Big Pharma And Investors Eye Australian Bio-Innovation Powerhouse

Australia is the biotechnology hub of the Asia-Pacific region and is increasingly regarded internationally as a bio-innovation powerhouse. No other location in the region can offer the combination of skilled personnel, advanced technology, economic stability, scientific excellence, and regulatory strength that Australia can.

Ernst & Young (E&Y) rated Australia first in the Asia-Pacific region and sixth globally in its census of top biotech countries. Approximately 370 Australian biotech companies, most focused on global markets, generate 67% of Asia-Pacific's total public biotechnology revenues.

Australian researchers have been at the forefront of many developments in agricultural biotechnology and medical science, including plant genetics, stem cell research, proteomics, and medical device technology. Australian scientists hold numerous patents for biotechnology breakthroughs in a wide range of fields. Australian scientists were among the first to contribute to the discovery of penicillin, and they were second in the world to produce a baby through in vitro fertilization. An Australian company, Cochlear, pioneered the development of bionic hearing implants. Some of the more recent Australian world "firsts" include the discovery that Helicobacter pylori causes gastric ulcers, the mapping of the surface of the influenza virus's neurominidase enzyme, and the purification and the cloning of three of the major regulators of blood cell formation.

COOPERATIVE ENVIRONMENT

Australia's exceptional track record in medical research is due in part to numerous world-class public sector research groups like the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the National Stem Cell Centre (NSCC), and Major National Research Facilities (MNRFs) such as the Australian Proteome Analysis Facility. There are also nine medical Cooperative Research Centres (CRCs), which are joint projects between industry, academia, and government. Roughly one-third of the 71 CRCs focus on biotechnology, and they have attracted significant global industry support. The CRC for Asthma includes US-based 3M Pharmaceuticals as an industry partner.

Commercial firms have committed close to US $1.3 billion over the life of the CRC Program. More than US $478 million has been announced in the latest round of funding, including A$13.15 million for a new Australian Biosecurity CRC to develop new capabilities to respond to the threat of infectious diseases in the agricultural sector. The center will focus on developing new technology and knowledge for disease detection and surveillance.

Australia also boasts numerous clusters of biotechnology expertise. These include the Queensland Bioscience Precinct, which is jointly funded by CSIRO and the University of Queensland, and brings together 700 scientists from the Institute for Molecular Bioscience, CSIRO, and the Queensland Department of Primary Industries. In New South Wales, the Australian Technology Park in Sydney houses 80 technology companies and four universities, while South Australia's Thebarton Bioscience Precinct in Adelaide encompasses biotech companies GroPep and Bionomics, as well as Adelaide University. Melbourne has four major biomedical clusters, which house approximately 4,500 researchers and include over A$500 million in research funding.

In 2003, the Australian government introduced the Pharmaceuticals Partnerships Program (P3), aimed at increasing high-quality pharmaceutical research and development activity in Australia, with a commitment of A$150 million over five years. P3 is a competitive program with three entry rounds, and it will be accessible to all Australian pharmaceutical companies that conduct R&D in Australia. The first round of successful proposals were announced in April 2004.

Australia's system for protecting intellectual property is recognized as one of the most effective and modern in the world. In 2003, the Institute for Management Development ranked Australia's patent and copyright enforcement ahead of countries such as the UK, Japan, Hong Kong, and Singapore. There are mutual recognition arrangements between Australia and key international regulatory authorities. The FDA signed a memorandum of understanding with the Australian Therapeutic Goods Administration (TGA) that allows the two organizations to exchange information on good manufacturing practice inspections of pharmaceutical facilities. This has streamlined the approval process for Australian-based pharmaceutical companies seeking to market their products in the US and made Australian biotechs a desirable investment.

