Dollars, cents and science

With apologies to Kermit, TV's most famous amphibian, it's sometimes easier being green. In the perennial quest for funding, those Australian research institutes with ivy on their walls are doing best.

It also helps to be based in a state that is going head-to-head with other states to build strong, modern economies around scientific research. They're offering generous funding for the most valuable resource after first-class minds: first-class infrastructure.

But even the most venerable of Australia's research institutes are still heavily reliant on government funding. Australian institutes envy the tradition of philanthropic funding for research institutes that has evolved in the United States, as well as a US corporate culture that is more comfortable with risk, and more willing to wait for a return on its investment in research.

The balance in funding sources in the US is not markedly different to that in Australia. Government funding still dominates. The difference is that funding from all sources in the US tends to be more generous. In a document reviewing funding trends for medical research institutes, Sydney's Centenary Institute nominates three classes of institute:

• Class 1: Independent, of long-standing (30-plus years) with sustained track records and at least 200 staff, with substantial endowments. Melbourne's Walter and Eliza Hall Institute (WEHI) is the model.
• Class 2: Independent, 10-20 years old, with shorter-term but outstanding track records, and 60-150 staff. The Centenary Institute puts itself in this class, along with centres like Melbourne's Austin Research Institute.
• Class 3: Exist within universities or teaching hospitals, with limited autonomy and longevity (10 years) and highly variable numbers.

Australia's long-standing problems with commercialising research because of its dearth of large, home-grown corporations are well known.

Yet Australia's institutes tend to punch well above their weight internationally in terms of discovery and their contribution to research literature, because of a long tradition of doing more with fewer, and with less. The Centenary Institute's director, Prof Antony (Tony) Basten says royalty streams barely exist for most medical research institutes in Australia.

"There just isn't the tradition of wealthy philanthropists supporting research," he says. "People generally don't die until at least 40 years after they become successful and wealthy. If you haven't been around that long, you're utterly dependent on competitive funding from government and commercial sources."

But, says Basten, "We have a few angels". He gives the example of Prof Ian Frazer's development of a commercial vaccine to protect against genital warts and cervical cancer, now in a Phase III clinical trial in 60,000 women, sponsored by international pharma Merck.

"The original research project was funded by a single, wealthy private investor, through a family trust," he says. "By way of contrast, in the US, the Children's Diabetes Institute in Denver held a fundraising dinner in Hollywood, and raised $20 million. There's no way we could do that in Australia."

Basten says there are few royalty streams of any significance in Australia because it takes 15 years from discovery to commercialise a drug.

Australia's small and very conservative venture capital market also makes life difficult, says Basten, and most research institutes are under great pressure to find more funding from commercial sources.

"If we don't get 50 per cent of our funding from commercial sources within five years, we'll be dead," he says bluntly.

"The Federal government deserves a pat on the back for doing quite a bit for R&D commercialisation. We have two Biotechnology Innovation Fund [BIF] grants totalling half a million dollars."

Basten says the Victorian and Queensland State governments are doing particularly well in providing infrastructure grants.

He says they've been putting a lot of money into independent research institutes, which are not eligible for Federal infrastructure grants through the Department of Education, Science and Training.

As the accompanying table from the Centenary Institute report shows, it is winning a lower percentage of funding from peer-reviewed grants than it did a decade ago, is doing marginally better on infrastructure grants, but has begun to attract endowment and commercial funding.

Behind the eight-ball

Basten says despite the recent increase in NHMRC funding, Australia remains well behind the US, UK and Europe on a per-capita basis, and the challenge is to secure enough funding to maintain a critical research mass, which is essential to remaining competitive internationally.

In the Ivy League of Australian research institutes, WEHI has both cash and cachet: it's rising 90 years old, has 300 staff, and occupies a modern, seven-storey complex, completed in the mid-1990s, in Melbourne's leafy 'Parkville strip'.

WEHI's financial controller and company secretary Murray Jeffs nominates infrastructure funding as critical to successful research -- and neither of Australia's two major funding agencies, the NHMRC or the ARC, provide an infrastructure component in their peer-reviewed research grants.

Government funding accounts for 31 per cent of the institute's income; only 6 per cent comes from donations and bequests.

"Industry money is very minor in the overall scheme of things, running at around 3 per cent, but grants and fellowships from overseas agencies account for 23 per cent."

That's a direct measure of the financial value of WEHI's international reputation in medical research, says Jeffs. "Royalties are a reasonable income source for us -- they were just over $1 million last year." Those royalties come from the two cytokines, GM-CSF and LIF; royalties from LIF could become much bigger in future, says Jeffs.

Jeffs says the institute's overseas grants income has increased in recent years, through sources such as NIH grants, the Juvenile Diabetes Foundation and the Leukaemia and Lymphoma Society.

"We're also noticing that some of the big funding agencies are now looking at concentrating their funds into large, internationally coordinated programs," he says.

'Royalties vary enormously'

One of WEHI's close neighbours in Parkville, the Howard Florey Research Institute for Physiology and Experimental Medicine, obtains around 50 per cent of its funding from peer-reviewed NHMRC grants.

