Big pharma's big commitment

By Tanya Hollis
Monday, 12 August, 2002


In two years' time, a Federal government program credited with encouraging the injection of vital funds into Australian research and development will draw to a close.

The Pharmaceutical Industry Investment Program (PIIP) offered nine major drug companies a share in $300 million over five years to increase their investment, production value-add, and R&D activity in Australia. In its first year, the program boosted productivity among these companies by more than $200 million, while R&D spend on average grew by about 29 per cent.

Predictably, the companies involved and the industry at large have applauded the incentive, set up in 1999 to counter the low prices big pharma receives for its drugs on the Pharmaceutical Benefits Scheme. But praise has turned to anxiety in recent months, with no word from the government on a successor to PIIP after July 2004.

One step taken by the Department of Industry, Science and Resources has been the establishment of the Pharmaceuticals Industry Action Agenda taskforce, chaired by Institute of Drug Technology managing director Dr Graeme Blackman. The Action Agenda, which has been out for discussion since September, sets the scene for the Australian pharmaceutical industry and lays down a possible framework for a PIIP successor. The draft is expected to go before Cabinet in the coming months, for the time being leaving a large question mark over the future of big pharma investment in grass roots R&D.

Participants in the PIIP are Amrad, which received $20 million over five years, Bristol-Myers Squibb ($39 million), CSL ($60 million), Eli Lilly ($19.9 million), FH Faulding ($40.3 million), GlaxoSmithKline ($27.4 million), Janssen-Cilag ($17.5 million), Pfizer ($38.9 million) and Pharmacia ($33.9 million).

Most of the companies contacted by Australian Biotechnology News cited the initiative as the predominant reason for their introduction of R&D investment programs.

At Eli Lilly, the PIIP helped the company's local arm clinch the support for Australian R&D from its global headquarters in the United States. Director of corporate affairs and health economics David Grainger said that most of the development work done by the Australian base of the company up until recently had been post-Phase III and non-registration clinical trials conducted under US-developed protocols.

Grainger said the PIIP funding had enabled Eli Lilly Australia to expand that role into the development of protocols through to the collection of trials data with the establishment of one of only three Lilly Data Management Centres worldwide. In addition, Grainger said that in the past 12 months the company has become more active in identifying basic research and discovery collaboration opportunities.

"I think our experience has very strongly supported the view that investment incentives are a good way of getting global R&D people to pay more attention to Australia," he said. "The PIIP has been a very good way of getting proposals over the line in terms of pitching to the corporation."

Grainger said that while no partnerships had as yet been set in stone, and no budget had been determined for basic research investment, the company was currently in talks with three biotech companies. He said Eli Lilly was initially interested in talking with groups that had identified specific molecules, but said the local company was also trying to interest the corporation in investing in horizon research such as stem cell technologies, as well as in enabling technologies.

"The R&D side has really been driven by our end more so than the corporation and it comes out of a universal frustration that it's quite difficult to get the ear of corporate R&D investors because of the sheer explosion of biomedical research worldwide and the enormous range of opportunities in the US that make it hard to get people to look elsewhere," Grainger said. "The volume and quality of research in Australia has increased dramatically in the last few years, as has the realisation that we need to dedicate more resources to it here."

It has been a similar story for Pharmacia, which recently secured head office support for a foundation to back a range of scientific fellowships and collaborative projects. Having previously budgeted $20 million annually for clinical development work, the US-based company has decided to expand into basic research through its Pharmacia Foundation Australia: Partnering Excellence in Medical Research.

"We saw a significant opportunity to access Australian biomedical innovation," said the foundation's Dr Dennis Feeney. "The whole vision is to get Australian innovation to the world, that's the noble aspiration of it all.

"So, as a corporation, we'd like the opportunity of commercialising Australian innovation." The foundation will offer two five-year fellowships annually, each valued at $170,000 a year, with the intention of supporting senior scientists within Australia or attracting expatriate researchers. It will also comprise a Discovery Research program through which Pharmacia will partner with groups conducting complementary research in such areas as inflammatory disease, cancer, ophthalmology, cardiovascular and related metabolic diseases.

"With the discovery program, the whole vision is to become the preferred industrial partner for basic biomedical collaborations," Feeney said, explaining that the first partnership is with Melbourne drug delivery group Acrux, to whom Pharmacia is supplying its proprietary compounds. Feeney said there was no set budget earmarked for the program, with cash being allocated as opportunities arose.

Another company that has set up a special unit to deal with R&D investment opportunities locally is Merck Sharp & Dohme, which distributed brochures about its Review and Licensing Committees (RLCs) at the June Medical Research Week dinners. This small group, head by Merck's Australian director of medical and scientific affairs Prof Graham Macdonald, is responsible for making contact with local biotechs and research institutes that may have new compounds with therapeutic potential, validated drug targets or new platform technology. They then help in preparing a proposal to be put to the parent company's RLCs for consideration for potential commercial partnerships.

