The big Australian biopharma

Brian McNamee has been at the helm of Australia's oldest - and now biggest - life-sciences company, CSL, for 15 years. He guided the company through its public listing in 1994 and has overseen its growth to a market capitalisation of $6.8 billion. He spoke with Melissa Trudinger about CSL's research and development programs, and his vision for the company's future.

ABN: Could you start by giving us an overview of CSL's research and development program?

BM: This year we anticipate spending about AUD$150 million on R&D within the total group. That's broken up into product support, particularly in the operational divisions ZLB Behring, CSL Bioplasma or Pharmaceutical, as well as regulatory support and probably a significant proportion of that covering product support and life cycle management. There is always work to be done to continue supporting your existing products or to continue to try to differentiate your current products, whether it be liquid formulation versus freeze-dried, whether it be new clinical applications, whether it be safety steps, prion clearance, virology steps.

I guess it's fair to say that about of the $150 million, probably 75 per cent of our budget is spent on those kinds of activities, with about 25 per cent spent on true classical innovation, the majority of which is in biotechnology.

Looking forward, there is no doubt that we see a growing proportion of our R&D spend going toward innovation. I see the number of dollars we're spending increasing modestly, if not moderately, over time depending on the opportunities, and the percentages will change. We would see one of our objectives, in time, that anything up to 50 per cent of the budget will be on innovation, and the majority of that will be in innovative medicines, often surrounding biotechnology, immunology etc.

But having said that, the skills that are applicable in the traditional plasma innovation area, plasma life cycle management, are really similar to biotech skills. It's all about protein separation, product purity, formulations, stability studies, so there are no two groups of people, to some degree. We have cores of activities sited where it's most relevant but the technical training and expertise of people are very similar and so that's why we have a very large and deep R&D capability within the company now, with total R&D staff numbers of approximately 500, of which 250 are here in Australia and 250 offshore. So there is no doubt that Australia is the centre for innovation.

What's your primary focus? Just a quick look at your web site indicates you have a large focus on new vaccines.

Predominantly, we're all about proteins, and generally we're about immunology, so they're the predominant filters we use. I mean, plasma fractionation is really just large-scale protein separation; it's just chromatography on a very large scale. Clearly we do a lot of work with proteins, but in particular we move in the world of immunology, because whether that is passive or active immunisation, you're just deciding whether to use your own immune system, which would be vaccinology or using therapeutic antibodies, and so to some degree all of our efforts go into working through or around the immune system.

That can often take you in unusual directions - it can take you into novel vaccines, it can take you into adjuvants, which is all about how you stimulate the immune system, it can take you into antibodies, monoclonal antibodies or polyclonal antibodies either to treat disease or some other thing. Those are the predominant areas of our focus.

I have a saying within the company - the larger we become, the narrower we become, not the reverse. So it's all about ensuring that. If we have an R&D project we want to be confident that the scientific skill base, our academic collaborators, our collaborators and our intellectual property position and the depth of our scientific grunt is similar to that which a Genentech or a Merck would put into a program, because ultimately you're not going to be competitive if you can't. So we believe in having a small number of projects that we put in the preclinical phase at least. You need to have a competitive depth and number of scientists on each project.

What sort of company would you see CSL being more analogous to, a Genentech or a Merck?

Genentech and Merck are probably more on the large scale, I'd say companies like Chiron, or Baxter or MedImmune are companies we are not dissimilar to. You know, we have a market capitalisation of about US$5 billion, and that gives us a view on where our peers are in this sort of sector. Baxter is bigger but in essence we'd say that's the sort of company we're not dissimilar to.

In terms of your major R&D programs at the moment, obviously the HPV (human papillomavirus) vaccine is one of the big ones at the moment, and that's in late-stage Phase III at the moment.

Absolutely. We're getting very excited now; we can almost taste it. Merck has done a fantastic job driving it forward - late-stage Phase III, gearing up for registration by the end of this year - and we certainly are confident that if all things go well, Merck will be fully launching this product by the middle of the following year. We're cautiously hopeful, given what we've seen to date in the Phase II data, that this will truly be a blockbuster drug.

It certainly meets an unmet need.

It's a huge unmet medical need, whether it is narrowly for females or for a fair proportion of the male population as well.

Will Merck be releasing it in Australia or does CSL have the Australian rights?

CSL - we have the local rights, so we'll be looking to register it, and if things go right from a regulatory and an approval perspective, then hopefully six months after the US launch we'd be looking to bring it into the Australian market.

I notice when I see stories in the international press that it's all Merck - Australia and CSL are not mentioned.

Merck don't do that, even regionally. When we did the cross-licensing arrangement with GSK, Merck, in its statement, said the science goes back not only to CSL but also to Ian Frazer's lab in Queensland. Merck always responsibly does that.

So it's just the media?

It's just the media. Well, what can you say? I think that generally, there's obviously awareness at Merck, there's awareness in the financial community, and I think the scientific story will get more and more traction as it comes - we're very hopeful for the University of Queensland and Ian Frazer as well as CSL. It's very important, more broadly, that it is recognition not only of a great Australian scientific discovery but also arguably for the first time, potentially - and there is potential - for some significant commercial return to Australia as well. This will be arguably the first time in a material sense that we've achieved that. I can't think of anything else.

