Building on the foundations

By Jeremy Torr
Friday, 16 May, 2003

Other states may have more surface glitz and glamour, but many local experts agree NSW has the makings of a solid, healthy and expanding biotech industry. Jeremy Torr investigates.

One thing is crystal clear when it comes to biotech development in the Eastern states -- the biggest biotech asset in NSW is the state's infrastructure. Gathering plaudits from across the spectrum of workers, investors and regulators, NSW's efforts have seen uniformly positive feedback from within the industry for both vision and continuity. Rather than allocating money on an election-driven platform, building a new biotech research park or giving tax breaks to incomer companies, the state government has been consistently keen to build a firm foundation of knowledge and expertise, letting the momentum build slowly rather than develop yet another shooting star burnout. This approach has resulted in a slower start than some of the other states when it comes to the eye-catching results of recent years -- many observers agree both Queensland and Victoria are ahead of the First State when it comes to the visibility of a biotech industry. But visibility is not the aim of the game in NSW. Gradually building up a strong and self-sustaining industry sector has been a priority of the Carr government, with a deliberate decision made to keep politics out of the process as much as possible. "There are plenty of other places where funding is allocated on what you could call the 'cocktail party ear' principle," says Prof John Shine, executive director of the Garvan Institute of Medical Research. "That means knowing the right people and saying the right things is just as important as having the good research. But the medical research infrastructure in NSW is way ahead of what goes on in the other states," he says. Shine asserts the real strength of the First State is its well-structured, transparent infrastructure underpinned by solid ongoing support. Support for the best research the industry has to offer, not on any political or agenda-driven flavours of the month or year. Because NSW funding is decided by peer recommendation. This, says Shine, is what has made NSW a good place to work. "Peer recommendation for our funding allocations means that funding is transparent. Which means if there is a good idea, if an establishment does well, it gets more funding -- that's how it should be. It facilitates strong growth. "And if a [research] institute doesn't come up to scratch, if it doesn't travel well as judged by its peers, then its funding is reduced," he adds. This results-based approach also means that funding levels for the premium research institutes are notably higher than in other areas -- up to 60 cents in each research dollar, notes Shine. "That's a really good rate, and much better than other areas in Australia."

Bring on the spin-offs But there is more to a healthy biotech atmosphere than just being able to grab proportionally more funds than in the other states. Continuing to build on the machinery which will allow more research, more cooperation and more funding is paramount when it comes to biotech. Dr Deborah Kuchler, chief executive of the BioMed North organisation says policy at government level must change -- and that NSW is already making those changes. Kuchler has pioneered the drive to involve the health sector in biotech projects, and is keen to see the spin-offs from hospital research achieve commercial fruition. "NSW now has the opportunity to lead Australia when it comes to the involvement of the health sector in the whole biotech industry," she says. "The health sector has traditionally not concentrated on [research] outcomes; that has always been the province of people like the universities and CSIRO. And one of the big stumbling blocks has been that those other sectors have got state and commonwealth support to help commercialise ideas." Kuchler asserts support from former health minister Craig Knowles* has been vital in promoting the winds of change in health research. She says the health sector is a potentially valuable feeder for new developments, and says Knowles as being "very keen and supportive" of the idea that research hospitals should become increasingly involved in the biotech industry. In addition, it seems the NSW government is not just paying lip service to the idea of changes to the way biotech is seen within parliament. The appointment of Frank Sartor as Minister for Science and Medical Research, and Minister Assisting the Minister for Health (Cancer), supporting news health minister Morris Iemma, is hailed by many as a major step forward, and one which adds the seal of official political approval to the industry as a whole. In fact Sartor is so excited about the prospect of a new, vital biotech industry he claims it could well outpace the computer industry in scope and size -- a bold claim indeed. "The bio industries will become dominant in the near future. They will make the IT industry look trivial. It is going to be a massive, massive industry," he enthuses. However, whilst the optimism and the intellectual resources and the will to make it happen are obviously there, there is little doubt that NSW gets a 'could do better' report when it comes to the last brick in the biotech foundations -- funding. "Although most of the financial services companies and a lot of the big players are based in Sydney, NSW is not any better than Queensland or Victoria when it comes to getting money. In fact Melbourne is clearly number one, and the governments in the other states are doing lots of talking about incubators. Whereas in NSW it seems the government is only just getting over its preoccupation with the Olympics," notes Harry Karelis of VC Biotech Capital. Karelis says NSW seems to have established more of a reputation for device development -- successful companies like Ventracor and Cochlear spring to mind -- with the other states kicking pharmaceutical goals more avidly. However, it must be noted that to many start-up biotechs, the actual location of the facility and research is totally immaterial to the likely overseas investor, especially to big US or European VCs. Ventracor CEO Michael Spooner says it is NSW's larger pool of skilled people that make it appealing, and that critical intelligent mass that made the state more attractive to his company than any other location. "The reason we stay here -- and our business really is so global that we can go almost anywhere -- is that there is simply nowhere else I could get such a good cost-to-skill set advantage," he says. "We can afford to employ 10 PhDs instead of one or two, for a third of the cost other places can. And there is a bigger pool of talent, and finally Sydney attracts the talented people we need. The only downside is the employment laws." One industry observer comments that the likelihood of investors knowing where Brisbane of Melbourne were was unlikely, and of no consequence anyway. "Frankly, it is very easy to get parochial about it when it means nothing -- NSW is actually slightly less parochial than the other states in this respect. It just looks at itself as a place for doing business," he notes.

