Bioactives easier to source than funds, companies find

It is easier to ferret out promising bioactive compounds in Australia's plant kingdom than it is to extract fresh funds from the investor community, young bioprospecting companies are discovering.

The newest addition to the bioprospector's club, EcoBiotics, took a breather over the Christmas-New Year break from efforts to raise second-round funding of $AUD3 million after reaching one-third of its target. Its first funding round of $AUD500,000 in December 2001 was oversubscribed.

Its second round effort has now been re-launched but the going is difficult, says EcoBiotics managing director Victoria Gordon: "I think we did extremely well to raise the $1 million by last November because the market is looking pretty bad at the moment for start-up funds."

Listed competitor BioProspect is also hunting new funds after raising $865,000 of a $1 million target last October via a shareholder purchase plan. "We are certainly seeking funds but it is not easy in the current market," says BioProspect chief financial officer Tony King.

The circuit-breaker for either company would be a formal expression of interest by a major agrichemical or pharmaceutical in any of their lead candidates.

"The market is looking for certainty and I would be confident of being able to raise the right sort of money on the back of a commercial agreement, whether it stipulated an up-front payment or not," says King.

"The investment community is looking at the commercialisation path and we have indications that people will be more than happy to get involved, once you have a tie-up with a company that has the capacity to commercialise your leads."

BioProspect's own lead candidate, the organic insecticide Q-cide, has been undergoing evaluation since last year by two large agrichemical combines, NuFarm and Sumitomo.

Meanwhile Cairns-based EcoBiotics says it is holding preliminary discussions with an unnamed multinational chemical company over bioactive compounds it has isolated from the local rainforest.

EcoBiotics is in the process of protecting its IP by patenting about four compounds with antibiotic potential, before moving on to more formal talks.

Gordon, an ex-CSIRO chemical ecologist, and director Dr Paul Reddell, a CSIRO principal research scientist, believe their methodology for collecting samples gives them an edge on Australian competitors led by the AstraZeneca-Griffith University joint venture Natural Product Discovery Unit, the Cerylid Biosciences unit of listed biotech Amrad and BioProspect.

Understanding chemistry

Where the others rely on broad-range, high-throughput screening for bioactive chemicals of interest, EcoBiotics uses more precise targeting strategies based on its understanding of rainforest chemistry, says Gordon: "Our method of collection is quite precise. Before we even step into the forest we examine the market demand for interesting products and then formulate targeting strategies."

Its approach yields a bio-discovery success rate of 85 per cent, meaning that out of every 100 samples, 85 have some sort of biochemical activity that meets its targeted requirements. By comparison, competitors are working on success rates of no more than four per cent, she claims.

EcoBiotics is targeting natural bioactive agents which could be used as antibiotics, anti-cancer, fungicides and to combat intestinal parasites (nematocides). Apart from its laboratory located near Cairns which collects and extracts samples, the company is a virtual organisation which outsources other aspects of its operations.

It relies on the Queensland Institute of Medical Research and Sydney's Microbial Screening Technology to screen extracts against targets specified by EcoBiotics and CSIRO's Molecular Sciences unit in Melbourne to perform the isolation process.

To date, EcoBiotics has collected 1900 samples and tested 80, of which 78 demonstrated some degree of activity. It has focused its efforts on the 15 most promising in that group.

Its business plan calls for developing potential bioactive chemical compounds to the patent stage then licensing access rights to such patents in return for sign-on fees, milestone payments and royalties.

It has negotiated access to large portions of Queensland rainforest held privately and by the Australian Rainforest Foundation. It is also negotiating with the Queensland government for access to rainforest under state control, a type of agreement that BioProspect was the first to sign in late 2001.