INTERVIEW: The innovation tug-of-war

Dr John Raff is one of Australia's most successful biotechnology entrepreneurs. His expertise straddles the pharmaceutical and agricultural biotechnology sectors. As well as being CEO of the Melbourne drug-discovery company Starpharma Holdings (ASX:SPL), which is developing therapeutic applications for giant, branched molecules called dendrimers, Raff is also founder and director of Dovuro Seeds, which has 75 per cent of the Australian market for proprietary canola varieties. He is also founder and chairman of Nutrihealth, a specialty canola and sesame products company in Altona, Victoria.

Raff believes government policies, and an outmoded, farmer-centred culture, are responsible for Australia's failure to build a vibrant agricultural biotechnology industry from its strong research capabilities. He also warns that Australia's infant pharmaceutical industry is falling "disastrously" behind its Canadian counterpart. He elaborates, in an interview with Graeme O'Neill.

ABN: At the BioFestival conference in Melbourne in August, you strongly criticised the Commonwealth and state governments for their R&D policies in the agbiotech and pharmaceutical sectors. Where are the problems?

Raff: If you want to establish a pharmaceutical industry, there's a proven model. Companies are the most efficient way to develop new drugs -- over 50 per cent of the world's new drugs are now sourced from small to medium biotech companies, not big pharma. The whole system rests on the ability of biotech companies to capture the value of research in their end-products.

The successful model assumes companies are absolutely essential to commercialising research. Government institutions and agencies can't do it -- their role is to assist companies to do it, and to create an environment that helps companies to do it.

The ability to take out patents, and protect proprietary products is absolutely crucial to a company's success. Without patent protection, it can't capture the value. Most of the resources for the Australian pharmaceutical industry are in government-funded institutions.

A recent Victoria University study comparing Australia's performance with Canada's showed we're falling disastrously behind. In Canada, government support is focused on the companies, not research institutions, and on fostering links between research institutions and companies. In Australia, most of our government-funded programs are focused on research push, and commercialisation of research within public institutions. It's focused on the institutions making money, rather than assisting companies.

Wasn't the Cooperative Research Centres scheme set up to promote linkages between universities, CSIRO and private companies and to commercialise publicly funded research?

I don't see too many examples of companies interacting with government agencies -- with few exceptions, it's more about the institutions collaborating with each other, rather than assisting companies. The only reason the research institutions have to interact with companies is to get money out of them

There's great pressure on publicly funded agencies to patent their discoveries and make a buck. We've actually gone backwards in the past decade as we've pressured institutions to commercialise their discoveries.

There are some interesting studies showing researchers have become more reluctant to share information, and their equipment and expertise. Our commercialisation processes are discouraging the free flow of information between public-sector research and industry. CSIRO, universities and government departments are good at protecting their IP, but it just creates bigger barriers to making their resources and expertise available to companies.

I'm not advocating reducing funding to public institutions. The problem is that governments have overdone it, in insisting that publicly funded agencies make money from their discoveries.

You've described Australia's efforts to develop an agricultural biotech industry as a "litany of carnage". What are we doing wrong? The same model applies. If you are going to commercialise agbiotech research, you have to follow the same principles as the pharmaceutical industry, and create proprietary products to capture the technology.

Because agricultural research in Australia has traditionally been done by government-funded agencies, and because we have a farmer-centred culture, we've failed almost completely to develop technology-based agribusinesses.

Australia is persisting with a failed model. The focus must be on innovation -- the development and marketing of novel products. Research is a very small part of the development process.

Plant biotechnology companies like Dovuro and Nutrihealth can only capture value by using plant variety rights (PVR) to protect their proprietary products, and by entering into exclusive commercial agreements that provide higher margins and increased profitability. Unfortunately, most Australian agriculture involves commodity crops, and the industry view is that monopoly control of an agricultural product is an evil.

What sort of problems has Nutrihealth faced during its development?

Nutrihealth has bred its own specialty, monounsaturated canola variety called Monola, from local germplasm. It's low in linolenic acid, and high in oleic acid, which means it's more heat-stable when it is used for frying. It doesn't need to be hydrogenated, so it produces far fewer trans fatty acids, which are bad for cardiovascular health. It has superior taste and sensory qualities to normal canola, and it's recognised in the US and Australia as a superior frying oil. We developed it as a healthy frying oil for the fast food industry. We're growing about 13,000 hectares this year, in northern Victoria, the Wimmera and southern NSW, and our plantings are likely to increase substantially next year.

There is a tendency by government agencies to compete with companies because they're so dominant [in research]. They prefer to develop generic rather proprietary products because they want them to be freely available to everyone. If we look back at the development of the canola industry, CSIRO decided at the outset that canola had little future in Australia, so it focused its research efforts into developing a new oilseed crop from linseed, called Linola.