Macdonald would not be drawn on the amount of money earmarked for Australian R&D partnerships, but said that after 12 months of looking for IP opportunities, the company was currently reviewing about six local projects. He said that while there was a general acknowledgement of the quality of Australian research and innovation, as well as positive support from state governments, the issue of PBS pricing remained a sore point for big pharma.

"The perception of the PBS is on the whole unattractive, and given we have other countries in the region that take a more positive attitude to reimbursement, if it comes down to the line, that's not a good thing for Australia," Macdonald said.

It is a point agreed upon by most in the industry and highlighted by the Action Agenda, which calls for a whole of government approach to the industry. Colin Armit, president (pharmaceutical group) for CSL, which spends some $81 million annually on R&D, much of it in Australia, said the Federal government needed to gain a better understanding of price versus investment. "Decisions taken by the Health Department [in relation to the PBS] have impacted and even negated decisions taken by the industry portfolio," Armit said.

"The key will be whether the government does create a successor to the PIIP and what form or shape it will take." Armit said a further issue for the government was in tax reform, explaining that the challenge would be to find a means to provide appropriate incentives along the lines of hugely successful programs in Singapore and Ireland.

According to the Australian Pharmaceutical Manufacturers' Association Facts Book, the local pharmaceutical industry represents about 1 per cent of the world market, with about 120 companies and a total turnover of more than $6 billion. In addition, the industry has over the past decade become Australia's largest non-government source of funding for medical research, spending $320 million on local R&D in 2001/2002.

But despite this commitment, the Action Agenda points out that some companies have indicated that new investment may not be entered into as existing operations are run down over time, although much of this is on the manufacturing side of the businesses. It says the perception of a difficult operating environment added to the competitive pressures faced by Australia-based operations, particularly in light of investment incentives offered by other countries.

This was despite a study commissioned by the Department of Industry, Science and Resources last year finding that, when compared to 14 other countries as an investment destination for R&D intensive activities, Australia offered the lowest costs.

Dr Denis Wade, who is managing director and chairman of Johnson & Johnson Research, an independently run Australian subsidiary of J&J in the US, said a major problem for Australia was its shortage of people skilled in the business of science. J&J Research has a staff of 40 working in its Sydney lab and a host of collaborations with universities and other research establishments. Wade said he could not disclose the amount of money spent by the company on R&D or the names of collaborators, describing it simply as a major investment. He said the company conducted research in product areas complementary to and separate from its parent company's therapeutic interests, and while J&J in the US naturally had the first right to licence, the local arm was also free to licence technologies externally.

Wade said there were many great opportunities for research collaborations in Australia, with a sea change in attitudes towards investment in the sector meaning that no major idea should fail because of a lack of funding. "But Australia does have a shortage of people skilled in the science business and I think that's a much more important issue, as is the issue of understanding the philosophy behind identification and protection of IP," Wade said. "These are the biggest problems that need to be overcome for Australia to develop a significant indigenous biotechnology industry."

At Pfizer, collaborations with the Australian research sector began about three years ago. In the period 2000 to 2005, the company will spend $80 million on local research activity, of which about $25 million will be put into discovery. Samantha O'Connor, Pfizer Global Research and Development's strategic alliances principal, said the parent company did not suffer from a "not-invented-here" syndrome, and was keen to establish partnerships within the Australian sector that had synergies with Pfizer's global research program.

O'Connor said the company currently had collaborations across biotech companies, hospitals and institutes including the Garvan, CSIRO, John Curtin School, Mater, the Children's Hospital at Westmead and universities in almost every state. She said the move into basic R&D support was instigated purely on the back of the PIIP. "Australia is seen as a poor investment climate because pharmas receive lower prices for products in Australia than elsewhere," O'Connor said.

"The government does recognise this and that's why the PIIP was put in place, and it's because of PIIP that we started off our discovery research program." Other companies that have been conducting research in Australia for some time are GlaxoSmithKline, which helped develop Australian flu drug Relenza and slow release morphine product, Kapanol; AstraZeneca, which has a long running alliance with Griffith University; Sanofi-Synthelabo, which has several research programs in areas including cancer, obesity and deep vein thrombosis; and Schering AG, which recently teamed up with Neurosciences Victoria in a three-year academic research and industrial development partnership understood to be worth $25 million.

Glaxo, which invests some $20 million annually into local R&D, said it was keen to form partnerships with Australian biotech and was actively seeking alliances with groups offering good ideas and promising compounds. Company spokeswoman Nikki Capp said Glaxo Australia ranked in the top 20 industrial contributors to R&D, and invested more in local vaccines research than any other manufacturer. Capp said the company currently supported more than 20 R&D discovery projects and about 80 clinical trials across Australia, and was also home to one of three Glaxo genetic screening sites.

