Bridging the communications gap between bucks and biology
Wednesday, 20 March, 2002
For an industry that's touted as the way forward for Australia's economy, there can be a surprising lack of clarity or consistency of views about the biotech sector's prognosis.
Researchers, for example, broadly lament a lack of funding from private and public purses. Politicians, meantime, accuse local investors of failing to pitch in, while the financial sector blames researchers for not commercially packaging their work and governments for not doing enough to entice business to stay local.
To try to crystallise some of the prevailing views about Australian biotech, we invited some of the leading personalities in the Australian biotech community to assess the landscape from where they see it.
Some of their views are surprising, some contentious. But between them, a more consistent picture emerges, of an increasingly confident community that's impatient for success.
Prof Graham Mitchell, one of the principals of consultancy Foursight Associates and an experienced observer of the biotech sector, likes to define biotechnology as a series of enabling technologies, processes and services in the life sciences.
He maintains that Australia is doing quite well with its "one to two per cent" of the global medical biotech effort, and says there are also "pockets of excellence" in agricultural biotech, and environmental biotech has "barely started".
"There are major opportunities for Australia in agricultural and environmental biotech," Mitchell claims. "There are also plenty of success stories in medical devices."
But, he warns, business investment in R&D is "a disaster" - and there is a lack of ability to know when a deal is a good one.
"Biotech should always have a commercialisation angle," Mitchell says. "There is no shortage of money, but there is a shortage of well-put-together deals that will attract investors," he says.
He also believes that tax-related incentives are a necessity to help the industry become competitive.
"We need options at the small end of town and R&D incentives at the top end of town," Mitchell says.
William Hart, the CEO of Neuroscience Victoria, says a cultural change has to occur to help scientists to become more entrepreneurial and see the commercial value of their research.
"Although biotech is an expanding field, it's resting mostly on the potential for commercial investment and if that doesn't happen, support will begin to dwindle," Hart says.
"It's difficult for scientists in Australia to be successful commercially because it often means suspending publication to protect company secrets and so forth, and that is anathema to scientists."
IP transfer a challenge
Prof Grant Sutherland, director of the Department of Cytogenetics and Molecular Genetics at Adelaide's Women's and Children's Hospital, has had experience with public and private research in Australia and abroad.
"The number one challenge is to facilitate IP transfer from the public to the private sector," Sutherland claims.
"Australian science is very good - in medical research we punch above our weight internationally," he says. "There are tremendous opportunities for entrepreneurs to commercialise research in Australia."
The problems, he says, lie in getting the IP out of the public sector and into the private sector: "We need a complete change of attitude to allow public servants to go out and translate work from the public sector to industry."
Sutherland says funding for Australian biotech is falling behind, and compares venture capital support of biotech here to that internationally.
"Lots of listed biotech companies have a pretty small market cap," he says. "It's difficult for companies to raise moderate amounts of venture capital at the $15-20 million level."
Australian biotechs need more venture capital support to get them to a point where they can be listed, Sutherland says.
His views are shared by Prof Sir Gus Nossal, another of the principals of biotech consultancy Foursight, who said that while more public funding would greatly assist the sector, his priority would be to evoke more interest and active involvement from "the big end of town" - namely the insurance and superannuation industries.
"They should be showing a lively appreciation that this sector is worth supporting," he said.
"Even dedicating a couple of per cent of their funds to these ventures will reap rich fruit - the fact of the matter is it is both high risk and reward."
And that's up to the venture capitalists, says the executive director of peak industry group AusBiotech, Dr Tony Coulepis.
"They have got to make up their minds as to whether they are in or not, and if they are in they have got to look at benchmarking what happens in other parts of the world and apply that criteria to Australia," Coulepis says.
"The industry tells us that the venture capital community here isn't quite switched on to biotech and so they are having to look offshore."
He says AusBiotech is currently lobbying the government for taxation changes that would make setting up business in Australia more attractive, and so encourage the best people to do their best work here.
AusBiotech's recommendations include a broadening of capital gains tax rollover relief provisions, simplifying legislation in relation to employee share acquisition schemes and increasing the R&D expenditure ceiling for tax rebate from $1 million to $5 million.
Coulepis says that only after the appropriate business structure is set in place can other issues confronting biotech could be addressed.
"The Federal government has got to create an environment that is financially attractive for industry, and as part of that they have got to look at their tax regime," he said.
"They have got to look at our recommendations and unless it moves in that direction, the Federal government is not serious about biotechnology.
"That is not to be insulting, but in order to nurture industry, you have to have an environment that is internationally competitive, not an industry where staff and companies are disadvantaged."
Better training needed
But Dr Geoff Brooke, managing director of Rothschild Bioscience, says it's wrong to believe funding for good research is not available locally.
