Challenges in the biotech business

Establishing a small biotech company and taking products to market are just some of the challenges facing companies in the Australian biotech sector.

It is true, establishing a successful company in the Australian biotechnology sector can take years. A company can take years to emerge from its research base and those investing in this industry need to have patience and money.

Setting up and successfully pursuing a small biotech company in Australia is a topic Professor Ian Frazer, CEO and director of research with the Translational Research Institute in Brisbane, has first-hand experience in and is thus well placed to present on at this year’s AusBiotech meeting.

Professor Ian Frazer trained as a renal physician and clinical immunologist in Edinburgh, Scotland before moving to Australia to pursue a research career in viral immunology and autoimmunity at the Walter and Eliza Hall Institute of Medical Research in Melbourne. He took up a teaching post at the University of Queensland in 1985 and is now group leader at the Diamantina Institute and CEO and director of research at the Translational Research Institute. Frazer is also a director of biotech company Coridon.

Frazer founded the small biotech company Coridon 13 years ago. Coridon’s core focus is a platform technology it uses to develop DNA vaccines for the treatment of a variety of infectious diseases and cancers. And it has just started its first phase clinical trial.

Coridon had a good incubation environment at the University of Queensland, although strictly speaking it is not a university spin-off.

“The inventors set up the company first,” said Frazer, “then bought the IP from the university. As far as I know, this was a first in Australia. The university has representation on the board but it is not just a university board, which gives the company more flexibility.”

Frazer said this model that has worked well because they have university representatives on the board with commercial expertise without the university controlling the company, which enables the company to take more risks. Having this scientific and business expertise in the company from the beginning was another thing Frazer said has been key to its success.

Raising capital

“The reality is that setting up a company in Australia has always been a challenge,” said Frazer, citing two distinct reasons for this. Firstly, attracting or raising enough capital with minimal strings attached, and secondly, manufacturing products for use in human clinical trials.

“Venture funds are reluctant to put money into Australian biotech,” he continued. “They drip feed the companies; for some reason they think biotech is not terribly productive in Australia.”

One reason for this is that investors want short-term gains when the nature of the life sciences sector is long-term projects.

“They want milestones first but we need funding to get the milestones,” said Frazer. “A phase 1 clinical trial takes at least one year of preparation and one year for the trial to be conducted; therefore, you need two years of funding up front.”

Frazer added that a lot of good ideas go to the United States. Strong competition from larger rivals in the US as well as a better investor environment mean that a lot of Australian companies take their ideas to the States.

According to Frazer, the average phase 1 trial needs funding of about $5 million. “This leap from basic research into the clinic is underfunded in Australia,” Frazer said. “Australia is good at funding basic research but not so good at funding clinical trials.”

One key to success is to find an angel investor, which is what Coridon has successfully achieved. “They will provide support and leave you to get on with things.”

Coridon’s angel investment has come from Andrew Forrest, a Western Australian mining magnate, through Allied Medical, and before Forrest the Liebermann family.

“We also received various government grants,” said Frazer. “But most of the commercialisation schemes are not available any more.”

Good manufacturing practice

A new biopharmaceuticals manufacturing plant will be opened in Brisbane in conjunction with the AusBiotech conference. DSM Biologics, in partnership with commercial operator BioPharmaceuticals Australia, has set up a manufacturing facility for biological drug developers.

The new facility will provide a manufacturing pathway for early-stage biotherapeutic developers to scale up manufacturing for clinical production and commercial manufacture.

Situated next door to the Diamantina Institute, Frazer said the new facility will be very handy in helping him overcome one of the big challenges Coridon has had - manufacturing vaccines to FDA standards.

“There has been nowhere in Australia that you could get biopharmaceutical products made to GMP for phase 1 clinical trials up to phase III trials,” he said. “Having DSM next door will be a huge benefit to us in translating our research into the clinic.”

Investing in innovation

When it comes to the government, Frazer said innovation should be front and centre on the agenda for the future of Australia.