INVESTMENT

Bioshares (

www.bioshares.com.au

), a specialist investment magazine following the Australian biotech and pharmaceutical industries, reports for 2003:

• Two-thirds of healthcare and biotech stocks posted positive gains, and about one-third are now generating revenue.
• Over A$500 million was raised by life science companies through IPOs and follow-on capital funding.
• The Australian Stock Exchange (ASX) healthcare and biotech sectors had a market capitalization of A$23.4 billion (18% more than a year ago), with the ASX drug-discovery and pharmaceutical sub-sectors capitalized at A$11.7 billion.

A study released in 2003 by the Australian Graduate School of Management (Professor Michael Vitale and Associate Professor David Sparling) reports that local biotechs listed between 1998 and 2002 performed well against several benchmarks. For example, an A$1,000 investment in Australian biotech in 1998 would now be worth more than A$61,000. During the same period, Australian biotechs significantly outperformed US biotechs, and the overall performance of listed Australian biotech companies was better than that of the Australian stock market as a whole.

There are 43 biotech companies and 22 medical device companies listed on the ASX. The window for initial public offerings (IPOs) in Australia has also reopened, with a handful of companies recently taking advantage of strong investor sentiment to list on the ASX. Among these were the specialty pharmaceutical firm Pharmaxis (www.pharmaxis.com.au), whose IPO in November 2003 raised A$21 million. Pharmaxis is developing therapeutic products for chronic respiratory diseases. Alchemia (www.alchemia.com.au), which discovers and develops carbohydrate-based therapeutics, raised A$15.8 million and was listed on the ASX in December 2003.

Many more listings are expected to occur this year, including that of the protein biotechnology specialists. Proteome Systems (www.proteomesystems.com), a pioneering firm already acknowledged as a world leader in its field. Marc Wilkins, an Australian researcher and executive vice president of Proteome Systems, was the first person to use the term proteomics in 1994.

Australian biotechs' successful fundraising from US investors is a reflection of their quality. In June 2003, Biota Holdings (www.biota.com.au), which specializes in infectious diseases and inflammation, successfully raised a share placement from the investment banking firm Babcock & Brown. Queensland based QRxPharma, which is developing technology to treat pain and control bleeding, raised venture capital from Australia- and US-based Innovation Capital, as well as US-based SpringRidge Ventures.

Polartechnics(www.polartechnics.com.au), which makes devices for cancer and pre-cancer detection, raised A$11.25 million through a combination of a share placement and a share purchase plan to expand its global sales and marketing efforts and refine its production processes. The capital is being used to enhance the sales and marketing efforts of Polartechnics' three products, cancer screening devices TruScan and SolarScan and clinical image management system MediScan. The company has recently appointed a US distributor for SolarScan and is aiming to break into the Italian market with TruScreen. MediScan is already marketed in Australia, Europe, and Asia.

In recent years Australia has attracted much of the overall share of venture capital investment in the Asia-Pacific region. In January 2004, Australia's healthcare and biotechnology sectors were rated by the US investment firm Wilshire Associates' Private Equity Group as having the best opportunities for investment. Wilshire is a major investor in Australia, with investments in 155 companies totaling US$450 million.

Since the late 1990s, the Australian government recognizes both venture capital and biotechnology as important drivers of the economy and is developing initiatives to support both. The government also has shown itself to be flexible in responding to the needs of an ever-changing investment environment, including tax treatment for two types of limited partnerships: venture capital limited partnerships (VCLP) and Australian venture capital fund of funds (AFOF). These limited partnerships will be taxed as flow-through vehicles, in accordance with internationally recognized best practices for venture capital. In 2003, three new biotechnology funds were announced, including the Burrill Australia fund (US$100 million), Scientiaus (A$250 million), and Intersuisse (A$150 million).

Many companies recognize Australia's attractiveness as a destination for foreign investment. In October 2003, Pfizer (www.pfizer.com.au) opened its US$10.5-million Australian Biometrics Centre to design and manage clinical trials worldwide. The Biometrics Centre is now fully operational in Sydney. It currently manages 20 clinical research studies — and projects the total will grow to 50 over the next two years. The center employs 30 of Australia's brightest and best biostatisticians, programmers, and data managers.