Like Pfizer, Glaxo Australia's discovery collaborations cover universities, research institutes and hospitals in most states, including an immunology project with Amrad and the Walter and Eliza Hall Institute in Victoria, respiratory research at the TVW Telethon Institute for Child Health Research in Western Australia and diabetes work at the University of Queensland.

Queensland's Griffith University has benefited from an injection of more than $100 million over the past decade from AstraZeneca, which has helped establish a global centre to screen natural product chemicals from Australian and international flora and marine life. Associate director for scientific affairs Dr George Moore said about 50 scientists worked at the centre, applying high-throughput screening to test thousands of natural product extracts.

The company's other research collaborations include sole industry partner support for the CRC for Chronic Inflammatory Diseases, with an investment of $500,000 annually for the seven-year life of the project. It is also one of several commercial partners in the CRC for Asthma, contributing $100,000 annually over seven years.

Despite these substantial investments, the local pharmaceutical industry remains concerned that more action needs to be taken to ensure opportunities are not lost to more proactive countries. The Action Agenda says that the head offices of multinational firms can easily overlook Australia because of its size and distance from their headquarters, and also because of a lack of familiarity with the business-operating environment.

At the same time, it points to the large number of drugs coming off-patent, changes in screening technologies offering improved methods for lead compound optimisation and genetic research advances as providing great opportunities for the Australian pharmaceutical scene. It says that these changes are leading big pharma to increasingly outsource research, with companies and research institutes now supplying IP to large companies through partnerships and licensing agreements, receiving in return capital and access to regulatory systems knowledge and global markets.

"All these forces for change present an opportunity for Australia to be an important player in the global pharmaceuticals industry in its areas of relative strength and expertise," it says. In the meantime, it is up to industry to make its needs known and to lobby governments for continued incentives to make local biotech attractive to big pharma or risk losing the investment of multinationals to countries that do.

Biota's experience

Hindsight is always 20-20, especially when you're a small biotech company looking to develop a relationship with a pharmaceutical giant. For Biota Holdings (ASX: BTA), the first exposure to big pharma came in 1989 in the form of GlaxoSmithKline.

At that time, GSK was alerted to the Australian development of a pioneering compound, now known as Relenza, which appeared to kill the influenza virus. Relenza was the result of a partnership between Biota, Dr Peter Colman at the CSIRO and Dr Mark von Itzstein at the Victorian College of Pharmacy. GSK Australia stepped in at the discovery phase, investing $35 million to support research activities and to conduct its own Phase II and III clinical trials, development and regulatory work.

The local arm also managed to attract investment from its parent company to the tune of $275 million to further develop Relenza, finally launching it in 1999. Biota says that while the drug giant's investment was necessary to make Relenza a reality, the biotech's relative inexperience in such relationships led it to relinquish some control over its discovery. "When you are a small biotech, with a limited number of people and limited experience in the area, it is often the case that the big guys take a lot more control than you would perhaps like," said Biota's director of research Dr Simon Tucker.

"But if you want more control as an organisation, you need the means to wield it, and now we are a different company with more people and expertise." Tucker said Biota retained much control of the Australian research, but lost it as the development phase shifted into the latter stages. "The control then passed further and further towards GSK as things progressed towards the clinic and then it was into the realm of the big guys and their huge resources, and it is somewhat inevitable that you do relinquish control," he said.

Asked whether anything specific happened as a result of this shift in control, Tucker said it was possible that some time may have been lost in clinical development because of missed opportunities. But he conceded that such situations often occurred in the development of trail blazing, "first in class" compounds. Tucker also pointed out that Biota had since engaged in a second partnership with GSK over a second-generation product, and that it was progressing smoothly.

The company had also since engaged in a "superb relationship" with US group ThermoBiostar Inc over a diagnostic product, and had entered into other undisclosed collaborations. Biota chairman John Grant said that the company's future collaborations would ensure the developer retained input in the commercialisation process. "Some of the fundamental building blocks of a relationship were not established in the past and as the owner of technology, we want to be involved alongside our collaborator," Grant said.

"It is important for the owner and developer of the technology to have a close ongoing relationship with the collaborators, to be able to contribute more to the collaboration and to be able to learn from the process."

GSK Australia declined to comment on their relationship with Biota, explaining that anything it had to say could be interpreted in such a way as to affect Biota's share price.

Under the drug company's deal with Biota, GSK has the global sales and marketing rights to Relenza, with Biota receiving a percentage of all sales and milestone payments. Grant said that while revenue streams from Relenza did not appear in Biota's interim financial results, they would appear in the company's end-of-year accounts.

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