Queensland bio braces for the future

By Pete Young
Monday, 12 May, 2003

Thanks to a massive infrastructure funding boost from a government led by bio-enthusiast Premier Peter Beattie, Queensland got off to a fast start in biotechnology. But, asks Pete Young, is the venture capital bottleneck pushing its plans off track?

When Queensland launched a glittering, well-funded, 10-year strategy for bioindustry development in 1999, the state government's motivation was simple.

Jobs, jobs and more jobs. That was the planned pay-off from hundreds of millions of dollars in public funds that the program would divert into biotechnology initiatives.

The intent was to pepper the landscape with research institutes which would act as engine rooms for the new industry. From them would spin out drug development and platform technology companies which market forces over time would transform into a vibrant component of the global biotech industry. Among the shower of economic benefits envisaged for Queensland would be a future-proofed job scene.

Four years later, much of the heavy lifting needed to wrestle into place the foundations of that strategy -- the research engines -- has been done.

Symbolising the start of a new phase will be the formal opening on May 21 of the centrepiece of the State's strategy, a seven-storey $100 million-plus complex known as the Queensland Bioscience Precinct.

The complex will house the state's premier biotech research centre, the 300-person Institute for Molecular Bioscience, plus elements of CSIRO, the Queensland Department of Primary Industries and the Special Research Centre for Functional and Applied Genomics. They form a multidisciplinary team of approximately 500 research scientists and students working in research divisions encompassing genomics and bioinformatics, genetics and developmental biology, cell biology, structural biology and biological chemistry and molecular design.

The precinct is a major node in the network of existing and newly-created research institutes on which the state's largesse has been lavished. Chief among them, apart from the IMB, are the Queensland Institute for Medical Research, the Centre for Biomolecular Science and Drug Design on the Gold Coast, and two newer centres which have not yet moved into their own buildings, the Institute for Bio-engineering and Nanotechnology and the Institute of Health and Biomedical Innovation associated with Queensland University of Technology.

However, the heady days when every other week seemed to uncork a fresh government infrastructure initiative have disappeared while at the same time young biotechs seeking to capitalise on the IP unearthed by researchers are suffering from a funding crisis. The combination of the two trends is creating the perception in some quarters that Queensland's bioindustry momentum has slackened.

Political support

Not surprisingly, such interpretations don't strike a chord with Innovation and Information Economy minister Paul Lucas, who stands second only to Beattie as a political champion of biotech interests in Queensland.

By Lucas' calculations, since 1999 investments totalling $540 million have been funnelled into the bioindustry sector by way of state, Commonwealth, private sector and philanthropic contributions.

Industry sources estimate the sector now boasts about 45 companies headquartered in Queensland, from start-ups to listed entities. Including research institutes, Queensland's bioindustry now employs about 7600 people, of whom about half are involved in R&D, Lucas told a recent conference.

There is no question that an investment funding bottleneck has upset the timetable of the wave of start-ups created to transform the IP generated by research centres into commercial gold. The situation has not been helped by the slow pace at which funds are being disbursed by two state government-associated entities -- the $6 million BioStart pre-seed program and the $100 million Queensland BioCapital Fund.

The first has made only one or two investments since it was created nearly two years ago and the second, formed last year, has yet to announce its first recipients.

In tandem with the gradual trailing off in big-ticket biotech infrastructure creation, that situation has sparked speculation the steam is leaking out of Queensland bioindustry activity.

Lucas rejects such conclusions, noting that realistically "you don't announce a $100 million Smart State Research Fund every year."

Offsetting that, however, government contributions to the new research centres have been structured to support their operations after meeting the one-off cost of building them. In IMB's case, for example, the government is making annual contributions to operating costs that will add up to $77 million over a decade.

"So the fundamentals are very good and we will see continuing commitments of significant funds to research institutes which are starting to produce spin-outs," says Lucas. The government also understands that developing drugs is a business that can require 10 to 15 years before a marketable product is producing returns.