“Biotech is one very successful part of innovation and we need to make sure it remains strong,” he said. “The government needs to pump prime innovation - provide the fuel that lights the fire - then if the fire burns bright the benefits will be reaped later in taxes and so forth.”

Investing in basic research and good people is what Frazer says fuels this fire. For innovation to thrive and drive an economy, investment in education is needed to generate the people to do the basic research, in infrastructure to create the spaces where this research can be done, and in innovative research to produce the products and get them to market.

“We have been favoured with great infrastructure investment over the last decade, and now we need the ongoing support,” Frazer said.

Getting over the initial hurdle of research and development is key to innovation driving the economy and Frazer believes that innovation will always deliver.

“We need to encourage venture capitalists in some way, or give superannuation companies the ability to get involved in risky investment,” Frazer said. “Biotech is a long-term investment and superannuation is too, so if we take the same long-term risk for a long-term gain, as long as it is well managed, the industry will benefit.”

Challenges of getting products to market

Scott Power, analyst and research writer with stockbroking and wealth management firm RBS Morgans, will chair a session on the challenges of getting products to market at the conference.

According to Power, loss of interest has resulted in a downturn in investment over the last five years in the Australian life sciences sector.

“Apart from the risk appetite disappearing as people become more cautious, we’ve also got the failure of companies to get their products approved,” said Power, although he thinks things have turned around a bit in the last couple of months.

Scott Power is a senior research analyst with RBS Morgans. Based in Brisbane, he completed a Bachelor of Commerce, Accounting and Finance at the University of Queensland in 1983 and since then has worked as an investment manager with the Queensland Industry Development Corporation and as an analyst with RBS Morgans. He has continually focused his work on the analysis and research of emerging technologies and early-stage businesses in the life science sector.

Invaluable approval

Failing to get products approved means companies lose money. Delays in approval prevent products from being progressed, putting downward pressure on share prices, which in turn puts investors off. On top of this, companies then spend more money to employ consultants, advisors and/or lawyers to continue negotiations with regulators.

Getting approval from regulators is one of the main challenges Power identified for biotech companies developing a product or medical device.

“What we are finding is that once products are approved they are worth their weight in gold. An approved product in a market that is growing is extremely valuable,” said Power.

Companies can work tirelessly on clinical trials to get results for their products only to fail the scrutiny of the regulatory regimes - the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA).

Power said he has seen a number of products that should have been approved fall foul of the regulators over the last few years.

“In some instances it doesn’t seem to correlate well with common sense,” he said.

One example Power cited was Tissue Therapies, which has been working towards getting its wound-healing product, VitroGro, onto the European market.

“The company basically lost six to nine months through the approval process, for reasons which I cannot explain, and neither can they,” said Power. “Their application to get the product approved was delayed but they are very much back on schedule with an expected approval date of the second quarter next year.”

As this issue of ALS went to print, Tissue Therapies had received confirmation from the EMA that the final step in the process of getting VitroGro to the European market would start at the beginning of September - and their share price was heading up.

The approval project

Alchemia CEO Charles Walker, who will present in the Challenges of Getting Products to Market session at the conference, concurs.

“It’s a huge project all on its own,” Walker said of the approval process. “They [the regulators] want to see everything, all your scientific data - there is lots of toing and froing.”

Walker said making early contact with the FDA and building a relationship with it was an important part of this process, which is something Alchemia has embarked on with its chemotherapy drug HA-Irinotecan.

“We’ve been to the FDA and flagged what we are doing. They have to know who you are and the clinical trial that you are conducting,” he said.

“We’ve gone to Europe [the EMA] at the same time, we’re trying to get a submission package that works for both of them - that would be an ideal outcome. There’s always going to be differences but the indications are good so far.”

HA-Irinotecan is currently in a phase III trial in patients with metastatic colorectal cancer. Walker said the results are expected in the first half of 2014 and, all going well, they will file with the FDA the same year and get it approved for launch in 2015.

