Singapore feature: money or nothing: Australia versus Singapore Inc.

The comparison of the Australian and Singaporean biotech sectors highlights a fundamental principle of this highly volatile business: biotech needs lots of cash, but money burns pretty fast without good brains to spend it.

One the one hand you have the Island State, certainly behind the eight-ball when it comes to science and innovation but backed with the sort of money that any multinational pharmaceutical or world-class scientist would be hard-pressed to ignore. Australia, on the other hand, boasts an enviable reputation for science and discovery but with comparatively minuscule levels of Federal government support. "While one could applaud certain initiatives in Canberra they are rather trivial when compared with other major biotech centres around the world," says Andrew Cuthbertson, head of research and development with Australian healthcare high-flyer CSL. This has left the states carrying the can, with industry development programs largely fragmented and a financially challenged education system that some maintain is close to breaking point.

At first glance, the question of which country will gain the most attention and respect internationally seems like a no-brainer. But according to industry experts it's not that simple.

According to Alan Carroll, executive director of the Pacific Rim Forum, while the game of the last 25 years was who could tap into the global technology-manufacturing grid, now the game is how to plug into the science aggregation grid.

"Australia couldn't play in the first but we can play in the second," he says. Key to this, many believe, is the now popular strategy of clustering, which has proved successful in the US hubs such as Silicon Valley and Boston and which Singapore is now trying to emulate.

An important economic benefit of clustering, according to Carroll, is that it better enables an industry to function at multiple levels in the value chain. "That is what Singapore is trying to do - fill in every little bit of the value chain," Carroll says. "There is a strategy to what they are doing."

Australia is, of course, far from a failure in this regard, although it's hard to say whether this is the result of deliberate effort or simply an accident. "How it happens and how much we can attribute to clusters is hard to say - the ideal answer is somewhere in between," Carroll says.

A common criticism of Singapore is that it lacks the rich skill-base so inherent in Australia. "They have a lot of great hired guns - but it's not the same as having good indigenous people who understand the local mechanisms and the lay of the land," Carroll says. Which poses the question: how do you strike the right balance of manufacturing or science and innovation? The answer, in Carroll's view, is that it comes down partly to luck.

"The better question is what will happen?" he says. "There is no doubt that enabling technologies such nanotechnology and bioinformatics are going to be key and they need lots of money and support." Singapore is streets ahead of Australia and most of the world in this regard, but it has been criticised, along with other Asian nations, for lacking real innovation.

Studies of the sector by various analyst and accounting groups have highlighted the growing tendency of companies to market copy-cat products rivalling the big pharma players. These are funded, some argue, at the expense of developing imaginative businesses. Australia does not suffer from this malaise, however, largely because we have no infrastructure for manufacturing.

The relative gains likely to evolve out of the Australian and Singaporean approaches are impossible to gauge at this early stage. Few disagree, however, that Australia must lift its game in terms of funding. Government support for the Singaporean biotechnology industry is the envy of developed and developing countries alike.

A*Star, Singapore's science research agency, recently announced that "money is no object" for the country to encourage the relocation of top scientists. The announcement was made at the opening of the Genome Institute of Singapore, part of the country's strategy to become a regional biomedical hub.

In recent times, Singapore has aggressively promoted biotechnology, dedicating at least $US1.67 billion ($3.05 billion) to the development of appropriate infrastructure and fund start-up companies. Scientists already lured to Singapore include Dr Edison Liu, previously of the US National Cancer Institute, and supercomputing expert Gunaretnam Rajagopal, who will head the Bioinformatics Institute.

Singapore's venture capital market is also extremely healthy, with more than $US6 billion ($10.96 billion) currently under management. In Q4, 2001 alone, Singapore's VC firms raised $US2 billion ($3.65 billion), accounting for 40 per cent of the year's entire fundraising activities throughout all of Asia. The Island State also boasts zero capital gains tax and has fostered deliberately un-bureaucratic mechanisms for public sector management and financial markets to encourage greater risk-taking. "For a country of its size it is remarkable how deliberate and far-sighted their polices are," says Proteome Systems chief executive Dr Keith Williams.

"They [Singapore] and other Asian countries are looking at providing support to their industry - in Australia you would have to say things are looking pretty tired and shabby," he says. Remarkably, however, while Williams and other outspoken bioindustry advocates had been hoping that the example of Singapore and other Asian countries would spur a redoubling of Federal government support in Australia, plans were already afoot to reduce them by canning the troubled R&D Start program.

That decision, in Williams' view, highlights a major difference between Australia's approach to industry with that in countries like Singapore and the US - down under, much is left to natural selection.

"Dismantling the Start scheme was just outrageous," he says. "In Australia we are yet to realize how hungry Singapore is."

Analysts have expressed concern about the difficulty of raising capital for biotech companies in Australia. The Australian investment culture is quite conservative compared to the US, for example, with most attention focused on more traditional industries. As a result, even Australia's leading publicly listed biotech groups see little of the enthusiasm directed towards equally high achieving companies in Asia, the US and Europe, according to Paul Kelly, senior broker with Shaw Stockbroking.