Brooke said scientists needed better training in product development, which would better equip them to package their work with the investor in mind.
"To say that we don't have the venture capital is bunkum," he said. "There is money available for the right investment opportunities with the right management team."
Far from wringing its hands over the so-called 'brain drain', Brooke says, Australia should be promoting it - shipping young graduates offshore and finding them product development roles with the major pharmaceutical companies of the world. He says Australia's track record in clinical development demonstrates a clear weakness in product development, namely in the pre-clinical and phase I toxicology stages where the value-add could be up to 100-fold.
Another finance industry source, who would not be named, agrees that Australia was no longer disadvantaged when it came to accessing private capital.
"There are more angel investors, venture capitalists, offshore money and specialist brokers now," he says.
"There's plenty of money there but the researchers have just got to package themselves and learn the language of investors."
That's a message echoed by the public and private sectors alike.
Prof Peter Rathjen, head of Adelaide University's Department of Molecular Bioscience, says Australian biotech is extraordinarily naive and "could do with a bit more hard-core credibility."
The key, he says, is to get more of Australia's top scientists into industry.
"How many top scientists in Australia are commercially focused?" he asks, claiming that a "follow-me" mentality in Australia is leaving no room for innovation.
It's no surprise that Rathjen, a prominent academic, is also outspoken on the issue of university funding.
"The university sector is grossly under-resourced," he says. "Australia is publishing more but being cited less."
Universities are opting for safer research programs as a result, he says.
"Australian universities have no idea when it comes to commercialisation of research, and they are enormously understaffed," he says. "University rules also prohibit scientist shareholding in commercial ventures."
Rathjen says that when he first got involved with commercial science, running his stem cell research program in collaboration with Australian biotech company BresaGen, he believed that academic scientists shouldn't have a financial interest in biotech companies. Now, however, he believes "scientists should have some stake in companies they are involved with."
Another academic, Prof Dennis Lincoln, the new dean of science at the University of New South Wales, says it's equally important for universities to work with a proactive state government.
"It is important that state governments and universities work together to achieve international competitiveness and, though that, economic growth," he says.
"One of the biggest things we (UNSW) have to work at is how we get the state government on side. I came from a state (Queensland) that has the smart state philosophy, where they put money on the table. It's got to happen in NSW."
And Queensland Premier Peter Beattie, who has lobbied hard to turn Queensland into the 'smart state', says national policy makers must get up to speed with bio-industry initiatives that have gone forward at the regional level.
"We need a national strategy to develop biotechnology (infrastructure) and we need a national education strategy to develop the necessary innovation and skills," Beattie says. "We are doing it at a state level but it is not being done nationally."
Victorian Innovation Minister John Brumby agrees.
Brumby says Victorian projects - such as the synchrotron at Monash and Bio21 in the Parkville precinct, as well as initiatives including the Technology Commercialisation Program and the pending appointment of a departmental director of biotechnology - are pushing the sector forward at the state level.
But he says a more coordinated approach is required to build Australia's reputation for biotechnology internationally.
"There's still a huge number of high quality research proposals that are never commercially developed and it's a waste of the wonderful scientific work we have," he says.
Brumby says another weakness is the way Australia is marketed overseas, where too much emphasis continues to be placed on old economy issues rather than the nation's strengths in science, technology, biotech and IT.
He says it's up to the Federal Government to take leadership in this area and provide a coordinated focus.
"They seem to be leaving it up to the states, and we're happy to do that, but I think the industry could do better if the Feds were standing beside us," he says.
"The average US citizen or investor doesn't know much about Australia and that is why marketing, promotion and branding is so important, but it's too big a job for the states alone."
John Martin, vice-president of Sydney biotech Proteome Systems, says it's appropriate to compare science with sport.
"Australia spent a fortune on producing high-level sporting achievements because of the sense that we can't be embarrassed as a sports nation," he says.
"Why not apply similar thinking to the biotech sector? How do we create knowledge industries in Australia that are going to last generations?"
Current funding programs, he says, are "pathetic - little bits of money are being sprayed around, a couple of million in Adelaide, five million in Brisbane.
"No one will use the language of excellence in this country other than connected with sport. We don't expect in any other sector and because we don't expect it the government doesn't react to it.
"Government reacts to where the Australian public shouts out loudest about our failures, and because we don't have the history that's why we don't have the support."
But maybe science is its own worst enemy. At a basic level, says Prof Peter Andrews, co-director of the Institute for Molecular Bioscience in Brisbane, the supply of good chemists in Australia has become "ludicrous" - bio-business Alchemia, for example, a carbohydrate chemistry specialist, is forced to hire half its staff overseas.
Tertiary institutes are producing only a fraction of the chemists per population that were being generated in the 1960s, Andrews says.
