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a u s t r a l i a n

reportBiotechnology

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This communication provides general information current as at the time of production. It is not intended that the information provide

advice and should not be relied upon as such. Professional advice should be sought prior to actions on any of the information contained

herein.

Ernst & Young makes the following statement:

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© The copyright in this work is held by the Commonwealth of Australia, Ernst & Young and Freehills 2001

ISBN 0 642 72117 3

ISR 2001/096

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iii

Minister’s Foreword 1

Industry Foreword 2

About this Report 3

Significant Events in the Biotechnology Industry 1999–2000 5

State of the Industry 2001 7

Regulatory Affairs 27

Finance and Investment 36

Commercialisation: Paths, Models and Barriers 45

Market Sector Overviews 53

Infrastructure and Public Sector Linkages with Industry 60

Biotechnology Across Australia 69

Other Reports and Sites of Interest and Relevance 77

Directory 79

CONTENTS

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1

I am pleased to introduce the second edition of the Australian Biotechnology Report.This updated report provides a broader and more comprehensive analysis of thegrowth and change in the Australian biotechnology industry since the first reportlaunched in 1999. The summary of major events since the first report shows thecommitment the Commonwealth Government has made to developing Australia’sbiotechnology industry.

In 1999 the Government established Biotechnology Australia and the CommonwealthBiotechnology Ministerial Council to coordinate government biotechnology activity and todevelop a national biotechnology strategy.

The National Biotechnology Strategy was launched in July 2000 with the priorities of:

• establishing a Biotechnology Innovation Fund (BIF) to bridge the critical proof-of-concept gap;

• identifying the requirements and costs of segregating gene technology products;

• increasing public awareness to enable informed debate and decisions;

• establishing an environmental risk research program;

• developing national biotechnology networks; and

• ensuring market access for Australian agriculture and food biotechnology products.

In January 2001, the Government announced a series of measures to promote research,development and innovation in Australia. Backing Australia’s Ability provided additionalsupport for biotechnology in Australia by doubling the funds available for BIF and providingfunding for a Biotechnology Centre of Excellence.

Australia has an important role in the global biotechnology and life sciences industry. Thisreport monitors the trends in biotechnology sectors and provides the primary source forcomprehensive information regarding the Australian biotechnology industry. This informationis essential for informed decision-making and the Government’s role in promoting Australia’scapabilities to biotechnology investors through agencies such as Invest Australia.

I look forward to the contribution a strong biotechnology industry can make to the health,environmental, social and economic benefit of Australia.

Senator the Hon Nick MinchinChairman Biotechnology Ministerial Council and Minister for Industry, Science and Resources

MINISTER’S FOREWORD

Senator the Hon Nick Minchin

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Emergence of Australian biotechnology companiesDr John Stocker, AO

Successful biotechnology companies are born where excellent management meets goodscience and attracts informed investors. Like the creation of new stars in the swirlingintergalactic gases, the background conditions need to be right. Here government playsa role by ensuring an enabling environment for the new stars to develop and shine forth.

Australia has a good chance to apply the excellence of its scientific research tocommercial application and early stage capital is increasingly available. Experienced

management has been rate-limiting in the process but there are also positive signs here, withthe recent repatriation of Australians with successful overseas management experience inbiotech companies.

It is an exciting time to be working in and around the biotechnology sector. The initialmapping of the human genome, the development of genetically modified crops for enhancedquality and the continuing development of environment and waste management opportunitiesare providing an enhanced base, whereby the next stage of research and ultimately thedevelopment of products and services can be constructed.

The gulf that has existed between government-funded research and its commercial applicationhas often thwarted new company formation in Australia. Our research institutes, governmentagencies and universities are again grappling with their commercialisation and intellectualproperty policies and are moving to create a more enabling and less bureaucratic environment.

State and Federal governments are moving onto the front foot with industry grants and otherincentives aimed at providing a conducive environment. Successful overseas examples ofclusters, networks and significant relationships between government research agencies andcompanies can teach us much. I have been involved with the Cambridge Antibody TechnologyGroup plc. for the last six years and am greatly impressed by the success of this model, in whichthe British Medical Research Council was both able to transfer technology to the company andprofit in the process!

Australian investors still need to see more glowing examples of sustained biotech companysuccesses. I believe that, as large corporations in the pharmaceuticals and agribusiness sectorsfuse and merge to form even bigger structures, the need for innovative ideas and products tosupply their pipelines will provide just the “market pull” that new Australian companies needto foster their success.

Overall, the outlook for the Australian biotech sector is positive and the emergence of new,highly prospective companies should provide investors with the stars that they are seeking.

INDUSTRY FOREWORD

Dr John Stocker, AO

This is the second Australian biotechnology industry report. It has been produced incollaboration by Ernst & Young, Freehills and the Department of Industry, Science &Resources (ISR), in particular Biotechnology Australia.

The report is prepared as part of the Ernst & Young Thought Leadership series, and reflectsErnst & Young’s international commitment to the life sciences industry. Freehills is a leadingAustralian legal and patent firm that recognises biotechnology as a major industry of the future.Biotechnology Australia coordinates the Australian Government’s biotechnology activity.

The investigation and report follows in general style the international biotechnology industryreports produced by Ernst & Young over the past decade in America, Canada, Germany andmore recently in the European Union (EU). As such, it focuses predominantly on industryrather than research. The report has also been written in a manner suitable for both domesticand international readership.

Reports of this kind require the willing participation of many companies, their Chief ExecutiveOfficers and Executive staff. We acknowledge the biotechnology industry and sincerely thankall those who contributed to the preparation of this report. We also thank the contributors ofexpert commentary and case studies.

The Australian Biotechnology Report 2001 focuses on companies in Australia activelyinvolved in the commercialisation of biotechnology. Growing numbers of these Australiancompanies are taking their products and services into global markets.

The overarching theme to this report is “Growth and Global Outreach”, as the evidencewithin this report shows that for its available resources, Australia now has a more than credibleplace in the global industry.