Get out of town This 'location-based one-upmanship' is also noted by Prof John Rostas, director of the Hunter Medical Research Institute (HMRI), based around Newcastle, north of Sydney. But rather than fly the NSW flag over any other location, he argues against the idea that good projects can only survive in big cities. He says the very essence of biotech research is people based, not location specific -- and this is an area where NSW offers real advantages. "NSW has a history of decentralised research," Rostas asserts. "That is partly because of the way people live and where they live. Universities and agricultural research centres are not just located in the cities. The government here supports people who do things, they don't just concentrate on building big, shiny iconic developments like some other states." This approach appears to have paid off handsomely for HMRI, which has pulled in $26 million in funding in the last financial year alone, after just two years in operation in its current guise. "That shows we are not just a small group of researchers in a country town," he smiles. Rostas claims the NSW infrastructure program -- which "value-adds to those who already are bringing in the money" is the envy of many researchers in other areas of the country. He cites several research teams that have moved from other cities to the Hunter Valley, a move which he says goes against the trend for moving to the city in order to pursue the latest research. "NSW's development of research hubs bringing people together to share expertise has been so useful. Craig Knowles was visionary in this respect; he actively encouraged meaningful collaboration where there was little or none before," he says. However, as with any initiative to boost industry activity, the accent is now on continuity if the infrastructure is not to collapse under the weight of a new, expanding biotech industry. Rostas notes the challenge is to keep with the growth in the industry, to maintain the infrastructure in the face of expanding demands on budget allocations. "It will be costly, but it will be better in the long run. It's the difference between a sprinter and a long distance runner. Biotech is definitely a long-distance runner," he asserts.

Strange fruit This necessity for sustained support has not gone unnoticed by the financial sector, which treats biotech in NSW -- in fact in the whole country -- as something of a scientific blackberry bush; tasty once you have plucked the fruit but rather intimidating and potentially injurious on first acquaintance. "The problem biotech has is that it really isn't showing the VCs any returns yet," notes Sydney-based Dr Lisa Springer, director of the national biotechnology group at PriceWaterhouseCoopers. "The funds will definitely get more money if they are successful, but nobody has done that yet," she says. Which brings to light another issue faced by biotechs in the region -- how they present to the market. The idea of the steady path to market and riches is less simple than many expect, Springer says. Meaning the progression from research to funding to IPO to production to a yacht in the south of France is becoming increasingly unfamiliar. "Companies and VCs are having to look increasingly to other options such as mergers and trade sales as alternative avenues as exit mechanisms to make sure they get a return on their investments. IPOs are just not viable right now," Springer adds. Venture capitalist Mike Hirshorn, of Nanyang Ventures, notes that although the capital-raising climate in NSW might not be quite as dynamic as in some other states, the tide is turning. "The perception of Sydney as a tourism and financial centre has really made it complacent [about funding]. It has traditionally been less on the map than Melbourne with its wide range of research institutes that were established after the war," he says. Hirshorn argues that although the provision of the essential services -- patent experts, lawyers and financial advisors -- is more readily available, NSW has always been playing catch-up when it comes to snaring the big grant money for research. "But now I have to say the NSW government deserves a pat on the back. Things like the BioFirst initiative are all to the good," he says. Anyway, if anything, says Ventracor's Spooner, the industry should be moving away from the conventional IP realisation approach, and investing more value-add at the product end of the chain. "Basically, the government needs to wake up to the fact that we need smart manufacturing as well as smart R&D. The current approach frankly belittles what Australia can do. We could bring smart manufacturing her and tap into some massive markets. It wouldn't be hard," adds Spooner. Another direction proffered by Sartor is the possibility of a scheme -- similar in concept to the state's BioFirst program's attempts to encourage overseas experts to return to Australia -- which enables local companies to maintain equity in their IP, even if it is signed over to a large international pharma or manufacturer. "It would be really good if we could see some mechanism to keep our equity on overseas exports. It would not be easy though," he notes. Sartor is less specific and considerably more wary about the state government's ability to become directly involved in funding for local biotechs, however. Although it is an area he says he is keen to explore, he notes that the track record of government-backed enterprises is not a shining one. "It is really hard for governments to back winners," he says. However, despite a certain degree of sketchy weather on the horizon, the overall report for biotechs in NSW looks good. As most of the players agree, however, it will not be an overnight success story. As the Garvan's Shine puts it, time and dedication will be required and the rewards will not be tomorrow. "What is happening is people are recognising that biotech is very important for the future of Australia. It is important not just for our economic wealth but for our social wealth as well," he says. * The office of new health minister Morris Iemma had not returned our call by press time -- Ed.