Its director, Prof Fred Mendelssohn, says 20 per cent of the Florey's funds come from private donations and foundations, 12 per cent is in the form of State infrastructure grants, while income from commercial collaborations ranges between 5 and 20 per cent in any year.

"Royalties vary enormously," he says. "We've been up to $1.5 million a year when relaxin was in Phase III trials for scleroderma.

"The other important change in the landscape has been the establishment of research networks like Neurosciences Victoria and Neurosciences Australia -- we're one of the four founding partners, with the University of Melbourne, Monash University, and the National Stroke Research Institute.

"That brought in a grant of $13.4 million, through the Victorian Government's Strategic Technology Initiative, to advance commercial applications of research.

"And out of that came a Major National Research Facilities (MNRF) grant of $18.4 million, largely for bricks and mortar to support research, and to expand our platforms to a national scale.

"Schering, in Berlin, has also given the network $25 million over five years for specific projects such as stroke, demyelination of neurons, and neuroprotection. It's not contract research -- Schering is interested in certain fields, and has the right of first refusal to invest in anything that shows promise."

Mendelssohn says it is "quite hard" to get local funding, but commended the Federal and state governments for "making a real effort" through grants or support schemes like the Biotechnology Innovation Fund, Start and Biocomm.

On philanthropic sponsorship, he says, "It takes a lot of work to build relationships, and when the Florey Institute was established in the early 1970s, Ian Potter and the late Kenneth Myer were very important private sponsors.

"The Myer Foundation recently gave us money for a new neurogenetics lab, and we receive about $1 million a year from overseas research foundations.

"Having said all of this, research funding in Australia really is quite tight compared to the US, and real levels of government funding are quite low. There's a lot of rhetoric about the importance of investing in early-stage research, and about being the Smart Country, but while the state governments are making a real effort, the increase in NHMRC funding when Michael Wooldridge was Federal Minister for Health just kept pace -- although it was very welcome."

Mendelssohn said there was a definite trend for governments to invest in late-stage commercial research.

"But when you look at the enormous success of the US as an innovator, it rests on at least 50 years of public funding of science," he says. "If you look at patents in the US, and the papers they cite as originating technology, something like 70 per cent were publicly funded, even in large corporations like IBM."

Event-driven

On the scarcity of private, philanthropic funding, Mendelssohn said, "We probably need more public recognition of people who have supported science and the arts.

"The Australian media must take some responsibility. It's very much event- and moment-driven, and it needs to take a look at the longer term."

The Florey Institute's R&D manager, Dr Henry De Aizpurua, says that unlike the US, where large corporations have an "enormous investment" in research at all layers of research, from basic discovery to commercialisation, "you'd be hard-pressed to find a big Australian corporation like BHP or Telstra that has done anything more than shed corporate R&D in recent times.

"Certainly, none of Australia's big healthcare organisations are big players in medical research. They're huge players in hospitals and basic medical systems, but they're virtually non-participants in the research that underpins health care.

"It's very short-sighted; there's almost panic mentality to deliver profits for shareholders, whereas in the US, shareholders just accept that some profits will go into philanthropic work."

Of the value that Australia's medical research institutes deliver, the Centenary Institute's Basten says Australia's medical research institutes deliver enormous value for the research dollar.

"We're very inventive. That's quite clear," he says. A productivity survey by the Australian Science, Technology and Engineering Council in the 1990s found that medical research institutes accounted for 45 per cent of all the good, productive research in Australia, on just 15 per cent of the research budget.

Corporate sponsorship of research in Australia non-medical research institutes is hard to come by, and philanthropic funds are non-existent.

Dr Mike Jones, director of the Western Australian State Agricultural Biotechnology Centre in Perth, says the centre functions as a research hotel. It's very cost-effective way of creating a critical mass, and providing platform technologies for university and corporate research.

The centre competes for funds from industry sources like the Grains Research and Development Corporation, the Pig Research and Development Corporation, Horticulture Australia, and the Rural Austral Industries R&D Corporation, as well as grants from the Australian Research Council and the NHMRC. GlaxoSmithKline is a commercial sponsor.

"Our total research budget is around $8 million, and because it comes from so many different sources, unlike a Cooperative Research Centre, we're in a secure financial position if one source dries up.

"We have 16 different research groups with 105 to 110 research staff, and another 200 use our research facilities. It gives us a very strong case when we need major items of equipment - so far, our success rate for ARC equipment grant is 100 per cent. "

State government support has been minimal: "There has been some from the Centres of Excellence program, but it's been difficult to persuade the WA government to put money into biotechnology research," Jones says.

As a Federal statutory authority, the Australian Institute of Marine Science in Townsville receives most of its funding from the Federal government, according to its director, Dr Steve Hall.

"We have two other sources of revenue -- research contracts, and research grants. We have a growing income stream from technology licensing and royalties, and we're providing research services for some of our spin-off companies.

"Toxitech, which we own jointly with James Cook University, is involved in testing shellfish seafood for saxitoxins, and we have a licensing deal with milestone payments."