The reader should note carefully that the definition of biotechnology for this report has beenwidened from the first Ernst & Young/Biotechnology Australia report of 1999. This is in part areflection on the expansion of the industry and the number of participating companies. It isalso the result of increasing convergence of the many academic disciplines that underpin theindustry. Biology, electronics, computing, bioengineering, materials sciences, chemistry andothers are all melding into a dynamic and global life sciences industry – once predicted andnow maturing.

Biotechnology is defined for the purposes of this report as:

“The application of all natural sciences and engineering in the direct or indirect use of livingorganisms or parts of organisms, in their natural or modified forms, in an innovative manner inthe production of goods and services (including for example therapeutics, foodstuffs, devices,diagnostics etc.) and/or to improve existing industrial processes. The market application ofoutputs is typically in the general areas of human health, food production, industrial bio-processing and other public good and environmental settings.”

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ABOUT THIS REPORT

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The survey process used for the findings recognises “core” and “related” biotechnologycompanies1. Typically the technical competency and business model of “core” companiesdepends on exploiting intellectual property embedded in molecular, cellular and tissue biology,and includes for example platform technology and discovery companies. This is the group uponwhich the 1999 industry report focused.

Companies now also contained in our definition are those in the wider health and life-sciencesector, such as in the pharmaceutical, agri-food, environmental, biomedical instrumentation,and device/diagnostic sectors. Some of these companies are typically larger (and subsidiaries ofmultinationals) and increasingly engage or invest with core biotechnology companies forcommercial reasons. Others, such as the smaller entrepreneurial biomedical instrumentationcompanies fill another and significantly successful sector in the overall Australian bio-industry.

The consequence of widening the definition is that data from this report and our first industryreport (1999) may not, in all instances, be directly comparable (for example, in regards toindustry growth trends). Where needed, we have been obliged to remind the reader of theimpact of this changed definition.

As far as possible, the survey documents used were designed to allow comparisons with similarErnst & Young reports in the USA and Europe. The data collected for inclusion in the reportcame from various sources, including publicly available industry information, survey responsesand interviews from selected companies, Federal Government data collection agencies(including Biotechnology Australia and the Australian Bureau of Statistics) and a recentbenchmarking study2. We have made estimates and drawn conclusions from the data, wherereasonable and prudent, in order to provide a reliable indication of the present state of theAustralian biotechnology industry. In some areas the data is not ideal. This is partly becausethe maturing industry is now becoming commercially more sensitive in revealing information(for example products in the pipeline), and partly because the many smaller start-ups andprivately held companies hold their financial state, in particular, confidential. The financialstate of the industry is therefore most reliably informed by the reportings of the listed publicbiotechnology companies.

All currencies, except if otherwise stated, are in Australian dollars. As at 31 March 2001,indicative exchange rates were A$ to US$0.49, A$ to €0.56 and A$ to ¥0.61.

The persons responsible for this report include:

Project Leaders: Keith Hardy (Ernst & Young)

James Cherry (Freehills)

Project Manager: Julie Barrett (Ernst & Young)

ISR Liaison: Sandy Radke, Kamal Singhe, Noel Gerahty

Technical Editors: Craig Fowler, John Bates (Ernst & Young)

Additional Editing: Paris Brooke (SDA Biotechnology)

Additional copies of this report are available from the websites of Ernst & Young, Freehills orthe Department of Industry, Science & Resources.

1 For this report, companies must be registered with the Australian Securities and Investments Commission (ASIC). The report doesnot include public research entities or trading names.

2 “Benchmarking Study of R&D Costs in Selected Segments of Australian Biotechnology ” Ernst & Young, Hay Group and StrategicIndustry Research Foundation, January 2001.

Products and companies

Event Impact

About 60 biotechnology companies listed Expanding biotechnology sector withon the Australian Stock Exchange (ASX), increasing competition for funds, resources and35 of which are ‘core’. infrastructure.

Growth in the number of core listed biotechnology companies was 75% since September 1999.

Divestment of non-core businesses by Recognition of the need for an increased focusFH Faulding & Co and AMRAD. on core business as a driver of success.

Establishment of offices in the US by an Australian CEOs now spending well over 30% increasing number of Australian companies of their time creating relationships in the (eg. BresaGen, Gradipore). US and Europe.

Agreements, alliances, joint ventures and market moves

Event Impact

Peptech’s licensing agreements with Demonstration of the value core technology Knoll AG and Centocor Inc for its patents can provide to emerging Anti-Tumour Necrosis Factor patents. biotechnology companies.

CSL Ltd’s acquisition of the plasma Demonstration that Australian companies can fractionation business, ZLB, from the expand in their own right into major Swiss Red Cross. international markets.

Transformation of mining companies into New sources of financing to support biotechnology investors (eg. Prima Resources, Australian biotechnology. Exodus Minerals).

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SIGNIFICANT EVENTS IN THE BIOTECHNOLOGYINDUSTRY 1999–2001

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Technology, manufacturing and trials

Event Impact

Proteome Systems and CSIRO collaboration Growth in Australia’s core skills in in proteomics and bio-informatics. proteomics and bioinformatics.

CSIRO established new research program on New knowledge in environmental impacts ecological implications of genetically and risk assessment methods for GMOs that modified organisms. might be produced in Australia.

Increasing number of Australian biomedical Growing need for funds to support companies with products in clinical trials. development, and to establish alliance or

licensing strategies to successfully take products closer to market.

Public policy and funding initiatives

Event Impact

Commonwealth implements National Launch of Biotechnology Innovation Fund Biotechnology Strategy to coordinate and (BIF) with a focus on pre-VC investment support biotechnology development phase.in Australia.

Establishment of programs enhancing biotechnology IP management skills.

Support for network and cluster development.

Commonwealth announces innovation Funding for a Biotechnology Centre of initiatives, Backing Australia’s Ability and Excellence and extra funding for BIF.Agriculture Advancing Australia, which include support for biotechnology. Encouragement for commercialisation of

innovative agricultural biotechnologies

Queensland and Victorian Governments Additional support for the sector provided announce significant and strategic initiatives through State Government funded initiatives. in biotechnology, including the Institute for Support from the States has focused on Molecular Bioscience and Bio21. infrastructure and business support.

Appointment of a Biotechnology and A focal point for Government initiatives to Pharmaceuticals Manager within Invest attract investment in Australian Australia to facilitate investment biotechnology.in biotechnology.