"So we are supporting bioindustry at a whole number of different levels, for example agri-bio, nanomaterials and diagnostics which require far shorter approval periods [than human treatment compounds]," Lucas says.

Natural assets

One of those 'other levels' concerns efforts to rummage through Queensland's biodiversity in search of natural molecules with commercial drug potential. In November last year, AstraZeneca committed another $35 million to the Natural Product Discovery unit, a joint venture with Griffith University. Other Queensland-based entities mining the same terrain are listed company BioProspect and a start-up, EcoBiotics.

Lucas last year circulated a discussion paper to identify biodiversity issues and says he hopes to cement Queensland's lead in the area by finalising the state's biodiscovery policy this year.

Queensland-based private sector bio-entrepreneur Mel Bridges, who chairs multiple biotechs including Sydney-based veteran Peptech, tends to agree with Lucas' upbeat assessment.

"I can't see any evidence that the Queensland government has faltered [in its support for bioindustry]," says Bridges. "Perhaps it hasn't moved forward as well it we would have liked and [funding body] BioStart may not have invested as quickly as could have, but my impression is that those funds will free up."

Queensland has done "extremely well" in drug development, Bridges says, citing anti-cancer drug developer Peplin Biotech's landmark licensing deal two months ago with US pharmaceutical player Allergan.

He believes the state is "arguably on the cusp" of some serious breakthroughs in therapeutic areas including vaccines and drug scaffolds.

Support for that view comes from research published earlier this year by the University of Queensland's Centre for Immunology and Cancer Research which demonstrated progress toward an arthritis vaccine.

And a team from the Queensland Institute for Medical Research last November made public work which advanced the hunt for a vaccine against the red blood cell stage of malaria.

Not even halfway

Peter Riddles, president of national industry association AusBiotech and deputy CEO of IMB's commercialisation arm, IMBcom, also feels optimistic about the state of play in Queensland bioindustry. He agrees the pinching off of access to capital is affecting the next stage of growth for many biotechs but warns against judging events on too narrow a time frame.

"Our industry is in start-up mode and we have to treat it as being at the beginning and not even halfway there yet, but it will happen."

He points out that three years ago IMBcom had spawned a single start-up, whereas its portfolio now boasts eight spin-offs or start-ups.

(A careful distinction is made between start-ups and spin-offs by IMBcom CEO Peter Isdale. Start-ups are earlier stage companies which are still controlled by their founders or commercialisation agency such as IMBcom. Spin-offs are those companies in which investors have taken control.)

"All we are doing now is trying to make them grow," says Riddles. "That may require smaller chunks [of equity for founders] and lower valuations but it will happen."

While it is easy to claim the sector's progress is slowing because shiny new programs aren't being announced every other week, "overall the game plan hasn't changed," Riddles insists. "We are now getting down to the hard part, the bread and butter phase. From a Queensland perspective, we are still nearly seven years from the end game [of the 10-year plan]."

The difficulties don't seem to be affecting the enthusiasm of younger researchers for commercialising their discoveries, he says. "It is just the opposite. I help train students in terms of commercialisation and the interest from young PhDs and postdocs has gone up several fold."

New alliances

Meanwhile, Queensland is opening a fresh area of opportunity that wasn't spelled out in its 1999 strategy by developing a collaborative posture with New Zealand that focuses on bioindustry synergies between the two.

"New Zealand's economy is about the same size as Queensland's and the science going on there is absolutely first rate," says Lucas. "They are experts in cool water marine biology and we are experts in tropical marine biology, so there are enough similarities and differences to make it worthwhile working together."

The first fruits of government-stimulated discussions have already appeared in the form of three agreements signed in the wake of a spate of to-and-fro trade missions.

They include a New Zealand-Queensland Biotechnology collaboration agreement, a pact between the Queensland Department of Primary Industries and HortResearch of New Zealand, and a joint venture between New Zealand biotechnology company EndocrinZ and IMBcom.

In the final analysis, says Lucas, "it has not been an easy year worldwide [for biotechnology] but against that, Queensland has done exceptionally well."

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