"Australian biotechs are very much underpriced when it comes to their Asian, European and US counterparts," he says. The lack of knowledge about what many of these companies do, or are about to do, combined with the relatively small effort made to attract significant multinational companies, has contributed to the overall vulnerability of the Australian biotech sector, Kelly says. "The Singapore government is pumping money in and taking a long-term view - massive tax incentives are offered to companies that establish themselves on the island," Kelly says.

Among other key Singaporean initiatives many brokers would like to see in Australia is allowing pension savings to be invested in equities markets, a decision made by the Singaporean government after evaluating a similar model in the US. "I would have thought that the Federal government would have made a greater effort to follow Singapore's lead," says Kelly.

Australian companies like Proteome Systems, Gradipore and others are regularly offered attractive inducements to pack up and relocate their operations to Singapore. Yet, once again highlighting the manufacturing versus science and innovation dilemma, very few have taken the bait.

While Singapore is doing everything it can to get to the line first - whatever that may be - it is still seen as vulnerable in a global market where high degrees of uncertainty are frustrating the progress of even the best biotech companies. "They [Singapore] talk a lot about how much money they have, but they have shown a reluctance to decide what to do with it," Williams says.

While it is easy to see such a gesture may place pressure on the Australian government to lift its game, money remains just one piece of the pie, says Austrade's national manager for ICT Biotechnology and Emerging Industries, Sally-Ann Watts.

She believes that the Federal government's strategy of tying research funding to key performance indicators (KPIs) has generated important scientific and commercial activity for local companies and research groups whereas Singapore still lingers in terms of real companies out in the marketplace.

"Singaporeans have a different way of promoting their industry - they are very focused on attracting big pharma," she says. "Our key performance indicators are the number of transactions our companies achieve with our assistance - without KPIs we don't get funded.

"We're not here just to make the government look good - we're here to help grow Australian companies organically."

At this year's Bio 2002 conference in Toronto, Austrade facilitated an unprecedented 300 meetings between Australian companies and prospective international partners. So far, Watts is optimistic about the number of actual agreements that will eventuate from the conference.

Austrade estimates that agreements formed at last year's event in San Diego have already generated some $30 million worth of revenues. But what will all this be worth if Australia doesn't provide big enough incentives for the multinationals to invest in Australia leading them to take their money instead to Singapore, Japan or China?

"You have to ask yourself, where is the equivalent of the Lilly group in Australia," says Dr Tim Littlejohn, head of Sydney-based informatics groups BioLateral. "Why can't we attract at least one of the big pharmas or major IT groups to do something here? The benefits of doing so are absolutely enormous."

This, Littlejohn believes is the thing will make or break Australia is in its race to establish a leading position in biotech amongst its developing peers. Academic support and university development programs are very important, he says, but nevertheless subservient to the need for multinational money.

Yet despite what the critics would have you believe, Australia has managed to attract some interest from major multinationals albeit in very small measure compared with Singapore. Some examples include AstraZeneca (bioprospecting), Schering (neurodegenerative disorders), IBM (proteomics and bioinformatics), Monsanto (genetically modified cotton), GlaxoSmithKline (influenza vaccine) and Itochu (food technology).

"Comparing Singapore and Australia gives rise to a very complex level of competitive analysis," Littlejohn says. An important layer in the equation, he says, is the state rivalries seen to exist in Australia, whereas in Singapore the bulk of initiatives supporting biotech are represented by the one entity.

"Our federation of states and territories are set up in a particular way. We are by our very cultural identity very separated geographically," Littlejohn says. "So we have a situation whereby competition between eastern states especially is very high, and that's not necessarily a bad thing."

Emerging Growth Capital is a recently formed investment bank and securities trading house, which focuses almost exclusively on the biotech sector. According to director and co-founder Alison Coutts, Australia must overcome barriers of perception in order for the local sector to flourish. But, she says, with the stagnant state of world markets generally, it won't be easy.

State initiatives in the emerging hubs of Victoria and Queensland are positive but will ultimately suffer if the bar is not raised at the Federal level, she says. "[Prime Minister John] Howard and his advisers are just starting to wake up to what biotechnology is - they need to recognise new economic drivers."

According to Donald Home, chief executive of Agenix, there is a perception overseas that the Australian biotech sector is a little lost and in need of shepherding to really hone its natural resources and highly talented people to shrug off this current state of atrophy. "In Singapore, the more successful you are the more they will support you.

"Looking at [Singapore's] investment strategy, they are doing everything they can to encourage large profitable companies to set up research facilities - it's really driven towards commercialisation, not just research."

Agenix has a 28 per cent stake in Singaporean start-up Phytoprotein Biotech that is currently engaged in the research of transgenic plant cells and hopes to soon commercialise its intellectual property with the support of one of several government funding programs in Singapore.

In Home's view, while Australia has all the right ingredients, talent and general sense of community to create a successful biotech industry, no amount of back-scratching and luck will long compensate for the sheer determination of the Island State to lure the necessary talent and large-scale capital biotech needs. "You take a company like Phyto and you'd probably have to say it has a better chance of survival in Singapore," he says.