New biotech sector report presents a case for optimism

Doomsayers repent. The assertion that the Australian biotech industry is Tech Wreck II is incorrect, according to a new study by the Australian Graduate School of Management (AGSM).

Although not earning a summa cum laude, the study found local biotechs that listed between 1998 and 2002 had performed well against several benchmarks. It was noted that shares in many recently listed biotechs significantly outperformed those of US biotechs, and comparable non-biotech local companies too.

In fact the overall performance of listed biotech companies was higher than that of the Australian stock market as a whole.

"The problem is that many of these companies are in danger of running out [of money]," commented the AGSM's Prof Michael Vitale. But he noted that the problem was not always a short-cut to disaster, as many companies had signed deals with overseas firms, or had products near to market. Others have modified their business model to include a hybrid goods-and-services sales sector along with a continuing research element.

This scarcity of money was compounded by the lack of local VC funding, said Vitale. He described the VC market as being very reluctant to move outside its own physical area, let alone move to what was seen as small remote cities in the country.

"In one example, some biotech companies in Adelaide said it was impossible to get VCs to even visit, let alone make funds available," he said. However, given the funds that were available, local biotechs performed well enough, according to the report.

"I suspect that if we transported some of the more successful US companies here and saw how they went they would be much the same as the local firms," Vitale said.

Poor prospects

The AGSM's findings showed that roughly half of the newly listed biotechs were short of cash, with poor prospects for raising more on the public markets in the near future. This may indicate that some companies went public "too early", but in many cases this was the only option to avoid the accumulated IP being simply abandoned.

A public listing was often seen as the only means of survival. Private financing was seen as limited and the cost too high in the managers' eyes. The lack of scale and liquidity when compared to American biotechs led the report to suggest that Australian biotechs would have to compete differently and perhaps in different markets.

"The curious thing is that despite a real history of work and research in agriculture, there are relatively few agricultural biotechs here [in Australia]," commented Vitale.

"This might be because of that literal 'pot of gold' if a medical idea succeeds. Or it might just be that people don't think it worth applying for start-up grants for agriculture. It doesn't seem to be flavour of the month, which is surprising," he said.

Where have all the agbios gone?

Despite a history of agricultural wealth, despite extensive R&D into farming techniques and despite a world-class research facility in CSIRO, agricultural biotechs just don't happen here, it seems.

"We are not sure if it is because agbiotechs just don't get started, or because they get turned away by financiers, but they don't seem to get off the ground," Vitale said.

Vitale said it was "unusual" for a country like Australia not to have more agricultural start-ups on the index. He said the current furore over GM crops was not helpful to the cause, and that another contributory factor was the lack of voice that agbio had in public forums.

"There are plenty of people with positive attitudes about agbiotech, but they just don't have the platform to get the message out. It's a tough one -- because if the argument for more ag start-ups doesn't get out, the technology is going to go nowhere," he asserted.

Observers have commented that it is up to the federal government to increase public awareness and industry activity. Possible avenues are to establish a specialist agbio section of the Biotechnology Innovation Fund (BIF) grants, or to establish an agbio agency of some sort to promote the industry as a viable sector.

However, the fact that the R&D focus in agbio is slightly different may also cloud the issue, argued John Webster, managing director of industry body Horticulture Australia.

"It's not just a case of straightforward royalty streams from the R&D. The real focus of agricultural biotech research is feeding the [advances] back to the growers; to the people that fund the research," he said. "We are concentrating on the benefits to the industry as a whole, not just to the royalties to the company."

Nonetheless, asserted Vitale, it was up to the industry to give more commercialisation a try.

"It's certainly worth trying; there has to be something [worth commercialising] that can make the move from lab to industry. It's not like it's a forever commitment -- it's worth a try."