UPDATE: Carr frees up investment cash for biotechs

The Federal Government has established an Innovation Investment Follow-on Fund (IIFF) with initial capital of $83 million which will be released to licensed venture capital firms to invest in small technology companies.

The money is aimed at biotechnology, clean energy and ICT start-ups to help them ride out the economic crisis. Follow-on funds are for companies that have already received seed money to start up.

The money will flow to companies as soon as possible, the Minister for Innovation, Industry, Science and Research, Senator Kim Carr, told the National Press Club in Canberra today.

“The supply of funds for early-stage venture capital investment has dried up since the crisis broke last year,” Carr said.

“The venture capital sector has made it clear in consultations with the Government that without this kind of support, good prospects will fail, and fund managers will have no capacity to invest in new companies with great ideas and technologies.

“These firms are being starved of critical capital through no fault of their own. If we lose them, we many never get them back.”

Carr said the fund will be financed by money returned to the existing Innovation Investment Fund when firms it supported were floated or sold.

The money is part of a package that the biotech industry association AusBiotech is requesting from the Government. In a press briefing in Sydney today, AusBiotech CEO Dr Anna Lavelle and chair Dr Deborah Rathjen said the biotech industry was in a perilous position and immediate assistance was required if promising companies were not to shut up shop.

AusBiotech is asking for a three-pronged package, Lavelle said. This includes a 50 per cent refundable tax credit for companies with a turnover of less than $50 million, costing about $300 million over the next two years.

The second is a system of matched grants, much like the axed Commercial Ready program, in which small amounts were granted to proof of concept projects, and larger grants of between $3 million and $10 million for companies in existence now that are moving into the clinic. AusBiotech envisions this system to cost $250 million.

The grants would have to be matched by private capital, she said.

AusBiotech also wanted access to the venture capital fund announced by Carr today. “[This] fund is already sitting in government, already earmarked for the industry,” Lavelle said.

“That money has been quarantined, so it’s already there. It’s not new money; it’s just releasing that money in a different way to what was envisaged.”

While it was a “tick in the box”, Rathjen also said it was “a drop in the ocean”.

“We really are in an extremely vulnerable setting regarding the private equity market and venture capital investment in start-ups and small companies,” Rathjen said.

“These companies are lacking the capital that they need to get their products to market. It is going to be an unvirtuous cycle – instead of being a virtuous cycle, it is about to become an extremely ugly, unvirtuous cycle, and in fact a potentially downward death spiral.”

Lavelle said many companies were waiting to see what the Government announces in the May budget to decide whether to continue, to close or perhaps to move overseas.

“What we need immediately is action in the May budget, that’s it,” she said.

“If they bring in things like tax credits that’s great but it really won’t start to impact until 2010, so it won’t have an immediate impact but will still be well received.

“What immediately would be useful is more liquidity, so access to capital through some venture arrangement, maybe relaxing the rules around the venture fund and making it more accessible to companies and seeing it as an interim for two years until things loosen up a bit naturally, that would be useful and immediate.

“And the other would be a grants program but it would have to be up and running straight away and not have a 12-month program of getting it together and having lengthy applications and lengthy processes, because again the companies won’t be around to go through those processes.

“By cutting Commercial Ready last year, some of the immediacy is now at the feet of the people who made that decision, to help the companies through the next 24 months so that they can go back into raising capital in the way that they used to. The world will never be the same and we know that but good science and good management, which we have in this country, will be supported.”

BioMelbourne Network CEO Michelle Gallaher welcomed the announcement of the new fund, saying it was a step in the right direction but not enough to keep the biotech sector afloat.

"An $83 million carrot is an attractive incentive for the ailing biotech sector, particularly in Victoria, but biotechs will be competing for funds with ICT and clean tech companies who are traditionally more attractive prospects for a venture capital funding model," Gallaher said.

"I'm concerned that the valuable Victorian biotech sector may not see much of this money and if so, it's likely to only be a few companies that are already of interest to the venture capital community."

Carr said the money will boost confidence and help shake loose additional private sector capital. The Government will provide a response to the Cutler review of the national innovation system in the May budget, he said.

For an in-depth look at the Australian biotech industry, see the April/May issue of Australian Life Scientist.