Five or six years later, when the canola industry was well and truly established, they did some useful work on rotating traditional crops like wheat with canola, but then shut those projects down and moved into high-tech development of genetically modified canola.

They developed GM versions of specialty canolas, but the GM traits weren't linked with agronomic traits important to Australia. Because they didn't own the gene constructs they were using, it was impossible for Australian companies to commercialise them. Basically, they wasted a lot of effort developing the same type of canola that we have developed using traditional breeding, which put them in competition with an existing commercial crop.

I'm not saying CSIRO shouldn't do basic research, but the canola research took no account of the agronomic and commercial realities in Australia. CSIRO has done some very good work for the cotton industry, but their commercialisation approach is mostly about CSIRO making money, rather than helping to establish viable agbiotech companies. They're an inwardly focused organization. If there's no existing Australian company to work with, why bother? In the commercialisation process, they see themselves as the commercialisers.

Are government agencies partly responsible for the lack of successful agbiotech companies in the first place?

Yes. There are major obstacles to Australian companies establishing in the agbiotech sector. One is the issue of commodity versus proprietary crops: if you can't get your technology into a proprietary crop, there's no mechanism for capturing its value. Small new agbiotech companies can't afford to pay for the increasingly stringent regulatory requirements for new crops, especially genetically modified crops.

The major driver of change in agriculture today is quality assurance and traceability, and for GM crops, segregation. The old commodity-crop models no longer work.

Some government agencies are now privatising, or running commercial operations for crops like wheat and canola out of government departments, and they're just not the appropriate people to do it. It compromises the viability of private companies. There are currently nine Australian canola-breeding operations, and least half of them involve government. There's probably room for only two.

As an example of what can go wrong, when Nutrihealth was developing Monola, we worked with government organizations like the Food Research Institute to test things like its taste and frying properties. Then Victoria's Department of Primary Industries decided to set up a competing breeding program through an alliance with a large international seed company. So we now see government funding and resources being used for a project that will compete directly with a small Australian company's efforts to develop and market a proprietary product.

The department's explanation to Nutrihealth for its action was that it was based on competition policy - it would be wrong for an Australian company to enjoy a monopoly position on a proprietary crop. It just shows that government departments don't understand that a proprietary position is critical for establishing internationally competitive Australian agbiotech companies. Fortunately, we have a three-year head start on the opposition, and we are collaborating widely within the industry.

But we could be creating large, profitable Australian companies, producing high-value Australian-developed proprietary products. If we want to maintain Australia traditional production base in agriculture, we must be very smart in applying our technology. We just haven't grasped the idea of using business systems to establish a vibrant, research-based agbiotech industry.

Australia has legislated to impose some of the world's most stringent regulatory processes on new crops and foods, particularly GM crops and foods. Local agbiotech companies are complaining that they cannot afford the costs of compliance -- what's your view?

Our regulatory processes have made it almost impossible for small companies to operate in the sector. The state moratoriums on GM canola, by overriding the approvals of the Gene Technology Regulator, have made it even more difficult to operate. Companies operating in the sector need long-term certainty to operate. Whatever governments do, they need to understand the consequences of their regulatory procedures.

The effect of our stringent regulatory procedures has been to completely distort public perceptions of risk. Benzene derivatives in women's cosmetics are a far more significant risk to people's health than any GM food. The entire system of regulating chemical residues in Australian agriculture is pathetic -- in contrast with factory-produced foods, there's almost a complete lack of supervision of fresh food production in Australia. We have untrained workers on farms spraying broccoli with pesticides up to 32 times in a growing season, and it goes straight into kids' mouths. There's a complete lack of quality assurance in some areas of agricultural production.

The messages governments are sending have created total confusion, and most small companies won't touch GM crops because of the regulatory costs.

GM crops are still only a small part of agbiotech, but they're hijacking the whole debate. Most things can be achieved by other, non-GM techniques - for example, you can make enormous advances with marker-assisted breeding. There's been an over-emphasis on research into GM crops, and there has to be balance. But the most important thing is that you're not going to establish a GM cropping industry unless you move to a proprietary system. It's just too costly. ABN: After Monola, what are your plans for new 'nutraceuticals' from Nutrihealth?

A project I'd love to do one day is to take the genes involved in synthesizing omega-3 fatty acids out of marine algae and put them into canola, as an alternative to harvesting fresh fish from the oceans to extract omega-3 oils. I've discussed it with international companies, and they're keen to cooperate. I'd also be keen to talk to CSIRO.