Another company, Sydney-based QrXPharma, recently resubmitted an application to the US FDA for its pain patch MoxDuo - having had its initial application knocked back in June 2012.

“They provided compelling clinical data on this product to treat acute pain,” said Power, “and are currently still trying to get approval after receiving a Complete Response letter from the FDA, which essentially required them to collate some more data to build up their case.”

QrX Pharma’s original plan was to have MoxDuo approved in July this year. “In fact, the product would be on the market today so they would be generating sales,” Power continued. “As it stands we are hoping the product will be approved sometime in November, so effectively they’ve lost six months’ worth of sales.”

QrX Parma’s share price had climbed back to $1.13, after dropping from $1.60 to below $1 when they reported the delay in getting MoxDuo to market.

Partnering

Manufacturing and marketing are other challenges Walker raised in getting products to market, and for him this involves partnering.

“Depending on what the product is, most biotech companies have probably got to rely on a partner - it’s just a question of when,” said Walker, who joined Alchemia just as its generic antithrombotic drug Fondaparinux received approval 2.5 years ago.

“Knowing our strengths in that situation was the key,” Walker explained. “Typically, biotechs are good on the innovation, which is a completely different skill from commercialisation. I think practically for biotechs, partnerships make a lot of sense to achieve that.”

Partnering means companies could lose some of the value of the product but Walker said tapping into the expertise of others is worthwhile.

“Optimal commercialisation with an experienced partner could more than compensate a biotech for striking a deal with that partner, when the risk of sub-optimal commercialisation is evaluated,” he said. “We could raise funds, invest heavily after the results, recruit a new commercialisation team and take our products all the way through and market them, but the risk is we would risk losing focus on our core capability of R&D, and not make the most of the product when it comes to marketing and sales.

"Licensing the product to another company in return for their expertise and presence in our target market can be a good thing because it means we can be more sure of optimal commercialisation and maximal profits down stream.”

Walker said the partnership with India-based manufacturing specialist Dr Reddy’s Laboratories was going well, with Fondaparinux selling in the US and Alchemia receiving a profit share from those activities.

Outsourcing

Most biotech companies outsource steps along the way, such as manufacturing - scaling up from a clinical trial is a huge task.

Sydney-based pharmaceutical company Pharmaxis made the brave decision to take its product bronchitol to market.

“Pharmaxis was one of the premier stocks in the sector a few years ago,” said Power, adding that Pharmaxis has had a series of setbacks that have led to its share price dropping significantly. “They took the view that they would discover, manufacture and sell their product [bronchitol], and that strategy has failed.”

Power also suggested the difficulties Pharmaxis had in dealing with regulators has had a big effect on where the company is now at.

At this stage, Alchemia contracts out the manufacturing side of its process.

“We’ve got the brains and we use someone else’s hands,” Walker said. “You’ve got to have your manufacturing organised, you’ve got to have people of influence - buyer and payers in the market - and all of that we’re choosing to get from third parties. As our company develops more products that are successfully launched, and we grow our expertise in the area, we may then consider commercialising products ourselves.”

Walker said outsourcing is an efficient way to do things business wise and the selection of good quality contract manufacturers available makes it a relatively easy decision.

“Raising money, getting good people, developing good trial designs - that’s all part of the challenges that companies face in this sector,” he added.

Charles (Charlie) Walker was appointed to the position of Chief Executive Officer in February 2013, following two years as Alchemia’s Chief Financial Officer. He brings 20 years’ international life science industry experience to the role. He originally trained as a pharmacologist in the UK before embarking on a career in the pharmaceutical industry. He subsequently spent more than a decade in corporate finance advising international technology companies, executing more than 40 successful corporate transactions including IPOs, M&A agreements and fundraisings. During this time he co-founded a successful life sciences investment banking firm in the UK which was sold to Nomura International plc in 2005 realising significant returns for investors.