One of the world's leading companies in face-recognition technology, Viisage-ZN, chose to establish its Asia-Pacific headquarters in Australia because it is a leader in biometrics. Bristol-Myers Squibb (BMS) chose its Australian R&D arm as an international hub for clinical R&D. BMS Australia currently employs 580 people and has sales of around US$260 million.

Australia's recent free trade agreement with the US (although not yet ratified) likely will open up further investment and partnering opportunities for Australian and US companies.

BIOPARTNERING

Australia's relatively small population of 20 million encourages local biotechnology companies to focus on the world market from the beginning. Many companies focus heavily on offshore partnering agreements. E&Y reports that Australia had 21 cross-border alliances in 2002, more than France or Switzerland and 18 more than the nearest Asia-Pacific competitor. Australian companies are hungry for partnerships, and the E&Y data show that geographical isolation has not hampered them.

Many Australian innovators are highly active in building overseas markets for their developments, such as respiratory device maker ResMed and blood products manufacturer CSL, as well as emerging companies Alchemia, Xenome, Novogen, Bionomics, and Cerylid Biosciences.

One of the largest biopartnering collaborations in Australian history was announced in 2003 when the Australian company Amrad (www.amrad.com.au) and Merck Sharp & Dohme (Australia) announced an exclusive licensing and multiyear research-collaboration agreement with a potential value of US$112 million plus royalties. Merck will seek to develop drugs with therapeutic potential in areas including asthma treatment, other respiratory diseases, and oncology. As of March 2004, Amrad has received A$11 million in milestone payments.

Starpharma announced that its US associate, Dendritic Nanotech-nologies, Inc. (DNI), has been accepted as one of only seven industrial charter members to be a part of the Institute for Soldier Technology, a US$90-million consortium managed by Massachusetts Institute of Technology to develop nanotechnology for the army of the future. Other charter members include Dupont, Raytheon, and Dow Corning. Starpharma also recently announced an additional US$3-million grant from the US Army.

One of Australia's most prominent biotechnology companies, Proteome Systems, has signed numerous deals with US-based companies to assist in commercializing its technology, including a multimillion-dollar deal with IBM to deliver its ProteomIQ technology. This technology integrates next generation protein separation, processing, mass spectrometry, and information technology in a single scalable platform, providing a comprehensive solution to the complexities of proteomics research. Charles River Laboratories International was the first company to adopt the ProteomIQ system.

US-based Myomatrix Therapeutics and Melbourne-based Cytopia announced a collaboration that could lead to breakthrough treatments for heart failure and hypertension. Under the jointly funded collaboration, Cytopia will provide its inhibitors to Myomatrix for testing in animal models, and the data generated will be owned by both companies. The first product targets a currently untreatable, chronic, "orphan" disease; the product has a potential market value of US$500 million.

Adelaide-based gene researcher Bionomics has joined with US-based Brigham and Women's Hospital (a Harvard Medical School training hospital) to identify new epilepsy genes. Alongside a US$1.7-million NIH grant to Bionomics announced in December 2003, this alliance reflects a growing US interest and support for Bionomics' epilepsy research.

Melbourne-based Cortical and US-based Genzyme have recently announced a joint agreement to develop a new treatment for inflammatory diseases. Under the agreement, the companies will combine their expertise to develop new oral drugs to fight diseases such as arthritis, multiple sclerosis, and colitis. Cortical is a recently formed spinoff company from Monash University. Genzyme will invest around A$1 million over the life of the agreement, as specific milestones are met.

Australian biotechnology companies also have been successful in partnering with European counterparts. In August 2003, the Australian biotech company EvoGenix (www.evogenix.com) announced a collaborative agreement with Domantis, a UK-based domain antibody company. EvoGenix will supply its technology for protein evolution and optimization to one of Domantis' therapeutic leads. Domain antibodies are a new class of antibody molecule that can address targets, formats, delivery methods, and manufacture alternatives not available to full antibodies.

