BIO profile: Harry Karelis, Biotech Capital

UK and European biotechs may not have heard of Australian historian Geoffrey Blainey, but they are certainly familiar with his most famous concept -- the tyranny of distance.

Harry Karelis, managing director of Sydney venture capitalist Biotech Capital, says both British and continental biotechs are just as conscious as Australians are of the yawning expanse of air-miles needed to meet up with overseas investors and partners, particularly those in North America.

"It's no different to the UK and Europe -- they all complain about brain drain and they face the same issues [of distance from the US]," Karelis says.

With a venture capital fund worth $52 million, Biotech Capital sits in the middle of a small field of Australian VCs who cover life sciences and biotechnology.

Following closely on the heels of a management buyout from its former parent -- Challenger -- Biotech Capital has opened an office in London, where it will be collocating with specialist life sciences VC MVM Funds Management. "Having someone in London will be important to access northern hemisphere intelligence," says Karelis.

Trained in Western Australia -- arguably about as far away from the rest of the world as you can get -- Karelis didn't pause to follow up his honours degree in biochemistry and microbiology with a PhD.

"I need quick feedback," he says of his choice to leave the lab. "So I went and did an MBA. It's a good toolkit for people who didn't have a lot of business experience."

He landed a job as an analyst because his boss "wanted to see why a scientist wanted to join a stockbroker."

Biotechnology was always a natural area of interest for Karelis, but in the early 1990s biotech stocks didn't warrant much coverage because not many people understood them, he says.

A stint in Singapore working as a fund manager for a subsidiary of Credit Suisse followed. Moving back to Australia, Karelis persuaded Challenger to set up a biotechnology fund -- the genesis of Biotech Capital.

Following the Challenger buyout, Karelis says Biotech Capital is free to look at setting up new funds. He has identified some holes in the Australian funding market, and also in the Asian region, which need "plugging", he says.

"[These are] more at the later stage, I think there is plenty of pre-seed stuff, but when companies are starting clinical trails there is a bit of a hole," he says. "I think the Australian Stock Exchange tends to overvalue early [companies] and act as a VC market, and then undervalue later [companies], because no-one is used to valuing a Phase II drug.

"The quality of science is generally pretty good and the quality of the investment opportunities we see is the full spectrum, everything from the Rolls-Royce to the really crappy stuff."

Karelis stresses the need for an improvement in the early advice given to companies, as they set up and raise their initial capital. "If you're getting bad advice early on that tends to compound so by the time you get to two or three years down the track you've got a mess to fix up."

It is an oft-repeated mantra now that to do real business in the rest of the world, Australian biotechs need executives who are one the ground in the northern hemisphere, seeking out partnerships and alliances.

Karelis nominates Biotech Capital investees Proteome Systems and Starpharma as two locals with international alliances.

"I think we're improving and I think more and more of our biotechs are doing real business," he says. "Australia has to take the initiative and be proactive and build linkages.

"We're looking at all sorts of structures. I think you've got to be innovative and network well in the northern hemisphere, form partnerships with groups that move into the US."

And on this far side of the world, Karelis says Australia and Japan currently dominate the time zone in the life sciences arena.

"We will have a good opportunity to create a hub and bring companies together and form companies in a place like Singapore. I think it could move fast. Obviously China will dominate in so many things. There will be real needs for GM crops and other environmental technologies.

"There are also Asia-specific diseases which mainstream pharma are not focussing on. There is an opportunity there for Australia to engage and we're working on that.

"The first thing [to look at] is the potential of the technology and IP protection. Then who's the jockey, who will make it happen. You don't want [people who think they can take a company to the moon and back within 18 months."