Why investors are the missing link to biotech's success

Scientists, industry and government are doing their bit to develop the Australian biotechnology industry, writes Peter Andrews -- so where are the investors?

I used to have a favourite line about the cultural changes needed to build Australia's innovation economy: 'Our scientists need to patent more, publish less. Our industries need to innovate, not imitate. Our governments need to think 30 years ahead, not three. And our investors need to look to the future growth of knowledge-based industries rather than relying on the dwindling dividends of natural resource-based industries.'

In fact, at least in the case of biotechnology, there's plenty of evidence that our scientists, our companies and our governments are beginning to do precisely those things. Unfortunately the same can't be said for the investment community. What is it that Australian investors don't get about biotechnology?

First, let's state the obvious. Biotechnology is a growth industry. From a standing start less than 25 years ago, global biotechnology industry sales in 2003 reached US$102 billion. That's about 20 per cent of Australia's GDP, and 0.28 per cent of the GDP of the planet. The corresponding figure for the pharmaceutical industry was US$462 billion, or 1.3 per cent of planetary GDP -- about 90 per cent of Australia's GDP. More importantly, over the period 1999 to 2003 the global biotechnology industry value grew by 17 per cent per annum (CAGR) while the global pharmaceuticals market value rose by 8.2 per cent per annum. More than one in five new medicines launched worldwide are derived from biotechnology, and more than four in five in development are founded on biotechnology discoveries or employ biotechnology tools. And that's just health: the true measure of the impact of biotechnology on agriculture, the environment, energy and security is still to come.

Why aren't these underlying values reflected in biotechnology stock prices? The headlines say it all: last year biotechnology stocks were 'on a roll'; this year they have 'fallen from favour'. We treat the sector as a short-term play whose ultimate value is dictated by the whim of the market rather than real deliverables. And we treat it as if the potential risks and rewards of all biotechnology companies are the same, when in reality the 115 or so listed Australian biotechnology companies range from those with very slight prospects of success to others with the capacity to capture billions of dollars in revenues. The sector deserves better analysis.

Who should be doing it?

First, our stockbroking community, whose efforts in recent times have led to the listing of more biotechs on the ASX than any other exchange on the planet, should be providing their clients with much more informed, objective and robust analysis of which Australian biotechs are likely to strike it rich on the world stage, and which are not. Listing and lunching is not enough.

Second, our superannuation funds, awash with more money per capita than any of their international equivalents, are still investing less than 1 per cent of their capital in early-stage ventures, compared to 6 per cent by the pension funds in the US. As guardians of our future wealth, they owe their clients more. They should be identifying the future ResMeds, CSLs and Cochlears of the Australian stock market. And having identified them, they should be investing.

And third, we biotechnologists, arguably the ones with most to gain, should be making sure that we are all sufficiently well-informed about the biotechnology sector, including companies other than our own, to provide articulate opinions on its value to the Australian investment community. Who knows, we might finish up investing a few more dollars ourselves!

Peter Andrews is Queensland's chief scientist, amd a member of the Australian Biotechnology News editorial advisory board. Last Friday he gave the keynote presentation at the Club Bio conference.