Regulatory affairs

Event Impact

Commencement of the Introduction of a primary agency with Gene Technology Act 2000 and creation of responsibility for regulating dealings with the Office of the Gene Technology Regulator GMOs.

Approval for the commercial release of Health and environmental safety aspects of Roundup Ready/INGARD cotton. GM cotton meets regulatory requirements,

allowing for use in Australian agriculture.

Biotechnology Industry Highlights3

• There are approximately 35 core biotechnology and a further 25 biotechnology relatedcompanies that are publicly listed.

• The total number of core biotechnology companies operating is estimated to be 190 withabout a further 460 related biotechnology companies.

• The biotechnology companies employ over 5 700 staff and have a staff turnover rate lessthan 6% per annum.

• Since 1999, the total number of core biotechnology companies increased by approximately 70.

• During the last 18 months, there have been in excess of 20 initial public offerings (IPOs) ofbiotechnology companies, on average each raising some A$11 million.

• CSL Ltd represents more than 70% of the market capitalisation of the ASX listed corebiotechnology companies (as at 31 March 2001).

• The industry as a whole raised some $900 million since our last report of 1999, a five-foldincrease over estimates in 1998–1999, with publicly listed companies accounting for at leastA$800 million of this total.

• In the last 18 months, five companies have been delisted by the ASX.

• At least 15 companies have opened, or are in the process of opening, or expanding anestablishment or operations in the USA or Europe.

• Revenues generated by core biotechnology companies (both listed and private) over the last12 months are estimated to be almost A$1 billion.

• The three sectors with the greatest number of products under development are:- human health;- equipment and services; and- agriculture.

• Our research and survey results indicated that biotechnology companies have over 150potential products in clinical or field trials during 2001.

• The present status of the Australian industry is therefore captured in the message “Growth and Global Outreach”.

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STATE OF THE INDUSTRY 2001

3 Statements must be referenced to definitions provided within ‘About this Report’.

Industry DescriptionThe Australian biotechnology industry isexperiencing a period of growth andinternational outreach. The key features of theindustry remain similar to those identified inour previous report of 1999. These features are:

• The industry continues to grow yet remainssmall in global terms;

• Alliances with larger multinationalcompanies continue to be a major route tointernational markets for Australianbiotechnology companies;

• The industry is supported by effectivepublic investment in R&D; and

• Public policy at national and state levels isincreasingly focusing on initiatives tosupport infrastructure and collaborativealliances in biotechnology.

The size of the national industry hasexpanded considerably in the last 18 months.Based on our definition, it is estimated thatthere are about 650 Australian biotechnology(core and related) companies, as of 31 March2001, with about 190 of these regarded as corebiotechnology companies (Table 1).Approximately 60 biotechnology companieswere publicly listed on the Australian StockExchange (ASX) of which approximately 35 are core.

Table 1Core Biotechnology Companies

Year No. of Companies

1999 120

2001 190*

* This represents the total number of companies actuallyoperating at the time of the report, taking into account newentrants and companies that have ceased operating.

The rate of formation of new corebiotechnology companies is difficult toestimate accurately. Since mid-1999, there has been an increase of about 70 corebiotechnology companies (at least ten ofwhich were probably in early infancy at thisdate). This well exceeds historical recordsover the past decade where ten companies orless per year was more the norm.

Experience suggests the actual number islarger than the 190 identified, although thoseunidentified might be little more than anapplied R&D concept embodied in a newcompany name and typically founded within apublic sector institution.

DemographicsThe Australian biotechnology industry isdominated by small to medium companies,with a handful of much larger players such asCSL Ltd, FH Faulding & Co, Cochlear Ltdand ResMed Inc. A feature of the Australianindustry is that it lacks geographic proximityto a large market, such as the USA with itspurchasing ability and the wealth ofinformation provided through conferences,workshops, networking and industryassociations.

The Australian industry has the followingstructure and features:

• Representatives of most majorinternational pharmaceutical andagribusiness companies are located inAustralia, with many investing in R&D.This investment has been enhanced by thePharmaceutical Industry InvestmentProgram (PIIP), which provides financialsupport in return for conducting agreedR&D and manufacturing activities inAustralia.

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• A substantial investment in fundamentalresearch and research infrastructurethrough universities, research institutes,the Commonwealth Scientific andIndustrial Research Organisation(CSIRO), Cooperative Research Centres(CRCs) and Commonwealth and Statefunded research organisations. It isestimated that in 2001 there isapproximately A$300 million of ongoingpublicly funded research in biotechnology.

• There are approximately 35 corebiotechnology companies listed on theASX and some 155 privately held corebiotechnology companies.

• CSL Ltd represents more than 70% of themarket capitalisation of the ASX listedcore biotechnology companies.

• There is an increasing focus on out-sourcing within the industry, withuniversities and research institutes playinga significant role in support of industry.

• Australia is well representedinternationally for its capabilities infundamental research in biotechnology andrelated disciplines. Over the last decade,government policy has providedopportunities to identify and add value tothe fundamental research base. Thispotential is now beginning to deliverproducts or services, that will providefinancial returns for reinvestment inAustralia. The CRC Program, which linksresearchers with industry partners tofacilitate the investment in commerciallyattractive R&D, spearheads this support.

Distribution of all biotechnology companiesby State (Figure 1) shows the greatestconcentration of biotechnology companies inNew South Wales (Sydney), Victoria(Melbourne) and Queensland (Brisbane). Thedistribution of core biotechnology companies

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in Table 2 shows a similar distribution to thatof the more broadly defined industry shown inFigure 1. Victoria has the greatest number ofcore biotechnology companies whilst NSWhas greater representation of relatedcompanies, eg. multinational life science andpharmaceutical companies.

Many States and Territories in Australia haveextended their commitment to biotechnologythrough a variety of support programs, whichfocus on development and access toinfrastructure, encouraging investment andsupport for companies beginning their journeyto generate revenues and ultimately profitsfrom biotechnology.

