Did BIF offer bang for its buck?

The fifth round of Biotechnology Innovation Fund (BIF) grants, announced late last month by Federal Industry Minister Ian Macfarlane, is the final funding round for the $40 million program. Over its lifetime, the BIF scheme has supported 164 projects in 153 companies, ranging from tiny start-ups to listed giants such as Orica.

BIF was initially funded in July 2001 with $20 million as part of the National Biotechnology Strategy; another $20 million was tipped in as part of the Backing Australia's Ability (BAA) initiative. With BIF now drawing to a close and 'BAA II' being planned, the creation of BIF II is presumably under consideration. In this context it is useful to review the results of BIF to date and consider some options for the future of the program.

BIF grants of up to $250,000 are meant to assist companies in moving biotechnology projects from the research stage to the early commercialisation stage. The project must already be at the proof-of-concept point, and the grant must be used for commercialisation activities, which can include market development and business planning as well as scientific work. BIF is a matching grant program; most states and territories offer programs that provide some of the required matching funds.

BIF grants are determined on the basis of merit criteria, which include company structure, technology quality, project benefits, and funding need, the latter being the extent to which the project can proceed only with financial assistance. The website of AusIndustry, which sponsors the BIF program, suggests that the success rate for BIF applications is about 50 per cent, substantially higher than the success rate for many ARC and NHMRC grant programs.

Earlier this year, AusIndustry engaged the Allen Consulting Group to carry out a formal review of the program and its impact, both on the companies that received grants and on the companies that applied for grants but did not receive them. The Allen report has not yet been made public, nor have the outcomes of the projects for which grants were received. Obviously, this information would be used as part of any consideration of extending the program, and presumably will be made public at some point. In the meantime, the data that has been made public allows some insight into the operations and outcomes of the program.

As described by AusIndustry, the benefits of the BIF program include "raising awareness among the private investment community of investment opportunities in early-stage biotechnology research", and the general view of BIF is that it is aimed at early-stage companies. Indeed, 8 per cent of the companies that have received BIF grants were not incorporated until after the date on which their grant was announced, and a few others are not listed in the Index of Corporate and Business Names maintained by the Australian Securities and Investments Commission (ASIC) -- these do not appear to be companies at all.

Another 23 per cent of the winners were formed less than one year prior to the announcement of their grant, raising the possibility that the availability of a BIF grant was a primary driver of company formation. Some off-the-record conversations with university commercialisation offices confirm this hypothesis. Given the overhead associated with a company structure -- everything from forming and dealing with a board of directors to filling out BAS statements -- the wisdom of promoting the formation of more very small biotechnology companies may be open to question.

That question may have been on the minds of the Industry Research and Development Board's biological committee, which selects BIF grant winners. Over the five rounds of the program, the average age of the companies receiving a grant has risen steadily, as indicated in the table below. This change might suggest a propensity to fund already-established companies, as opposed to organisations formed specifically in response to the availability of a BIF grant.

It may be the case, of course, that as the BIF program has become better known, it has attracted the attention of more established companies, and therefore that the average age of the applicants has increased. This effect might also account for the steady increase in the number of listed companies receiving BIF grants; across the five rounds these companies include Orica, Bionomics, Anadis, Metabolic Pharmaceuticals, Bioprospect, Clinical Cell Culture, Prana Biotechnology, VRI BioMedical (two grants), Biotron, Cellestis, and Imugene.

On the other hand, it may be that the grant committee is being affected by the same force that appears to draw venture capitalists and other private investors, including perhaps even the pre-seed funds, inexorably towards more mature, and therefore arguably lower risk, opportunities.

As a Commonwealth government program, BIF is subject to the usual scrutiny with respect to the allocation of funds by state and territory. The overall pattern of grants appears roughly to follow population, and indicates that Queensland, after taking an early lead, has dropped back significantly in later rounds.

The analysis by location also suggests that Western Australia was the site of a dramatic flowering of enthusiasm for biotechnology for a short period, followed by an apparent lack of interest in the final round of the BIF program, while South Australia, after a somewhat slow start, became a dramatic late bloomer.

