As noted at 1. above and elsewhere (e.g. [1,2]) all Clinical Trials must be conducted
under the oversight of an HREC and by definition must be conducted according to Good
Clinical Practice (GCP) standards. As such, requiring compliance with any further specific
framework, guidance or standard is redundant.

5. Is there anything that confuses you about the draft determination? Please offer
details.

The explanatory materials around the Draft Determination, and the reasoning presented
verbally in AusIndustry’s webinars (Kim Worthington and Chris Enders from AusIndustry,
together with Michelle Hillard from the Department of Health) at the Draft Determination
consultation stage have been clear. Although we find some issues with the Draft
Determination in its current form, as noted in our responses to other questions, we find
that the consultation process has been conducted in a clear and transparent manner.

6. Is it clear from the draft determination that it does not apply to the all phases of
clinical trial sector but it is limited to specific phases in clinical trials? Is it clear
how phases 0, I, II and III are core R&D activities? Why?

Yes, it is clear from the Draft Determination that it does not apply to all Clinical Trials. As
detailed in our response to 2. above, we think this is problematic and we suggest that
clear definitions more in line with those in widespread use will provide greater clarity for
Companies using the Determination.

As noted in our response to 1. above, it is very clear how all Phases of Clinical Trials
satisfy the definition of a Core Activity [4].

7. Is the explanatory statement helpful in understanding and applying the draft
determination? Is it clear what evidence you would maintain to apply to the R&D
Tax Incentive and that you are still required to maintain evidence of eligible
expenditure? Is there anything that confuses you about the explanatory
statement? How could it be improved?

As noted in our response to 5. above, the explanatory materials around the Draft
Determination are clear, but it is not clear how (mechanistically) the Draft Determination
would be applied to an R&D Tax Incentive claim lodged through the R&D Portal. The
need to retain supporting evidence is clear and we note that the documentation and
record-keeping requirements for conducting a Clinical Trial are guaranteed to exceed
substantiation requirements underpinning an R&D Tax Incentive claim.

8. Would you know how to apply the draft determination when applying to the R&D
Tax Incentive Program? How? What is clear/unclear?

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It is not clear from the Draft Determination or from the Explanatory Statement how a
claimant would apply it when lodging either an advanced/overseas finding application or
an R&D Tax Incentive registration through the R&D Portal. We note that a significant
percentage of (in particular early-phase studies) Clinical Trials are not lodged on the
ANZCTR, for diverse reasons [6,7]. However, all Clinical Trials must be approved by a
HREC and the simplest mechanism for implementation of the Determination would be to
replace all but the ‘Hypothesis’ section of a Core Activity description on the R&D Portal
with a reference to the HREC approval for the specific Clinical Trial (or Trials) in question.

We understand this would require some inputs behind the scenes, but the short term
effort required to update the R&D Portal would be greatly offset by the reduced burden
on officials once it was implemented. We note the Department of Health’s Clinical Trial
Harmonisation efforts, once implemented, will also greatly aid this move [8].

9. Any other comments?

Our views on the Draft Determination are covered in the above responses.

References

[1] https://www.tga.gov.au/clinical-trials
[2] https://www.tga.gov.au/sites/default/files/australian-clinical-trial-handbook.pdf
(version 2.4, August 2021)
[3] https://www.tga.gov.au/publication/biosimilar-medicines-
regulation#:~:text=A%20biosimilar%20medicine%20is%20a,subsequent%20entry
%20products%20(Canada)
[4] http://www.austlii.edu.au/cgi-
bin/viewdoc/au/cases/cth/AATA/2016/23.html?context=1;query=JLSP%20and%20In
novation%20Australia;mask_path=
[5] https://www.australianclinicaltrials.gov.au/what-clinical-trial/phases-clinical-trials
[6] https://www.australianclinicaltrials.gov.au/clinical-trial-registries
[7] https://www.anzctr.org.au/docs/ClinicalTrialsInAustralia2006-2015.pdf
[8] https://www1.health.gov.au/internet/main/publishing.nsf/Content/Clinical-Trials

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