QLD 11%NSW 40%

Victoria 32%

WA 7%

SA 8%

Tas, ACT and NT 2%

Figure 1Demographic spread of all biotechnologycompanies

Source: Ernst & Young/Freehills/ISR survey and research data2001 (n = 646 companies)

The presence of CSIRO facilities has made asignificant contribution to State and Territorybiotechnology programs by providingestablished research infrastructure andlinkages. CSIRO has a significant presence inall States and Territories and has a longhistory of collaborations with local researchinstitutes (both private and governmentfunded), universities and industry.

Further information about biotechnologyindustries in each State and Territory can befound in the section ‘Biotechnology AcrossAustralia’.

Research and Development

Industry Funded Biotechnology R&DAustralian biotechnology companies’investment in R&D in 1999-2000 wasestimated to be approximately A$150 million(Table 3). Of this:

• Publicly listed core biotechnologycompanies spent about A$112 million onR&D, on average about A$3.2 million perannum each.

• By comparison private and unlisted corebiotechnology companies (based on surveyresponse) spent about A$1 million perannum each on R&D (Table 4).

Table 3 Total Biotechnology R&D Spend(Listed ASX Companies) 1999–2000

Total Average$’000 $’000

Core biotechnology 111,541 3,186companies

Related biotechnology 36,192 1,809companies

Pharmaceutical companies4 3,519 879

Total R&D spend 151,253 -

Source: Ernst & Young/Freehills/ISR survey and research data2001

Table 4 Private and Unlisted CoreBiotechnology Companies R&D Spend

Average R&D Spend $’000

1999-2000 1,049

2000-2001 (estimate) 3,309

2001-2002 (estimate) 4,477

Source: Ernst & Young/Freehills/ISR survey and research data 2001

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Table 2Core Biotechnology Companies 2001

State Number %

Victoria 72 38%

New South Wales 58 30%

Queensland 22 11%

South Australia 15 8%

Western Australia 17 9%

Northern Territory, ACT & Tasmania 6 3%

190

Source: Ernst & Young/Freehills/ISR survey and research data 2001

4 Recognised ASX listed pharmaceutical companies, whichoperate predominantly in Australia. Data regarding Australianoperations for overseas listed pharmaceutical companies is notincluded.

Funding for R&D is an ongoing challenge forsmall to medium businesses in Australia. Formany of these companies, limited fundingincreases the company’s risk profile, forcingthem to focus on a single product and createlean management structures to minimise cashburn rates. Despite this, survey results (Table 4)suggest an apparent sharp increase in currentand future expenditure on R&D in privatelyheld core biotechnology companies, fuelled inpart by Government support programs.

Publicly Funded Biotechnology R&DWhile it is difficult to arrive at an accuratefigure for Government expenditure on R&Din the biotechnology sector in Australia, theestimates shown in Table 5 indicate thatbiotechnology R&D accounts for at least

9% of Australia’s total public sector R&Dexpenditure. This includes an estimatedannual expenditure of at least A$296 million.This expenditure is expected to rise in 2001-2002, following the announcement ofadditional biotechnology funding in theFederal Government’s statement BackingAustralia’s Ability. For example, an additionalA$20 million was allocated for theBiotechnology Innovation Fund (BIF) for2001-2004. R&D expenditure under thePharmaceutical Industry Investment Program(PIIP) is expected to increase to A$13.5 million in 2001-2002 with aroundA$3.9 million for biotechnology research.

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Table 5Publicly funded biotechnology R&D

Estimated annual R&D commitment by the Australian Government in biotechnology5

1998-1999 1999-2000 2000-2001 Biotech Total Share Biotech Total Share Biotech Total Share

A$m6 A$m7 of total A$m6 A$m8 of total A$m6 A$m8 of totalfunding funding funding

CSIRO9 40 476 8.4% 47 598 7.8% 47 600 7.8%

National Health & Medical Research Council 40 194 20.6% 54 282 19.1% 54 321 16.8%

Australian Research Council 35 454 7.7% 25 454 5.5% 25 468 5.3%

Cooperative Research Centres 25 142 17.6% 28 143 19.6% 28 134 20.9%

R&D Start 15 156 9.6% 17 156 10.9% 17 155 11%

Rural R&D Corporations 10 150 6.7% 14 160 8.8% 14 170 8.2%

Pharmaceutical Industry Investment Program10 – – – 2 7 28.6% 3 10 30%

Universities11 90 1135 7.9% 90 1297 6.9% 90 1320 6.8%

Other 0 123 19 120 15.8% 29 122 23.8%

TOTAL 255 2830 9.0 296 3217 9.2 307 3300 9.3

5 1999 figures are estimates based on cash accounting, 2000 figures are estimates based on accrual accounting. Figures are rounded tothe nearest $m and per cent.

6 Source: Biotechnology Australia estimates except CSIRO figures7 Science & Technology Budget Statement 1999–2000 (ISR, 1999) except figures for CSIRO (from Portfolio Budget Statements

1999–2000 ISR)8 Science & Technology Budget Statement 2000-2001 (ISR, 2000) except figures for CSIRO from Portfolio Budget Statement

1999–2000 ISR)9 Source: CSIRO estimates10 PIIP started July 199911 Does not include infrastructure investment

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BresaGen Ltd – discovery to development

BresaGen Ltd is a biotechnology company committed to the discovery and commercial developmentof products derived from gene technologies. Its mission is to: “develop and deliver innovative humanbiopharmaceuticals.”

The R&D directed to the protein pharmaceuticals product pipeline includes novelbiotherapeutics for myeloid leukaemia, breast cancer and allergic disease. The company isalso developing novel veterinary biotherapeutics and registered its first product, theEquiGen™ Injection for use in horses, in 1998. BresaGen is currently working on a canineproduct for treatment of fractures in dogs.

BresaGen’s cell reprogramming work includes research into cell therapy andxenotransplants. Research in the field of transgenics currently centres around theproduction of genetically modified pigs whose organs (eg. hearts and kidneys), are suitablefor transplant into humans (xenotransplantation).

BresaGen’s current xenotransplantation program is conducted in collaboration with StVincent’s Hospital, in Melbourne. As part of this program, the development of cloningtechnology in pigs will enable genetic manipulation by eliminating, or ‘knocking out’ genesin the pig genome. Such ‘knock-out’ technology is currently not available in the pig, buthas significant applications in generating pigs with more desirable productioncharacteristics.