Yes, because WEHI missed out largely on its G-CSFs...

Yes, its G-CSFs, and the flu stuff never quite got there for a whole lot of complex reasons, but that's the reality. We think this is what we hope to be, not just for CSL, but for a number of other companies, whether biotechs or institutes, the first of many successful examples of not just Australian discoveries but commercialisations in a meaningful way.

How far did CSL carry that product before it was taken on by Merck?

We worked with Ian Frazer and we took it to the stage where we had some very interesting preclinical work, but our internal work led us to believe that arguably the most efficient way of producing this was going to be in yeast. That was an important thing to recognise. Secondly, of course, just the enormous scale of the project - it's a huge program and Merck has put extraordinary resources behind it. So we recognised that to do this properly we needed to talk to people who were very experienced in yeast expression manufacturing. All roads lead to Merck because the hepatitis B vaccine is produced in yeast.

Secondly, we obviously needed a partner who was not only experienced in production, but also had the resources that could deal with a vaccine that could touch every person in the western world. It was going to be a vaccine that was going to touch millions of people.

If you just look at the requirements for the safety data and the scale of the clinicals, it has already been in 3500 women, we have male trials, the Phase III clinicals are in tens of thousands of people. Even though people would say CSL is reasonably sized, [that scale] is just way beyond [us], and not just financial resources, it's a skill issue.

Now, that doesn't mean that your work stops, and that's a very important point to make - we continued to do work to not only support the work that Merck was doing, but the intellectual property battles have been significant. There is no easy prize in the world of the pharmaceutical industry these days, so we have spent millions and millions of dollars and have had high-calibre resources protecting what we believe to be Ian Frazer's fundamental discovery. But the trouble with all fundamental discoveries [is that] sometimes the patent applications and patent law and scientific discovery don't exactly meet each other, so you have to put enormous resources behind defending your position because everyone sees the prize - in HPV, the prize is huge. Everyone recognises that it will be the world's biggest vaccine. So everyone wants a piece of it.

We have now, over the last decade, [been] securing patents, getting patent issues, continuation part issues, patent interference battles with five other parties in the US - one wouldn't want to underestimate the challenge, even if you have a piece of IP, of the robustness with which you need to defend it, and the resources you need to put behind it - millions and millions of dollars you need to spend. So we've been doing a large amount of work, supporting that and doing that, let alone [the fact that] we also have another HPV program that's therapeutic, but in essence, particularly with the Merck VLP (virus-like particles) program, our work isn't finished, we still have enormous resources behind it from an IP perspective and [are] generating further data to ensure the robustness of our position, [as well as] Ian Frazer's and [that of] the commercialising group in Queensland, UniQuest.

That's a very important role we play. It's often completely misunderstood and not recognised how robust the level of competence and resources you need to put behind it. And our work continues. We're still doing more work supporting Ian Frazer's original work from the early 1990s, it still goes on.

You say there's a therapeutic application there as well?

Not for the VLPs, but we've also remained in the HPV field. We have been collaborating with Ian Frazer and we originally had a government grant, and we've got to the stage now where we're evaluating a therapeutic against HPV16. Predominantly it's used in males, particularly gay males, there's arguably close to an epidemic of HPV16 infections causing neoplasias, so we're evaluating the use [of a therapeutic]. That really combines Ian Frazer's work with our adjuvant work, to see whether or not we can develop [it]. It will be a niche product, but hopefully, potentially, a valuable niche in the field of HPV but as a therapeutic. But it's different science, it's not based on the virus-like particles, it's based on expression proteins.

You've also got a hepatitis vaccine project with Chiron.

On our web site it looks like we have a collection of projects, but actually we only have two or three core activities that then get applied. The Chiron collaboration is based on our adjuvant. We have probably three or four projects that really lean against the work we've been doing on adjuvants for the last 10-15 years.

Whether it be our HPV therapeutic, whether it be the hepatitis C collaboration with Chiron, whether it be other partners that we're licensing the adjuvant to, the ESO work with the Ludwig Institute in therapeutic vaccines for melanoma, they all rely on the ability of the unique attributes of the adjuvant to stimulate not just T-cell responses but the responses of the cellular immune system. So whether it be minimal residual disease in cancer or whether it be chronic infection, which is really what we're dealing with in hepatitis C or HPV work, they're your applications, but all roads lead back to immunology, the immune system.

So really that adjuvant forms a core?

It's a core component, that's right, and then we tend to partner it. Certainly as the reputation of the adjuvant grows we're seeing more and more companies interested in collaborating with us to get access to the adjuvant, which we're more than happy to do, of course.

If the adjuvant forms one of your core competencies in your R&D, what other areas do you see as forming core areas?

We see therapeutic antibodies - we have a group, internally also, working in the field of antibodies, and I guess at the moment we don't want to disclose our targets, but we have a couple of programs internally with specific targets and we're working them up. So we certainly see monoclonal antibodies as an important arm of our development as a company also.

That's certainly a hot area.

