Bio-boards under fire

In the last month, three of Australia's most experienced listed biotechs have endured roller coaster rides on the stock market, in the case of all three because of upheaval at the board level.

Amrad is fighting a move by its majority shareholder, Circadian, to oust three of its board members. The high-profile chairman of Peptech walked out, taking two other board members with him, because of pressure from shareholders. And GroPep's board sacked the managing director because of differences of opinion about the company's future.

UBS Warburg healthcare analyst John Deakin-Bell says that management in Australia is less experienced than that internationally, and that is reflected in some of the moves in organisations over the last few months.

"It's rare to see such major changes at the boardroom level in the top 100 (stocks)," he said.

He says that these three small to mid-sized biotechs, Peptech, GroPep and Amrad, broadly have the same issue, that people managing them are not experienced in commercialising products and running public companies.

"It's difficult to attract quality management to a high-risk business," he said. "If I had experience, I would prefer to work for a company such as CSL where there is long-term success rather than a company that is not sure it will be around next year."

Deakin-Bell says that the Australian biotech industry is immature, but as it matures, it will be easier to find managers with the same depth of experience as managers in the US. Salomon Smith Barney analyst Rosemary Cummins agrees that the biotechnology industry is going through its teething problems.

"It needs to mature into an experienced industry to breed hybrid managers that have an understanding of science and finance," she says.

After taking on such a nurturing approach to the fledgling industry, she admits to being surprised by the radical boardroom events occurring in three companies at the one time.

"A year ago I would have said science would always win through at the end of the day, but now I can see how management can impede the science," she told Australian Biotechnology News.

She says that for a company to succeed, management needs to take on a more commercial philosophy and culture. Amrad, for example, has suffered because its management has never had that strong commercial bent -- unlike companies such as CSL.

At the end of day, she adds, there is still a need to pick the right science, so that down the track the product can be commercialised.

Kiara Bechta-Metti, Deutsche Bank's biotech analyst, said it is important for the managing director and the board to work as a team, and in line with expectations for the company.

In the case of GroPep, Amrad and Peptech, she said, the managing directors currently want something different from the board and they are not seeing eye to eye.

In GroPep's case, the board wanted to go in different directions to former managing director John Ballard; in Amrad's case, the debate is still out about whether investors want to oust the board as well as the managing director.

Bechta-Metti is generally critical of boards managing biotechnology start-up companies in Australia, saying that "boards just tick the boxes" to make sure they include a lawyer, a venture capitalist, a scientist and so on.

"They don't look for the appropriate people that will actively contribute to the company," she says. "Amrad has had many board changes because they did not have enough active members."

When you see changes in the boardroom you always expect the worst, Bechta-Metti says -- an internal problem that's related to either the science or the finance.

"You see it reflected in the share price of all of three companies," she says, and until we have clarity people just stay away. "It's bad for the industry, as you don't like to see the sort of turmoil, you want to see everyone toeing the party line."

Nothing succeeds like succession

Many founders of biotechs have an entrepreneurial streak, says business commentator Ann-Maree Moodie, but a true entrepreneur knows when to get out of the business and let others take the reins.

Moodie, author of The Twenty-First Century Board: Selection, Performance and Succession, says letting go can be a problem for founders of companies, who may not be able to recognise their own levels of business skills.

"But it's entirely reasonable for the person who was central to the initial discovery to not want to be part of the show up to the final curtain," Moodie says. "They have to recognise that they may have to step back. That may mean stepping down from the board, it may mean becoming a consultant to the company."

But the problem can equally lie with business people on the board, she says. The key issue is succession planning - something rare on Australian boards.

"You have to recognise the stages the company is likely to go through in its development, and roughly earmark how the board may change at each stage," she says. "And you have to make it very clear how and when these changes will occur."

Meanwhile, scientists have a responsibility to augment their specialist training with broader commercial skills if they are going to pull their weight on company boards, says John Massey, president of the Queensland division of the Australian Institute of Company Directors.

Besides fundamental business skills such as knowing their way around a financial statement, they should have some knowledge of human resources and marketing issues, Massey says.

The lack of broader business training among Australian life scientists largely reflects the stage at which the Australian industry finds itself, he suggests.

The situation will correct itself over time as start-ups mature and their scientists-turned-managers gain experience.

Some companies have found directors with a good mix of science and business skills, including biotech MicroMedical whose board is chaired by Massey.

Its directors include Dr Katherine Woodthorpe, who also sits on Agenix's board and has a doctorate in chemistry as well as a background in financial analysis.

Additional reporting by Iain Scott and Pete Young