The development of efficient cloning technology in pigs would also allow producers toobtain large numbers of identical individual pigs derived from current best stock.Availability of cloned animals will substantially speed up the process of transmitting theircurrent (and also future) best genetics from breeding herds into production herds (by asmuch as two years).

BresaGen’s quest for innovation is driven by an international research network, with thecompany tracing its roots back to R&D within the University of Adelaide. BresaGen hasspecialists in the fields of biochemistry, molecular biology, embryology, cell biology,chemical engineering and bioprocessing. In parallel with its core scientific strengths,BresaGen continues to build a manufacturing base for the production of recombinantproteins. This base is strengthened by a growing expertise in regulatory compliance andcurrent Good Manufacturing Practice.

CSL

Lim

ited

Sectors of ActivityAustralian biotechnology companies areactively working in a diverse range of sectors.Survey results shown in Figure 2 indicate thatapproximately half are operating in the humanhealth sector. This represents a more than10% increase since 1999. The percentage ofgenomics/informatics companies has morethan doubled over the same period. Theactivities across other sectors in percentageterms have declined modestly since 1999,relative to the health sector.

The diversity of Australia’s investment inbiotechnology is influenced by a number offactors, including:

• A significant investment in publicly fundedR&D in human health, primarily throughfunding provided by the National Health& Medical Research Council;

• Traditional and profitable agriculturalindustries, which position Australia as asignificant exporter of primary produce,livestock and processed foods; and

• Unique environmental opportunitiesarising from Australia’s tropical, marineand Antarctic environments.

Products & PipelineBased only on information from those companiesprepared to disclose their product and productpipeline data, it is estimated that about half ofthe nominated products are still in thedevelopment phase (Figure 3). A further 20%are more advanced and undergoing clinical orfield trials. Despite the increased commercialsensitivity limiting the survey, it appears that thenumber of products and their progress along thepipeline is significantly greater than in 1999.The industry is still dominated by four largecompanies, which together account for over60% of the products in the pipeline.

Survey results indicate that, relative to the sizeof each sector, there appears to be a consistentproportion of products (about two-thirds)either being under development or on trialacross all sectors when compared withproducts on the market (Figure 4).

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Equipment, Services, Other 14%

Human Health (including diagnostics and therapeutics) 47%

Genomics/Proteomicsand Bio-informatics 13%

Agriculture 14%

Food production and processing 5%

Environment & resources 4%

Biochemicals 1%

Figure 2Distribution of core biotechnologycompanies by sector

Under Development 51%

On Market 28%

Clinical/Field Trial 21%

Figure 3Distribution of products within thedevelopment pipeline

Source: Ernst & Young/Freehills/ISR survey and research data2001 (n = 190 companies)

Source: Ernst & Young/Freehills/ISR survey and research data2001 (n = 546 disclosed products)

14

0

50

100

150

200

250

300

Human Health Equipment andServices

Agriculture Environment &Resources

Genomics,Proteomics & Bio-

informatics

Food Production &Processing

No

of p

rodu

cts Under Development

Being Trialled

On Market

Figure 4The product development pipeline by sector

Source: Ernst & Young/Freehills/ISR survey and research data 2001

Peplin Biotech Ltd – a valuable ‘pipeline’ approach

Peplin Biotech Ltd is a Queensland-based life sciences R&D company with a special focus oncancer in all of its forms.

Founded in 1998, Peplin Biotech has discovered a novel class of natural compounds, whichshows great potential as a potent treatment for a wide range of human cancers, includingbreast and prostate cancer, leukaemia, melanoma and other skin cancers, as well as lung,colorectal and cervical cancer.

Early trials for skin cancer indicate that the compounds are effective in human patientswithout any evidence of systemic toxicity.

The way these compounds work is distinct from other drugs in clinical use today. Thecompounds are apparently toxic only to cancer cells, also boosting the human immuneresponse and stimulating the growth of healthy cells.

The compounds may have potential for the treatment of other major diseases, suggestingthat the company may develop a valuable product “pipeline”.

The company is outsourcing all major research to leading institutions with expertise inmolecular biology, genomics, structural chemistry and pharmacology. It intends to licensethe products to major pharmaceutical manufacturers, thus maximising funds for further drugdiscovery and development, while retaining all intellectual property.

Peplin Biotech’s key intellectual property over these compounds dates from 1997, and thecompany has also filed a number of patent applications covering recent research results.

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Proteome Systems – leading the way in proteome analysis

Proteome Systems is an Australian company dedicated to the development of proteomicstechnology, to the discovery of biomarkers and drug targets, and to proteomic bioinformatics.

Established in 1999, Proteome Systems has quickly grown to become a significantinternational player in proteomics. Proteome Systems is headquartered in Sydney, Australiaand has premises in Boston, United States.

With over 80 staff, of which more than half hold advanced research degrees, ProteomeSystems has developed a suite of novel technologies to make the world’s first integrated,high-throughput platform for proteome analysis.

This platform, currently deployed on a large-scale in the Sydney laboratories and soon to bedeployed in sites around the world, is massively accelerating Proteome Systems’ discoveryresearch.

Proteome Systems’ business strategy is to have near and long-term revenue streams from:

• The sale of Proteome Systems’ high throughput integrated proteomics platform, and thecomponent instrumentation and consumables;

• Collaborating with companies in the pharmaceutical and agribiotechnology industries inreturn for R&D payments and a combination of milestone payments and royalties basedon achievement of commercial outcomes;

• Development of intellectual property, leading to the sale of protein and protein-relateddatabase products developed independently or in collaboration with third parties in theirspecific areas of interest; and

• Development of molecular markers, diagnostics, and commercially important proteins forthe pharmaceutical and agribiotechnology industries.

A key part of Proteome Systems’ technology involves the development of high-throughputsample preparation instrumentation for proteomics research. Niche Innovation has beenworking with Proteome Systems developing this range of instruments, of which the Xcise,an integrated robot for sample preparation, will shortly move through to early-stageproduction.