They are a hot area. But the challenge is - we're great believers in [the fact that] whether it be adjuvants or antibodies or whatever, it's your insight to understand fundamental bio-logy and work out what is a putative novel target, and then collaborate with outstanding academic groups who may or may not have an intellectual property position with that target, then blend our capability in antibody development to think through that fundamental biological question as to whether if you interact with that receptor or with that protein or whatever, then what's the likely therapeutic consequence? We work very hard here to have, hopefully, a small number of academic collaborations where we can get that marriage right.

We don't see ourselves in competition with the traditional Australian biotech company, because they tend to take a discovery that has been to some degree worked up. We tend to work with academics earlier than that, where we may have an insight that they may not have, but we recognise that they will have a lot of info that we may not have, so we try to marry our expertise and create the intellectual property together that hopefully is enabling and hopefully is patentable.

That's how we tend to see ourselves, and that's why we don't really bump up much against the biotech sector. I get it [that] they try to leverage a patented discovery that's financiable, that's their challenge. We tend to focus, we're much narrower in where we look and how we look.

We go early and we have the depth of science, I mean we have 500 R&D staff, we have 250 here in Melbourne. There's no one who is even remotely at that scale.

We try to do it in a collegiate, collaborative way. Our selling story is that you're our true partner here because the work will be done here, in Melbourne, whether you're in Melbourne or in Brisbane, it doesn't matter - when you work with us, you see the Phase I, Phase Ib clinical - that's really exciting for them.

How do you identify the academic opportunities?

It's a combination of situations. We may come at it from an insight we've had internally about an issue as we've looked at a certain problem. We might come from an internal perspective. We might be contacted by an academic who has a observation that he might think is of interest [as in] what do we think of a certain observation, we have a small number of fantastic scientists who have been well trained at the WEHI and the Ludwig, etc who are very good at immunology and cellular immunology and the whole cytokine field, so through their personal networks we generally know the broad areas in which our academic partners will be working. There are good ways of interacting [so that], even if we pass up an opportunity, we've often brought to it a lot of insightful people, who can truly add value with their experience or what the fundamental experiments would be to give a project thumbs up or thumbs down, and all projects are like that, there ain't no guarantees. That's what we try to bring to the table. We have people who are peers of the best academics in the nation. That's a very powerful thing we bring. You can't underestimate that networking.

That's how we try to position the company and that's where we see our future. People wrongly see us as a plasma business - we don't even see ourselves remotely as a plasma business, we're a proteins business. We're a global specialty biopharmaceutical company. Today we separate most of our proteins from plasma, in 10 years' time we'll be making most of our products from biotechnology.

So that's really the direction you're going?

That's absolutely the direction we're going. We're on a journey - it's been a long journey, but it's been a great journey, we've come from really not much to being a decent player now.

How do you plan to grow your pipeline? Do you have plans to grow other than through academic collaborations? Are there plans to look at what's out there, not just in Australia but overseas as well?

Sure. Well, the adjuvant technology came from Sweden, we had an academic collaboration with Sweden. To some degree we thought the technology was very interesting, although it needed a lot more work, so we decided to bring it in-house, and not merely have the collaboration. So sure, we hope and believe that we'll have further collaborations, whether in Australia or elsewhere, whether they are academic or commercial. They can be licensing, they can be co-development, they can be M&A activity. We don't rule anything out, but generally it's got to be in areas where I can see we have a fundamental understanding that would make us believe we could do the business better.

How much collaboration is offshore?

R&D tends to be locality-specific, in a funny sort of way - there's no doubt we have capable groups in Berne in Switzerland, Marburg in Germany and here in Australia. The academic collaborations tend to revolve around the local network, and to be frank, that's true of most of the industry. If you look at the US, we have important corporate relationships there, but I'd have to say we don't find the US an easy hunting ground, because we're unknown there, whereas we're well known here. There are just so many companies and so many academic institutes, it's just a whole screening process. You tend to find, certainly for us, that relationships built close to your centre of gravity tend to be the strongest. That's probably worthwhile for a lot of companies to bear in mind. I'm not here to lecture anyone, but certainly you learn more from your mistakes than from your successes. The further you are away from your centre of gravity and trying to be successful in the US as a pimple - good luck!

There are no immediate plans, then, for mergers or acquisitions?

No - we're super excited about our internal pipeline, we think we've got five things that we'll probably take to Phase II clinical within 18 months, so we're mainly focused on our internal pipeline because we actually think we have some really good things. Now, if things turn up, things turn up, but that would be our comment today.

There's the HPV therapeutic program, the work with Chiron on the hepatitis C vaccine, and the work with the Ludwig on the ESO-ISCOM cancer vaccine. Then we have two clinical applications of reconstituted HDL, which is a protein separated from plasma, out of Switzerland, and we're going to do a Phase II study in acute coronary syndrome in Canada. We're contemplating doing work in stroke - we're doing a lot of work into stroke applications here so we may take that into Phase II as well. So they're the five we're contemplating taking into Phase II in the next 12-18 months.

It sounds like you have a lot of work on your plate...

We've got a bit of work - that's fine, that's good.