Similar partnering success is coming from Asia, with newly established Bio Pharma (www.biopharma.com.au) signing an A$3.5 million agreement to supply DaeWoong Chemical Company with chenodeoxycholic acid (CDCA). DaeWoong Chemical Company is a specialized active pharmaceutical ingredient manufacturer and is the fastest growing, top-ranked company in Korea, with approximately A$60 million in sales per year. Bio Pharma produces highly purified pharmaceutical and health-promoting products using novel extraction technologies.

BIODIVERSITY

Australian companies are at the leading edge of adapting chemical compounds from the natural environment for therapeutic purposes. The Great Barrier Reef, the tropical forests of Far North Queensland, and the deserts of Western and Central Australia all offer a wealth of fauna and flora for further scientific study. Almost 10% of all plant species can be found in Australia — and 85% of those species can be found nowhere else on Earth. While 25% of modern medicines come from natural products, it is estimated that only 1% of plants in Australia have been screened — providing an exciting opportunity for investors and partners.

To provide investors with an open and transparent regulatory regime, all Australian state and territory governments signed the Nationally Consistent Approach for Access to and the Utilisation of Australia's Native Genetic and Biochemical Resources in 2002. Federal legislation will follow in 2004.

In Queensland, AstraZeneca has committed more than A$100 million to the Natural Product Discovery (NPD) program, a collaboration with Griffith University. AstraZeneca has confirmed its involvement through 2007. The program will conduct high-throughput screening of hundreds of thousands of plants from Queensland rainforests and marine organisms from the Great Barrier Reef. Several 2003 AstraZeneca patent applications were based on substances discovered through the NPD program.

In July 2003, the Australian Institute of Marine Science (AIMS) signed a Memorandum of Understanding with the US National Cancer Institute to provide samples of marine organisms for cancer drug screening.

Xenome (www.xenome.com) and Marinova (www.marinova.com.au) are two Australian companies utilizing the country's biodiversity. Xenome is developing a synthetic drug (Xen2174) modelled on a peptide isolated from the venom of a cone shell found on the Great Barrier Reef for use in pain therapeutic applications. Xen2174 is currently in preclinical development for the management of chronic pain and is expected to enter clinical trials this year. Marinova is pioneering the discovery and commercialization of marine-derived compounds, specifically macro algae, for pharmaceutical and nutraceutical applications. The company has formed strategic alliances with Industrial Research Limited (IRL) and New Zealand Pharmaceuticals (NZP) to develop considerable strength in carbohydrate chemistry, extraction technologies, and commercialization, focusing on high-value products. Its initial commercialized products are dietary supplements, but the company expects to launch botanical drugs in the US short- to medium-term under a new FDA category.

In 2003, 25 patients with advanced forms of solid-tumor cancers (such as breast cancer, lung cancer, and melanoma) began participation in the first clinical trial of an anticancer drug made from the noxious weed Devil's Apple, SBP002, produced by Perth pharmaceutical company Solbec. Animal studies have shown a slowing (and in some cases, a reversal) in cancer growth with SBP002, even in difficult-to-treat cancers such as melanoma and mesothelioma.

STEM CELLS

Australia is at the cutting edge of research into stem cells and is home to many of the field's best scientists. Researchers at Melbourne's Monash University successfully used adult epithelial stem cells to grow a thymus. Australian researchers pioneered the use of embryonic stem cells to make graft tissues and have successfully generated primitive brain cells in mice from embryonic stem cells.