New minister promotes cooperation "One of the things we have to do is to build on our strengths. We have to find out what initiative and talent we have here and play to it. There is no point us starting from scratch with this industry," says Frank Sartor, newly minted NSW Minister for Science and Medical Research, and Minister Assisting the Minister for Health (Cancer). "All the different states have their own strengths, and our aim is to make sure that we leverage those by using both state and commonwealth and private support. We are using a centralised program to make that happen." The appointment of Sartor as the first Australian science minister has been viewed with interest by most of the state's scientific community, particularly as the man himself is not exactly a lab-stained veteran, previously holding the position of Mayor of Sydney. But Sartor is keen to point out his political, rather than scientific, background is in no way a disadvantage to his role. "My job is to develop a long-term strategy for the state. Although this is the first time there has been a minister of science and medical research, the responsibility is not really too broad for me. My aim is to look at the industry and to make sure that patronage and development continues to happen -- especially in the area of cancer research," he asserts. Sartor describes the biotech industry as providing a terrific opportunity for NSW, but is keen to spruik the concept of cooperation between the states rather than simply tub-thumping for the local lads. He says he looks forward to the situation when research and new company clusters encompass the whole of the eastern seaboard, if not the entire country: "we should be looking to the establishment of a [biotech] cluster which brings together all these areas, and helps strengthen the ability to bring depth and innovation. "We have to foster research and to be in the game of innovation, whether that is in research or in drug trials. Cooperation is a good way to do this, and the fact our past helps us breed innovators can only help," he adds. But it is easy to lose sight of the ball if the game gets too exciting, he warns. It would be pointless to simply get carried away with the 'brave new research' concept and simply waste both talent and time on ideas that are not viable on the global stage. Sartor points out the necessity to make sure that what is done here is of value, "...and to make sure we leverage what happens overseas and locally to our best advantage." When it comes to funding for the industry, Sartor admits there are widely differing perceptions of the way Australian funds are made available to those doing the spade work. He says this is an area to which he has already given some thought, and says he is ready to listen to comments and input from those in the industry. "There have already been lots of people in my ear about these things, and they are all important. It is an area I am keen to explore, but we have to keep perspective and realize this is an area where we have to think long term, not short term," Sartor says. "It is inevitable that some people's wants and needs will not be satisfied, but we should be wary of just doing things to kick immediate goals. Long term may be harder but we have to measure our progress in years, not months -- not just feel good in the short term."

Forum heralds the need to network One thing that scores a consistent thumbs up from across the biotech spectrum is NSW's networking and information swapping culture. Nanyang's Hirshorn describes the way biotech movers and shakers in NSW get together regularly and use net-based subscription groups as 'much more cohesive' than elsewhere.

"All this kind of thing helps the industry. Add to that the fact Sydney hosts most of the big conferences, seminars and gatherings too, and it all adds up. People are starting to be much more open and less protective of their own (turf). There is also a steady stream of networking events, and the Australian Technology Showcase which is excellent," he notes.

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