Proteome Systems has recently also formed global alliances with Shimadzu Corporation,Sigma Aldrich and Millipore, all of which will market the instruments and consumablesdeveloped by Proteome Systems. This puts the company in a leading position to capitaliseon substantial market share in the rapidly growing global market for proteomics instrumentsand consumables, which is estimated to reach US $5.8 billion in sales per year by 2005.

Human ResourcesThe pool of experienced human resources inAustralia is growing but is still relatively small.In the past two years, the number of full-timeemployees working in the biotechnologyindustry has increased, though there has beenlong held concerns about shortages ofappropriately skilled individuals. Based on theresults of this survey, there are estimated to be inexcess of 5 700 full-time equivalent employeesin the biotechnology industry, representing agrowth of 46% since 1999. In addition, there issignificant support provided to the industry byway of contract research, through universities,research institutes and contract researchorganisations (CROs) that are not captured inthese estimates. Figure 5 provides a breakdownof the distribution of staff currently employed bythe industry (exclusive of contract-support).

One of the significant issues facing CEOs isthe identification and appointment ofleadership level individuals. Some companieshave approached this by seeding theircompanies with a small number of expertswith international expertise, drawn fromexpatriates and internationals. Theseindividuals bring critical experience into theirorganisations and assist staff developmentprograms. A snapshot of the skills currentlybeing recruited by the industry is shown inFigure 6, with positions that CEOs are findinghardest to fill shown in Figure 7.

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Figure 5Expertise in the biotechnology industry

Business 7%

Admin 7%

R&D 22%Clinical andregulatoryaffairs 8%

Marketing 30%

Support staff delivering R&D 2%

Manufacturing 24%

Source: Ernst & Young/Freehills/ISR survey and research data2001

Business 21%

Admin 2%

R&D 44%

Clinical and regulatoryaffairs 4%

Manufacturing 9%

Support staff delivering R&D 3%

Marketing 17%

Figure 6Distribution of current vacancies

Source: Ernst & Young/Freehills/ISR survey and research data2001

Survey results indicate that significantchallenges still exist in identifying andattracting effective and knowledgeablemanagers and scientists into biotechnologycompanies. There is a relatively low rate of staffmovement within the biotechnology sector inAustralia. Staff turnover is estimated to be lessthan 6% per annum. Contrary to a morepopulus view, only a relatively small number(46 based on survey data) of staff left Australiato work overseas within the last year, suggestingthat the Australian industry is providing anincreasingly attractive and excitingenvironment in which to work. However thereasons for staff leaving Australia are unknown,and of the individuals who left Australia topursue their careers, survey data indicates some 85% moved to the USA.

In 1999, North America was the primary marketfrom which Australian biotechnologycompanies attempted to recruit experiencedprofessionals. Since then, these companies haveclearly expanded their targeting activities inboth Europe and Asia, based on survey responses.

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0 1 2 3 4 5 6 7 8 9 10

Frequency cited

Finance

Marketing

Regulatory/legal

Clinical affairs

Senior management

Scientist

Engineering

Technicians

Medical staff/clinicians

IT/Data management

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Figure 7Recruiting challenges

Source: Ernst & Young/Freehills/ISR survey and research data 2001

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Developing our human capital

Jeremy Wurm—Managing Director Brooker Consulting

The past 12 months have seen profound and constant change throughout the Australianbiosciences sector. One of the more encouraging aspects has been the emerging number ofstart-up and spin-off enterprises. These new entities have highlighted the need for seniorexecutives with commercialisation experience. There has also been some notable instancesof Australian expatriates who have been enticed back home to staff such ventures.

Australia has yet to see much evidence of “second generation” Chief Executives movingfrom one bioscience company to another as their careers develop, instead of progressinginto biotech from the pharma, veterinary or agribusiness sectors. This should change duringthe medium term, with the result that the cultural adjustment of moving from a largemultinational to a small start-up will become less common. This will also mean careerprogression will involve shifting to a bigger, more established biotech company.

There is a growing recognition that the Australian lifestyle is a strong factor in attractingstaff from overseas, in addition to the undisputed quality of the scientific research here.Creativity in remuneration and other benefits is now being shown in the public and privatesectors alike, and salaries alone are becoming much less important than share options,incentives and flexible working arrangements.

The importance of a well-balanced and effective Board of Directors is well recognised andthere has been a pleasing trend for organisations to seek international board representation.The same can also be said for scientific advisory boards. “Cross-fertilisation” is to beencouraged, where Australians gain exposure to offshore bioscience companies at Board level.

Employment opportunities for spouses is a critical factor in relocation discussions and theestablishment of bioscience operations around Australia raises a range of issues forcandidates seeking to improve their prospects.

The changes currently occurring in the CRC sector have profound implications forrecruitment. Additionally, the establishment of IMB, Bio21, Biocomm International andNeuroSciences Victoria, among others, confirm that the Australian biosciences sector isnow developing a critical mass that is generating a range of new career paths.

Lastly, employment options are broadening for those currently working in firms servicingthe bioscience sector, such as patent attorneys, venture capitalists, stockbrokers, financialanalysts and so on.

Whichever way you look at it, the indications are clear that the next 12 months will be atleast as lively and stimulating as the preceding year.

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Skills and DevelopmentThe need to identify, recruit and retainquality senior management continues to be anissue raised by the investment community,with the right appointments in these keypositions having a significant impact on theoutcome of investment decisions. There isevidence that the quality of seniormanagement and technical staff has improvedsignificantly since 1999. The challenge forsmaller companies is to attract these peopleinto new high-risk ventures. To achieve this,emerging companies are learning to packageand sell their technology more effectivelythan they were two years ago. This learning issupported through Federal and State

Government funded programs, includingCOMET, which provides assistance inbusiness planning, access to experiencedbusiness advisers and support for attendanceat formal training programs.

In speaking to CEOs for this report, it wasclear that the quality of technical staff in themarketplace was very high, although theindividuals often lacked working experiencein commercially focused, outcome drivencompanies. This did not prevent employment,but rather encouraged management toimplement effective training programs toeducate their teams. This represents asignificant and valuable investment in thefuture of the company and the industry.