In 2003, the Australian Government enacted the Research Involving Human Embryos Act, which allows excess embryos created for assisted reproduction to be used in certain research. The Australian Government has also provided A$57.9 million for a biotechnology center of excellence, the National Stem Cell Centre (NSCC). The center is headquartered in a new biotechnology park on the campus of Monash University and aims to unite Australia's expertise in embryonic and adult stem cell technology. Partners include leading research institutes across the country and Australian company Stem Cell Sciences. In 2003, the NSCC entered into a licensing and collaboration agreement with the US biotechnology company LifeCell. As part of the deal, LifeCell founder Dr. Stephen Livesey, a world leader in tissue regeneration, was appointed the chief scientific officer of the NSCC.

The Monash Institute of Reproduction and Development (www.monashinstitute.org) is using applied stem cell research in a range of medical fields, including reproductive sciences, endocrinology, and early human development. The institute is researching the maturation of spermatogenic stem cells to better understand the maturity cycle of male germ cells in the testes. It is also studying the potential of cloning and stem cell technologies to modify the rat genome, and it is involved in partnerships with other major Australian research institutions.

Victorian company Norwood Abbey is researching the possibility of rebuilding the immune system by either regenerating the thymus gland to produce new T cells or by growing a completely new, fully functional thymus from stem cells. Norwood Abbey's original intellectual property was developed at Monash University. TAP Pharmaceuticals (a joint venture between Abbott Laboratories and Takeda Chemical Industries) recognized the company's value with a US$2-million investment. TAP is also licensing intellectual property to enhance an existing class of drugs for kick-starting the immune system.

RESEARCH AND CLINICAL TRIALS

Australia is an excellent value for research investment. KPMG's Competitive Alternatives Report ranks biomedical research and development in Australia second after Canada in cost-effectiveness, particularly with respect to labor, salaries, utilities, and income tax — placing Australia ahead of the UK, the US, and Germany. Australia is the third least expensive location for clinical trials after The Netherlands and Canada.

According to the First Australian Clinical Trial Survey (FACTS), produced by the medical communications group ProScribe (www.proscribe.com.au), Australia has a solid record of attracting and conducting international clinical trials, with over 600 clinical trials performed at more than 2,000 sites each year.

Australia is a top performer in meeting recruitment timelines and targets. Approximately one-third of Australian multinational affiliates are ranked among the top 10% internationally. Australia's regulatory process is comparatively swift — 99% of clinical trials use the Clinical Trial Notification scheme where companies can notify the Australian Therapeutic Goods Administration (TGA) and start clinical trials in a week. The TGA stringently oversees all clinical trials, and its rulings are recognized and upheld by its international counterparts. The TGA accepts data submitted from clinical trials conducted overseas as long as they follow Good Clinical Practice. Studies conducted in Australia routinely meet international regulatory requirements, including those of the FDA and the International Conference on Harmonisation (ICH).

Australian clinical trials are cost-competitive, with investigator fees per patient one-half of those in the US and Canada. Australia's relative cost advantage holds up in all phases and therapeutic areas. In fact, Australia's clinical trial costs are comparable to Eastern Europe, with medical practice and research standards similar to the US and Western Europe. Involving Australian affiliates of international pharma companies in international clinical trials allows access to experienced clinical staff at a competitive rate.

Furthermore, Australia is known for high-quality clinical trials. It is a top performer for data quality, with about one-third of Australian multinational affiliates ranked among the top 10% internationally and approximately one-half in the top 30%.

Australia's diverse, multicultural population — comprised of individuals from more than 200 countries — provides a perfect environment for ethnopharmacological research. Twenty-five percent of Australia's population was born overseas.

The list of well-known, multinational pharmaceutical companies that have recognized Australia's clinical research capabilities includes GlaxoSmithKline (whose phase 1 facility in Australia is one of only five that GSK operates worldwide), AstraZeneca, Eli Lilly, Roche, Pfizer, and Sanofi-Synthelabo.

Australia is home to numerous centers of clinical trial expertise and international best practice — such as Clinical Trials Victoria, a consortium of research institutions and hospitals that conducts clinical trials for conditions including cancer, cardiovascular disease, and neurological disorders. These centers offer scope and choice of operational models when determining the most appropriate venue for specific trials.