"We need to vastly increase investment in early primary and secondary school science teaching." Tax issues surrounding start-up biotechs is another area crying out for repair, Andrews says. University researchers attempting to transform their hard-earned intellectual property into equity in a commercial start-up can face crippling bills from the Australian Tax Office.
It is a major disincentive toward commercialisation of research and although Canberra's attention has been drawn to the issue, "nobody is dealing with it," says Andrews.
Greg Harper, chairman of AusBiotech's Queensland chapter and a CSIRO research biotechnologist, also warns that a shortage of good people is a limiting factor for Australian biotech.
Overall, the industry appears to enjoy a comfortable supply of biotech workers but in critical disciplines and segments of the market, "a real dearth" is developing, he says.
"What's happening is that we are going post-genomic. We are going into proteomic, metabolic and cellular areas where there will be shortages (of trained scientists)."
Government funding has created a range of new institutes and deserves credit for infrastructure investment which is having a positive effect on industry. The question now is where the staff will come from to fill these centres, he says.
Dr Jackie Fairley, CEO of Melbourne company Cerylid, says Australia's lack of experienced biotech management is partly because the industry is a young one, with a relatively large number of small companies.
But Fairley is another prominent bio-businessperson who blames the capital market for holding the industry back.
"It would be good to see the capital market responding in the way that it has in the US, with increased institutional investment into Australian biotechnology," she says.
Fairley says Australian companies often go public at a very early stage of development, which imposes a financial reporting structure on the company that impacts on the way the company does research.
While initiatives such as the Victorian government's Bio21 initiative are excellent for small companies just getting started, she says, more initiatives are necessary for established companies so that they can focus on the all-important science and IP issues.
Fairley cites Australia's excellent quality of science as being one of Australian biotech's strong points. She adds that the public sector is becoming increasingly commercially literate and that the government recognises the benefits of biotechnology.
"You get a lot of bang for your buck here," she says, comparing Australia with other countries, explaining that the cost of living and salaries in Australia make it a competitive place to do biotech.
Dr Peter Devine, business development vice-president for Queensland anti-cancer drug developer Progen, agrees. The industry's lack of training and experience in commercialisation skills is particularly noticeable when contrasted with the country's "excellent scientific base," he says.
The industry probably needs to reach larger critical mass before it can provide the practical training needed to redress the situation.
And despite government moves to provide more funds, there is still a scarcity of seed and pre-seed funding to sustain young start-ups until venture capitalists take an interest in them, Devine says.
The business of building a skills base for industry is crucial, says Proteome Systems CEO Dr Keith Williams.
"We're working with about a dozen companies," he says. "We spun off one company, Biorobotic Systems, to supply assemblies for Proteome Systems, and soon people will realize they can use this company and it will have a life of its own.
"That's how you build an industry, I think - that's what happened in Silicon Valley. Near us, there are some big companies like ResMed and Gradipore and a pile of start-up companies.
"By building the skills base in Australia we won't have to move offshore to find contractors. The reason you don't want to shift things offshore is that you miss the flow-on benefit."
Australian biotech, Williams says, is "really good on basic research but lousy on commercialisation".
"You get government support to turn the lights on, but to do some stuff it's a harder road," he says. "There's almost a tax on success. If they think you are going to survive, they don't want to help you with loans.
"But universities are in much more trouble - they are being treated really badly. Having left that world, the pressure they work under makes it very difficult to do any research and development."
Dr Merilyn Sleigh recently left a university dean's position to form a start-up, Evogenix.
"A tremendous number of small companies is starting," she says. "The question is, how do all those small companies survive? Each of them has to find money and there is quite of lot of money for the first stage - but then what's next?"
Evogenix has a novel platform technology to evolve proteins for therapeutic or diagnostic purposes. The company is looking for commercial partners, for example, to further develop another company's therapeutic antibody so that it may potentially block cancer.
"If you compare evolution of an Australian biotechnology company to the evolution of a US company, the US company is probably raising 10 times the money at every stage so for an Australian company to be competitive with a US company is very difficult.
"The solutions are either that small companies get together and become slightly larger companies, or they can go overseas - but that sends the value overseas - or float onto the stock exchange .
"A lot of companies fall into the trap of listing because it seem to be a way to get money, but it really then inhibits you from getting further money.
"Smallness is really our problem. Smallness of funds, smallness of companies, and not much of a history of companies working together."
Dr John Ballard's company, Adelaide-based GroPep, recently completed a successful takeover of Sydney company Biotech Australia. Ballard agrees that small is not necessarily beautiful when it comes to a viable biotech industry.
"There's lots and lots of companies that have started here, and probably what that means is lots of little companies will not survive," he says. "Why would we assume it can be done here, when it is not done in the US which is definitely the model that most people are following?
