BIO 2011 special report: The third wave of Australian biotechs

Read part I of this feature: Australian biotechnology comes of age

One question raised by the current spate of success stories in the Australian biotechnology industry is who’s next? Following on the heels of the first wave of Australian biotech, including veteran players like CSL and Cochlear, we have the second wave, which were established in that window around 10 years ago and are now reaching maturity. But who’s behind them? When will the third wave arrive?

Even a decade ago there was far more support for biotech start-ups, particularly from the government with the likes of Commercial Ready and its predecessors. Now, with the double whammy of the global financial crisis squeezing private investors and the government axing Commercial Ready, there’s substantially less support for biotechs in that uncomfortable pre-profit stage.

“You need an open pipe from discovery to market to get optimal outcomes,” says Lavelle. “But we have a broken pipe. By reducing funding or not supporting young companies, or not recognising the benefit of programmes like Commercial Ready, it makes the environment hostile to business.”

One policy that could change this environment to make it more conducive to biotechnology is the passing of the R&D Tax Credit through the senate. This bill aims to help research-intensive companies which are yet to turn a profit gain a little government support for research and development via a tax credit.

It offers a 45 per cent refundable tax credit (equivalent to a 150 per cent concession) for companies with a turnover of less than $20 million per annum, and 40 per cent (equivalent to a 133 per cent concession) for companies with a greater turnover.

The bill was intended to replace the R&D Tax Concession and to fill the gap left by Commercial Ready after it was dumped by the Labor government in 2008. However, it hit a road bump in the senate in mid-2009 and then the federal election shenanigans put it on hold until this late last year.

To date the coalition and Family First senator, Steve Fielding, have refused to pass it through the senate, meaning it’ll have to wait until the changing of the guard – and the balance of power – in the senate midyear for any hope to be signed into law.

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According to Lavelle, AusBiotech has had conversations with Greens senator, Christine Milne, who has vouched the support of her party to the bill, which raises hope it might be passed later this year. However, a further issue is when the credit will take effect.

Innovation minister, Kim Carr, has made a commitment to have the bill apply retrospectively for the financial year 2011-2012, and is seeking treasury advice on the matter, although the later the bill is passed, the less likely this is to happen.

Another legislative issue is the Patent Amendment (Human Genes and Biological Materials) Bill 2010, which was introduced as a private member’s bill in November last year, just days before the Senate Committee Inquiry into Gene Patents was to release its findings. The new bill seeks to ban the patenting of any biological materials, even when modified from their natural form.

According to AusBiotech and the Institute of Patent and Trade Mark Attorneys of Australia (IPTA), the bill will backfire and instead of freeing up research, it will hamper research and commercialisation of any technology involving biological materials.

“The language in the bill is absolutely unacceptable,” says Lavelle. “It is broad and ambiguous, and it will only lead to drawn out legal discourse about definitions. The bill has no inherent benefit for patients, clinicians, researchers or industry – except lawyers. It will be damaging to the biotechnology industry and it has to be voted down.”

AusBiotech and the IPTA argue that the existing legislation prevents the patenting of any discoveries, such as genes as they’re found in nature, but only allows the patenting of any development that involves an inventive step that covers something not in its naturally occurring state and which has a demonstrated use. The two organisations also prefer strengthening the Patents Act 1990 to include an explicit research use exemption to further ensure that patents don’t restrict future research.

The broad sentiment is that the Patent Amendment (Human Genes and Biological Materials) Bill 2010 is unlikely to pass in its existing form, but uncertainty over its existence has added unwanted jitters to investors who are wary of putting money into something that might potentially be unable to seek IP protection.

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Two tiers

Add to this that venture capitalists are still coy in the wake of the GFC, especially American VCs, and early stage biotechnology companies are facing some stiff challenges in securing funding to get their technology off the ground.

The risk is that this will create a two tier industry, with the existing vanguard– which benefited from a more forgiving environment and some benefited from more generous government support a decade ago – starting to generate revenues while the next wave are struggling to gain the attention of investors.

While we have some truly positive news emerging at the moment, and perhaps continuing for the next year or so as more companies mature, then things might go quiet for a while as the third wave is delayed in bringing its technology to the market.

Yet overall the signs emerging from the Australian biotechnology industry are overwhelmingly positive. It really is amazing what a string of good news can do. After beavering away for around a decade or so, and weathering the storm of the global financial crisis, Australian biotechs are starting to make world class deals and be noticed on the global stage.

As Osagie Imasogie, chairman of iCeutica and Senior Managing Partner at Phoenix IP Ventures says, Australia is fertile ground for innovative life science technologies, and is sure to garner more attention from smart investors abroad.

“Australia is off the beaten path, and that is very important“ he says. “There are world class scientists here working on intriguing challenges but doing it in their own unique way.

“There is a tendency in the US or Europe – where many people attend the same schools and work for the same companies – to think exactly the same way. But true innovation is developed out of different perspectives.” And it seems those maverick ways are truly beginning to pay off.