The process of allocating money from a grant program is often described in terms of 'slicing the pie' -- dividing up the overall amount to be spent, $40 million for BIF, among the applicants, who inevitably want more than the program has. Such slicing can become a politically difficult exercise. Instead of a single pie, BIF is better described as several batches of cupcakes, almost all of the same size, that can perhaps be given out with less drama, especially so long as there is the promise of another batch coming.

Smaller pieces may make it easier to please more people, increasing the political benefit of the program. The trade-off is, of course, that none of the recipients gets very much, potentially reducing the actual benefit to the biotechnology sector.

There can be little doubt that BIF recipients have benefited from their grants -- in biotechnology, free money rarely goes astray. The policy question is whether a different use of the same amount of money could accomplish more. Early company formation can be the beginning of a process that leads to premature listing and a sub-scale existence; it is not clear that it should be encouraged.

A program that kept projects within universities and research institutes longer, under careful and commercially oriented direction, would allow researchers to spend more time on science and less time on administration. The trend across the rounds of the BIF program towards older companies may be an indication that a future government program will build on the success of BIF by encouraging better companies rather than more companies.

Michael Vitale is a professor at the Australian Graduate School of Management. He can be contacted at michaelv@agsm.edu.au

BIF round 5

Adipogen (Qld) $234,700 Development of small molecules to treat obesity Bernard Schreiber

Argus Biomedical (WA) $250,000 Breakthrough technology for glaucoma therapy Barbara Hammond

Avastra (NSW) $250,000 Avastra BioWeld tube for sutureless anastomoses Paul Ralph

Biotron (ACT) $250,000 Novel antiviral compounds Michelle Miller

Cellabs (NSW) $143,315 Filariasis Bm 14 test proof of concept project Tony Smithyman

Cellestis (Vic) $250,000 QuantiFERON diagnostic kit to monitor HCMV infections Jim Rothel

EcoBiotics (Qld) $247,400 Discovery of novel anti-parasitic chemicals from tropical rainforests Victoria Gordon

FlavoTect (Vic) $250,000 Flavonols to aid recovery from stroke and heart attack Nick Peace

HearWorks (Vic) $250,000 Cortical assessment of hearing aid fitting in children Teck Loi

Hunter Immunology (NSW) $250,000 Staphylococcus aureus oral vaccine Robert Clancy

Imugene (NSW) $250,000 Biological immune system enhancer for poultry Michael Sheppard

Inter-K (NSW) $180,000 New anti-cancer compound Michael Agrez

Lipotek (ACT) $250,000 Lipovaxin -- novel vaccine technology Neil White

Minomic (NSW) $250,000 Innovative and enhanced diagnostics for type II diabetes Bradley Walsh

Nidor (SA) $248,503 A novel non-invasive breath test to assess gut function Christopher Booton

Pristine Forage Technologies (SA) $164,100 New pasture plant varieties Andrew Lake

RadPro (Vic) $250,000 Topical radioprotectors for cancer radiotherapy Roger Martin

Reproductive Health Science (SA) $249,827 Microarray comparative genomic hybridisation Peter Schembri

Riverina Biotech (NSW) $152,500 Biopesticide for the control of fungal diseases in crops Michael Furzer

TGR BioSciences (SA) $250,000 Novel technologies for high-throughput drug screening Michael Crouch

TheraPPy (NSW) $250,000 Novel approach to new anti-cancer agents Chris Kelleher

Tissue Therapies (Qld) $242,500 Novel synthetic proteins to enhance cell and tissue growth Greg Baynton

TUNRA (NSW) $250,000 Propionobacteria Jenseii 702 as a functional food/neutraceutical Chris Kelleher

VAST Audio (NSW) $244,600 Clinical testing of a spatial hearing aid Simon Carlile

VibraQ Corp (WA) $204,113 Applying dynamic mechanostimulation to human blood platelets in storage Barry Hobson

VRI BioMedical (NSW) $250,000 Vaccine for oral, vaginal and systemic candidiasis Margaret Dunkley

Source: www.ausindustry.gov.au