"Companies have listed very early indeed, way earlier than they would in Europe or North America. I suspect we'll see a great difficulty for those companies to go back and get more money. In the US it's more normal to have four or five rounds of investment before listing on the stock exchange."
Australian investors, he says, aren't known for their deep pockets. "They'd rather assume that once a company is listed on the stock market that it is a sustainable organisation," he says.
"For biotechnology to grow there has to be a fair few mergers in Australia. I predict there will be lot more start-up companies, there'll be difficulties raising money and there will be plenty of mergers."
But the industry as a whole, Ballard says, is very positive - "the public sector is doing lots of excellent research and coming up with discoveries that need commercialisation."
Another scientist with a positive outlook is Prof John Mattick, co-director of the Institute for Molecular Bioscience - bio-industry is better off now than it was a year ago, he argues.
One reason for his optimism is that the Australian Research Council is awash with new funds that should find their way into the biotech sector.
ARC funding has been doubled over the next five years and the council has selected genomics, phenomics and complex systems as priority areas. All three are "extremely relevant" to biotech, says Mattick. Independent consultant Dr Kelvin Hopper, principal of Aoris Nova, predicts a different kind of biotech industry as it moves forwards.
What we will see much more of going forward are hybrid companies that don't deal so much with molecular biology as with putting material into devices and making actual product," he says. "It's what Cochlear has done, for example, and ResMed - it's not so much molecular biology as very sophisticated technology."
Bioinformatics is another exciting area to watch, Hopper says. "So much information is becoming available, that the challenge now is to put that information actually into products - for example, diagnostics based on chip technology."
And we're also likely to see more established Australian companies set up international bases, as BresaGen and Proteome Systems have done. But Hopper adds that smaller companies will face difficulties, both in raising capital and advancing their products.
All up, though, Australian biotech is doing "reasonably well," Hopper says - for a small nation with few global players.
Australia's biotech industry is in a healthy state and poised to take the next step up, says Dr Deborah Rathjen, CEO of Adelaide company Bionomics.
Australian biotech is entering a phase of rapid growth, Rathjen says. "There are lots of great ideas and lots of terrific science in Australia - the challenge is turning those ideas into business," she says.
Rathjen says Australia faces some big challenges, including potential difficulties with obtaining strong management skills.
Bionomics has recruited several key international people to its board, including Dr Chris Henney, founder of successful US companies Immunex and Icos Corporation, and Dr George Morstyn, an Australian who was until recently a senior executive at Amgen, to provide operational and strategic experience to the company management.
But getting access to capital is another challenge to face, Rathjen says: "A lack of sufficient capital will inhibit the industry." While she praises the support Bionomics has received from both the South Australian and Federal governments, she would like to see greater access to capital for both private and public companies.
Weed out the weakest links
"Australia's environment is not as tightly linked to the global fast track as one would like," says Dr Jonathan Izant, director of business development at the Garvan Institute of Medical Research in Sydney.
"Some people would like to tell you the weakness is in one link in the chain; that it's all technology transfer out of research centres and universities, or that it's all due to inexperienced investors, or that it's all tax law or it's all lack of management.
"I can readily identify several different areas where there are weak links in the chain." he says.
Izant says many of those weaknesses are due to inexperience, not necessarily lack of capability, and three areas need to be addressed to align the industry with international standards.
Firstly, more competitive funding of basic research is needed, he says. The average Australian research grant is four-fold lower than what their competitors receive in the US, for example.
Secondly, tax harmonisation needs to occur - "it would be great if an investor could look solely at the technology, whether it would be something available in San Francisco or Australia. "
And thirdly, venture capitalists and angel investors need to be more confident - and more generous - in earlier stage higher risk investment. Local investors are simply not as experienced or as cashed-up as their US counterparts, he says.
"It is partly because very few people in Australia live next to people who have made all their money out of life science," Izant says. "It makes them hesitate a little bit more to go into what are intrinsically risky ventures.
"There are also concerns that there is not enough experienced management [in Australian biotech], but our experience is that if you are willing to pay international rates you get international calibre managers both in Australia and overseas."
The tyranny of distance can be a barrier, he says. "Not only do the investors overseas not see the people here all the time, but many of the people here don't see their competitors everyday, they don't see how much training their competitors do in the US and Europe."
There is a cultural component to the problem. "There aren't as many people who are willing to get their hands dirty by going out and just competing tooth and nail with everyone else," Izant says. "Most Americans tend to be more aggressive and proactive, and that is necessary in order to entice international investors.
"But we are not going to be a global success by simply mimicking what our competitors do, we have to find a different strategy to get there.
"It's a bit like guerrilla warfare. You are going to have to come in and play it a little bit smarter and work harder. There is enough fundamental skill and IP expertise to make that strategic play."
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