Investment feature: can we manage?

By David Binning
Tuesday, 27 August, 2002

While many people are speculating as to whether Australia may become the next major hub for international biotech, questions are being asked of our local entrepreneurs and whether they have what it takes to turn IP into gold.

Some believe that we must do something radical to lure top business talent from overseas because the learning curve facing local managers is not only very steep, but constantly getting steeper with little local resources to develop the necessary skills.

On the other hand, there is the view that local executives are being unfairly judged against the myth that the key to unlocking Australia's vast biotech potential exists overseas.

"There's a real cultural cringe in Australia," says Keith Williams, chief executive of Proteome Systems. "I think really that there is a bit of a myth that techie people can't run businesses, when you see plenty of people with extensive corporate experience that can't either."

Seen as one of Australia's most successful new biotech companies, Proteome Systems has distinguished itself by being able to translate its strong track record in science and innovation into a convincing business argument. The company's reputation for being able to identify and capitalise on market opportunities was galvanised late last year when it managed to broker a major bioinformatics partnership with IBM Life Sciences.

This was seen in many ways as a watershed deal for local biotechs, proving that indigenous companies led by local people were capable of being taken seriously by large multinationals. But the thing that was really impressive was that the senior executive team responsible for the alliance was made up almost exclusively of technical and science professionals, without a single MBA graduate at the bargaining table.

"It's not that we're antagonistic towards MBAs, but they it seems as though every time we get one in here all they say they want to do is make deals but for much money than we pay existing people," Williams said.

Cash flows

Few disagree, however, that Proteome Systems is an exceptional case. As Jeff Carter, chief financial officer with Agenix points out, local biotech companies have had very little experience in managing cash flows. "My observation of the marketplace is there is demand for Australian people who are good at raising equity but few have been to the next stage of actually managing internal cash flows," he says. "When you think about it, very few biotech companies here have had to pay any tax."

Carter, who was previously a senior executive with Coca Cola Amatil and before that with mining and oil group Santos, feels that the main management challenge facing biotech companies in Australia is how to actually run their businesses as businesses should be run.

Agenix recently appointed two senior executives, both of whom hailed from outside the biotech community, but brought with them the sorts of skills that Carter expects will raise the level of the whole team. "I've come in from outside the biotech industry and I'm not sure that we have a lot of financial nous in the sector, but I do think that this is changing," Carter says.

Former economist and lawyer Peter Carre runs a biotech incubator based in Sydney, Xcelerator, which is also attached to a private equity raising arm, Xcelerator Capital Life Sciences. Carre believes that the dearth of entrepreneurial talent in Australia is critical and dismisses as simplistic and narrow-minded the view that skilled managers from other industries are able to jump ship to biotech and hit the ground running.

"I strongly disagree with that - I don't think those people know what they are talking about," he says. "Of course lots of business skills are transferable, but when you are in an industry where innovation is the key driver you must have specific experience in innovation management." Xcelerator is running the first of a series of two-day workshops this month which aim to present this theme within the framework of the Harvard Business School model of business. It is our lack of any real pharmaceutical industry which is most responsible for slowing the evolution of Australia's biotech entrepreneurs, Carre believes.

"Research is the single most costly element in any industry, but this is especially true in biotech," he says. "These scientists come up with promising leads every day - it is very important that managers are able to stick to their knitting. If you don't have the management that can execute the strategy then it all goes awry."

'Low turbulence'

According to Alan Carroll, executive director of the Pacific Rim Forum, the most important skill any biotech executive can have is the ability to form and manage commercial alliances "without giving away the farm". If Australia has lacked anything over the years, Carroll says, it is that we have not been entrepreneurial enough, and our confidence as an industry really only flourishes in "low-turbulence areas". However, he feels strongly that Australian managers recognise very well the challenges ahead of them.

"I don't think management will be the thing that is going to kill us," Carroll says. "There are countries in Asia where this is a much greater vulnerability. "The main test is going to be our ability to put in place proper strategic alliances - this business isn't just about management as it was taught at Harvard Business School."

A key point that seems to be overlooked in discussions about Australia's future biotech prospects and our readiness to capitalise is the role this country could potentially play in the immature, yet promising Asian market. As Proteome's Williams points out, while most of the talk about 'key' markets and the best market strategies focuses on the US and to a lesser extent Europe, it would appear somewhat myopic to emulate these regions, given what analysts have identified as the massive potential of markets like Japan and China.

"There's certainly a tendency for the VC industry to equate success with moving overseas, but I would argue that Australia is already in the right time zone as Asia is definitively where it's going to happen in the next decade," Williams says. He adds that although Japan is "allegedly a basket case" at the moment, the land of the rising sun could eventually be as big and important to Australia as the US.

Nevertheless, until that happens Australia will continue to be viewed as an isolated community, says Ross Dobinson of Melbourne-based life science consultancy TSL Group. "Markets such as the US enjoy a much wider and deeper level of interaction across their industries which is difficult for Australia to achieve," Dobinson says.

"I'm loath to criticise Australian management as inept, but we don't take a broader perspective as often as we should. The big weakness we have is cradle-to-development maturity - there is a lack of people with strong experience of the entire process, and if investors can't see the path to exit they won't put up the money."

Nevertheless, typifying the renowned stoicism of Australian innovators and entrepreneurs, this often bemoaned isolation has long been credited with the formation of highly cooperative communities which have enriched the career of many a successful biotech professional.

"From my experience I'm quite sure that Australians are over-represented in biotech companies internationally," quips Williams. They're out there somewhere...

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