Biotech stripped raw

By Graeme O'Neill
Wednesday, 20 November, 2002


Listen carefully and one can almost hear new biotechnology companies sprouting from Australia's bioscience research landscape.

While established players struggle to survive and prosper in a fickle market, rising research funding and investor optimism has fuelled a boom in the industry's maternity ward. Australia's infant biotech companies are seeking materials, services and advice -- and because for most, the game is new and bewildering, the industry's suppliers are at full stretch trying to meet their needs, and establish durable relationships with the next wave's winners.

"The biotechnology industry is seeing exponential growth," says Tony Coulepis, executive director of the industry's peak body, AusBiotech. "There are now about 300 biotechnology companies in Australia, and the growth has been very sharp. If you add in device companies in the biomedical area, the total for the sector is probably closer to 700 or 800 companies."

'Navigating the maze'

AusBiotech is a unique resource for navigating the maze, according to Coulepis. "We're one of the few organisations in the world which has corporate, individual and student members.He says AusBiotech has devoted considerable effort to establishing networks within its membership that can be used to put established or new members in contact with individuals, companies or academic organisations that supply materials, services, devices or advice.

"We're doing it at a high level, through our newly established CEO Club," he says. "We bring CEOs together for dinner and an informal chat. It's surprising how much networking and collaborative activity they spin off."

Coulepis says the industry is well served by the association's collective expertise in three key areas: genomics, proteomics and bioinformatics, as well as in fields like agriculture and stem cell technology.

The Australian biotechnology industry is small but diverse. On the supply side, companies have to cater for orders across the spectrum from the routine to the rare, and in boutique to bulk quantities. Most raw materials, including fine chemicals are sourced overseas. Price varies with purity, quantity and source, according to Rex Gordon, managing director of Tiger Chemicals in Melbourne, which supplies Australian pharmaceutical companies and research laboratories with fine chemicals and intermediates. Gordon says much of the synthesis of drug intermediates is carried out in countries like Ireland, Singapore and Puerto Rico, whose governments have provided substantial tax incentives for manufacturers to set up plants.

Tiger Chemicals sources most of its fine chemicals from China, India and Eastern European countries, where they can be cheaply made, often in plants with cGMP and TGA/USFDA approval. Gordon says the savings can be significant, especially over the patent life of a new drug -- raw materials may be only a quarter of the price of rival products from first world companies. He says the company has been seeing strong growth for "backbone" type fine chemicals for pharmaceuticals -- particularly in Victoria -- as companies seek to develop more potent or effective variants of existing therapeutic compounds. Combinatorial chemistry is another growing area.

APS Fine Chemicals in Seven Hills (Sydney) is another national supplier, providing analytical products including high-pressure liquid chromatography solvents, acids and alkalis to the biotechnology industry through a network of distributors, mainly in the major cities. Arun Ogale, manager of APS's fine chemicals division, says "We supply a few biotech companies, and some of the medical research laboratories -- anybody who requires specialised reagents or exotic chemicals for analytical work." Ogale says many companies are trying to get into the biotech business, and the industry's fragmented nature makes it problematic to service. But he is optimistic about its future -- "There's a lot of hype, but the segment is improving gradually because a lot of money is going into research," he says.

One-stop-shop

If there is a one-stop-shop for materials, services and advice for Australian biotechnology companies and research laboratories, it's the multinational biopharmaceutical supply company Sigma Aldrich. General manager John Wright says the company's catalogue runs to 85,000 products, for molecular biology, biochemistry and analytical chemistry.

"We work through the development with our customers, helping them to scale up -- we cover everything from catalogue products to custom synthesis," Wright says. "We give scientists more control and more information to help them in their decision-making on the products they require for their discovery programs.

"The biggest game in town is the academic segment -- the medical research institutes, CSIRO, and the universities -- but we're starting to see the emergence of substantial companies like Chemeq, Novogen, Panbio and Boron Molecular.

"Through our raw materials business, we touch virtually every academic and private biotech research laboratory in Australia."

Wright says Sigma Aldrich distributes its products across Australia, and across the Tasman to New Zealand, from its large warehouse in Sydney. It specialises in high-value, small-volume products: buffers, obscure organic compounds, molecular biology products including PCR enzymes, oligonucleotides for gene probes and PCR primers, and specialised cell- and tissue-culture media. The company also has a strategic alliance with Proteome Systems and Shimadzu, developing and supplying specialised 2D gel electrophoresis products for protein isolation and identification.