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Management credentials core to VC investment

John Dyson–Senior Vice President and General Manager (Australia), JAFCO Investment (AsiaPacific) Ltd

Our active investment strategy means we are continuously seeking new entrepreneurialpartners. To determine the strategic fit of a potential partnership at JAFCO Asia we wouldconsider four key characteristics in a new investment opportunity. These broad factors helpdefine the potential for success of a new investment opportunity for JAFCO Asia:Management team; high growth market; uniqueness of offering; and logical exit mechanism.

The most critical of these is the management team.

The success of any business enterprise is based on its people. A well-established,experienced management team forms the ideal key foundation of any new potentialinvestment for JAFCO Asia.

When making our decision to invest in biotechnology companies, we evaluate the skills andexpertise of the people and assess their ability to commercialise the innovation into aprofitable and sustainable business operation. There must be a plan that shows how they aregoing to do this. The plan should consider areas such as regulatory requirements,timeframes, human resource needs, marketing or alliance development and longer termfinance needs and cash flows.

When a company presents a new investment opportunity, we always critically evaluate themanagement team. Does the management team have the skills to commercialise thetechnology? Do they have a plan? Have they operated a small entrepreneurial businessbefore? What is the culture and management style within the company?

Where the management team is not commercially strong enough, we are left with the optionof accepting the current team and augmenting the skill base through the use of additionalpersonnel, or changing the team. Either action requires negotiation and patience for all partiesif the objective of venture capital funding for the entrepreneurial company is to be achieved.

Industry Financial DataRevenuesRevenue growth in listed core biotechnologycompanies rose 23% over the past year. Totalrevenues of the 35 listed core biotechnologycompanies was A$897 million (Table 6).

The most significant increases in revenueappear to be in contract research, royaltiesand most notably other revenue includingmilestone and licensing fees. (Note: Financialstatements may not have been consistentacross all companies in their treatment ofrevenue under ‘other’).

It is not possible to estimate the revenuegrowth in the private and unlisted publiccompany sector. Private and unlisted publiccompanies that responded to the surveydeclined to complete financial data citingissues of confidentiality.

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ProfitabilityThe majority of Australian corebiotechnology companies are investingsignificant proportions of their revenues inproduct development, and are consequentlynot yet profitable. Bearing this in mind, theoverall net loss for the industry was 0.38%.However the outcome is biased significantlyby CSL Ltd. If CSL is removed from theanalysis, the result is a net loss of 21.4%.

In common with their internationalcounterparts, one of the challenges for mostAustralian biotechnology companies isgenerating sufficient funds to achieve theirproduct development objectives, be theylicensing or ultimately to manufacture. R&Dbudgets are generally modest, and high burnrates are difficult to maintain without

Table 6 Listed biotechnology companies

Core Core Related TotalBiotechnology

1998-1999 1999-2000 1999-2000 1999-2000$’000 $’000 $’000 $’000

Product sales $664,821 $642,851 $161,600 $804,451

Contract research $1,479 $12,014 $9,579 $21,593

Government grants $4,048 $10,261 $3,219 $13,480

Product royalties $800 $6,489 $1,325 $7,814

Other revenue $58,734 $225,884 $10,018 $235,902

Total Revenue $729,882 $897,499 $185,741 $1,083,240

Expenses

R&D expense $126,499 $111,542 $36,192 $147,734

Other expenses $571,431 $789,360 $133,355 $922,715

Total expenses $697,930 $900,902 $169,547 $1,070,449

Net profit/(loss) $31,952 ($3,403) $16,194 $12,791

Net Margin 4.4% (0.38%) 8.7% 1.2%

Balance Sheet

Cash & securities $294,188 $692,144 $99,906 $792,050

Other assets $1,011,591 $913,035 $124,491 $1,037,526

Total assets $1,305,779 $1,605,179 $224,397 $1,829,576

Total liabilities $323,332 $339,762 $89,466 $429,228

Shareholders equity $982,447 $1,265,417 $134,931 $1,400,348

Source: Ernst & Young/Freehills/ISR survey & research data 2001

demonstrating a high probability of relativelyshort-term income. Shorter timeframes for thedevelopment of diagnostic tests may accountfor an apparent increase in the number ofcompanies pursuing products in this sector.

A recent example of a company thatsuccessfully went to IPO with an existing cashflow generated from product sales and ahealthy product pipeline is GroPep Ltd, aspin-out company from the CRC for TissueGrowth and Repair. Factors that differentiateGroPep from other recently formedbiotechnology companies include:

• A strategic alliance with a provider of newproduct opportunities;

• Establishment of an effective business priorto the IPO;

• Focus on a specific range of relatedproducts; and

• Cash flow to assist ongoing funding of thebusiness.

In the previous report, reference was made tocompanies such as AMRAD, who wereoperating a business model with tradingdivisions to generate early cash flows tosupport their R&D activities. AMRAD hasrecently divested these trading divisions, tofocus on its core business of new productdevelopment.

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Competitive PositionWe have drawn on similarities between thedata collected in this survey and thoseconducted by Ernst & Young in the USA andEurope to enable coarse comparisons ofAustralia’s competitive position in the globalbiotechnology industry (Table 7).

In drawing conclusions, it is stressed thatthere are many underlying assumptions andapproximations including the nature of thecore biotechnology companies compared,exchange rates and the tendency for the datato be greatly skewed by a few larger successfulcompanies (eg. in Australia by CSL) thatclearly mask the underlying frailty of others.With these overriding caveats, comparison ofAustralia with the EU and the USA shows:

• When normalised to available labour force,Australia has similar numbers of listedbiotechnology companies compared withthe USA and far more than in the EU.

• Revenues (per million labour force) are wellbelow the USA but more than the EU.

• However, R&D spend, size of marketcapitalisation and revenue earned (percompany in absolute terms) shows theyawning gap between the mature and largeUSA and EU industries and the Australiancounterpart.

Significantly (consistent with findings in1999) Australian companies appear togenerate their revenue from a small overallR&D spend and thus R&D intensity wellbelow its better resourced competitors.

Australia appears therefore to leverage itsR&D spend far more effectively than itscompetitors.