The market is huge, highly fragmented, and evolving rapidly Wright says, and it's difficult to define. "There's a lot of learning involved in getting products to our customer base, and we have to work smarter. "The biggest change in our business has been fuelled by the web -- it has provided great efficiency, particularly in servicing the academic segment."

Wright says that in terms of what is happening in Europe and North America, the biotechnology industry is still in the early phases of development -- "But we hope it's going to be very successful."

GeneWorks, in Adelaide, and Proligo, in Brisbane, are two smaller companies that supply PCR products and custom oligonucleotide synthesis services to the biotechnology industry. GeneWorks, an early spin-off from BresaGen, serves a wide range of customers in research hospitals, medical research institutes universities and research and DNA-diagnostics companies across Australia. Victoria is the company's biggest market, according to product manager Robert King.

"We produce general primers for PCR and sequencing, oligonucleotides for DNA sequences or detecting gene fragments in applications such as genotyping, gene discovery and disease diagnosis," King says. "The market is growing steadily, especially in the private sector, as measured by growth in our oligonucleotide business, which is running at between 10 and 20 per cent per year.

"The industry is moving towards new methodologies that require specialised oligonucleotides for large-scale work, or which are labelled with a variety of side molecules -- the biggest trend is towards fluorescence labelling for real-time PCR.

"Fluorescence labelling allows you to observe the progress of the PCR reaction instead of waiting until the reaction is over to see what you've got. "You can see how much starting material there was in your sample, or whether a particular mutation is present, as the reaction proceeds."

Enzyme variety

GeneWorks provides a variety of PCR enzymes for specialised applications, including enzymes that maintain fidelity at higher temperatures. The company also produces antisense oligonucleotides to study gene activity in cells -- the molecules are designed to resist degradation, and when injected into cells, disrupt the activity of target genes. There is also a trend away from traditional diagnosis of infectious diseases with immunology-based techniques such as ELISA tests, which tend to be slow and expensive, towards DNA-based diagnostics that use PCR primers to detect and identify pathogens from distinctive DNA sequences.

He also says it's a hard market to service, because of its diversity and the pace of technological change -- "You have to know exactly what is happening ahead of time, which means keeping a close eye on the research literature to anticipate demand for new services and products. That's a challenge for a small company."

The biotechnology industry's growth is also fuelling demand for gases, according to Flavio Finotello, business manager for scientific gases at BOC Gases in Sydney. BOC is Australia's biggest supplier of industrial gases, with 600,000 customers. It supplies the biotechnology industry with high-purity gases such as compressed nitrogen, helium and hydrogen for gas chromatographs, mass spectrometers and other analytical instruments.

The biotechnology industry deals with many perishable biological materials -- animal and plant tissues, sera, and vanishingly small amounts of precious proteins that denature rapidly at room temperature. BOC's Cryospeed service supplies laboratories and manufacturers with cryogenic gases -- liquid nitrogen and frozen carbon dioxide (dry ice) -- for long- or short-term biomaterials storage. "We're keeping an eye on emerging business opportunities in the biotechnology industry," Finotello said. "We deliver more than just products and services -- we try to be proactive, so we run seminars on using industrial gases, and safety courses.

"We also have a national network of laboratories servicing scientific research, staffed by scientific sales specialists who are all scientists themselves. We offer a scientific support centre through a free-call number."

Suppliers' headache

Victoria continues to dominate the biotech industry, both in terms of research mass, and the number of companies based in the state. But according to AusBiotech's Coulepis, there is also strong growth in Queensland, NSW and Western Australia, and South Australia is emerging as a quiet achiever. The sheer number and diversity of biotechnology companies is a headache for suppliers, and Coulepis says the remedy lies ultimately in consolidation through mergers and acquisitions.

"The number of companies is growing, but the growth is not sustainable because there's not enough money to feed it," he says. "Therefore there has to be some form of consolidation. The barriers are not just financial or political, they also involve ego."

As companies develop a critical mass, they will become easier to supply and service, says Coulepis, but the growth of the supply and service industry is ultimately bound up with familiar problems that limit the biotechnology industry's own growth. "When you look at listed biotech companies that are struggling on the Australian Stock Exchange, they're undervalued by as much as five to 10-fold compared to comparable companies overseas.

"That tells us that investors are not really tuned-in to biotech companies being a good, long-term investment -- it's an education issue."

The one thing that would make a real difference, says Coulepis, is taxation changes to free-up investor capital, in line with taxation regimes that now exist in countries like the UK, Ireland, Israel, the US and Canada, and which would encourage more experienced personnel to enter the industry.

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