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Table 7: Listed core biotechnology companies12

Australia Europe USA

Current Prior % Current Prior % Current Prior %

A$ million year year change year year change year year change

Financials

Revenues 898 730 23% 6993 5618 24% 31872 28142 13%

R&D Expenses 112 126 -11% 4239 2711 56% 11699 11359 3%

Net Profit/(Loss) -3.4 32 -111% -546 -455 -20% -5256 -3222 -63%

Market cap 6500 3100 110% 119389 57307 108% 598535 234002 156%

No. of core 35 20 75% 105 69 52% 300 316 -5%

biotech companies

National labour 9.8 9.2 7% 176.8 unknown – 139.4 136 3%

force (millions)13

Regional Comparisons

Ave. Revenue 26 37 67 106 89

per Co (A$mil)

Ave.R&D Expenses 3.2 6.3 40.4 39.0 35.9

per Co (A$mil)

Mean Market Cap 186 155 1137 1996 741

(A$mil)

R&D Intensity (%) 12.5% 17.3% 60.6% 36.7% 40.4%

Number Co. per 3.6 2.2 0.6 2.2 2.3

million labour force

Revenue (A$mil) 91.6 79.3 39.6 228.6 206.9

per million labour

force

12 Financial data for Europe and US sourced from ‘Innovation’ Ernst & Young European Life Sciences Report 2001 and converted toAustralian dollars at prevailing exchange rates at 30 June 2000.

13 Source: CIA World Factbook (www.cia.gov/cia/publications/factbook) including aggregate country estimates for EU.

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Strengths•When measured relative to the available national labour

force and resources, Australia has a globally competitiveindustry – although still small in size compared with theUSA and EU nations.

•Clear business cost advantage in running R&D facilitiescompared with other nations.

•Supply of graduates and excellent training/skills providinga quality and readily available labour pool.

•Strong international reputation for quality of science andsource of intellectual capital.

•Excellence in quality and cheap communicationsinfrastructure – both international and national.

•High expenditure, relative to GDP, compared withcompetitor nations of public sector R&D in fundamentalareas driving biotechnology.

•Improving links between public sector R&D providers andindustry, for example the links between CSIRO/CRCs andindustry, is a world-class model.

•Consistently high rating on comparative basis with othernations on the quality of life and cost of living indices –meaning very attractive conditions for expatriates.

•A new focus for support for the Australian bio-industrythrough the establishment of a dedicated national agency,Biotechnology Australia, which drives new national bio-innovation initiatives.

•Australian State governments have all raised levels ofsupport for bio-industries with significant funding andinfrastructure support.

•Identification by Commonwealth, State and Territorygovernments of biotechnology as a National Priority forinvestment attraction efforts.

Major Opportunities•Longer retention and development of Australian IP

prior to seeking international alliances/partners.•Greater cooperation and collaboration at all levels with

the USA and EU nations, with deliberateencouragement of people exchange.

•Far greater emphasis on international marketing ofbenefits arising from recent taxation reforms (eg. CGTby Australian investment and trade agencies linkedwith marketing of biotechnology opportunities).

•Streamlining and direct alignment of Australianregulatory systems and manufacturing standards withUS and EU systems.

•Emphasis on high value Australian-based R&Dplatform technologies that have wide application (eg.in reproductive technology, stem cells, gene shears,proteomics and bioinformatics).

•Improved targeting of industry incentives (eg. R&DTax Credits for start-up companies and incentives forinbound investment).

•Development of a coherent Australian biotechnologymarketing strategy that is national and takes intoaccount differences in target nations (eg. USA vs. EU).

•Develop local cohort of experienced investmentanalysts knowledgeable in life science andbiotechnology markets.

•Support for solutions to local problems with globalapplications (eg. salinity and land management).

•Major opportunities in national/state integration offacilities, to develop preclinical, structure based design,and genomics/proteomics capabilities.

Australia’s Current General Competitive Position in Biotechnology 14

14 Source: Adapted from “Benchmarking Study of R&D Costs in Selected Segments and Australian Biotechnology” Ernst & Young, Hay Group andStrategic Industry Research Foundation, January 2001.

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Weaknesses and Threats•Corporate taxes are moderately unattractive, now off-set by recent CGT changes. This incentive

gives Australia parity with many competitors but has not yet lead to significant new inboundinvestment targeting bio-business.

•Distance from major world markets, especially USA/EU, and travel time.•Limited size of local markets to trial/sell or launch new products (despite good ethnic mix in

market).•Generally low business expenditure on R&D by the corporate sector, including the biotechnology

sector and continued low investment by Australian business in biotechnology R&D.•Great lack of awareness by international analysts on the capability of the Australian

biotechnology industry.•Lack of industry-credible CEOs/CFOs who have international commercial experience in

biotechnology industry.•Limited but improving entrepreneurial culture and ethos in academic and graduate community.•In absolute terms, moderate to low public and private R&D expenditure in all biotechnology

segments compared with competitor nations (eg. USA, EU and Asia).•Generally less competitive high technology manufacturing costs compared with regional

neighbours.•Overall lack of scale – inadequate value for time spent maturing biotechnology business models in

a domestic market, hence Australian companies seek US/EU exposure as soon as their modelsgain any momentum. A positive response is the increasing numbers of companies with apermanent establishment off-shore (eg. USA and EU).

•Weakness in experience in cross border/jurisdictional transitions of businesses (eg. Australia toUS).

•Consumer confusion or rejection of some biotechnology-based products based on ecologicaland/or safety concerns.

•Low salary and limited tenure has the potential to accelerate the loss of human resources to othernations and/or away from biotechnology science-based careers.

•Australian companies obliged in most instances to form alliances with multinationals for globalmarketing of product.

•Early seed-stage capital hard to assemble given long-term return on investment. This is nowmarginally off-set by recent Commonwealth Biotechnology Innovation Funds and Pre-seed Funds.

•Moderately small industry limits the mobility of people and knowledge/experience sharing, andrequires larger companies to help seed smaller start-up “satellite” entities.

•Despite some recent infrastructure funding, public sector medical research with very high qualityR&D is still slow to adopt an effective business culture and model – rationalisation andintegration is anticipated across these groups.

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AusBiotech Ltd—Australia’s emerging peak biotechnology industry organisation

Tony Coulepis, BSc (Hons), PhD, MASM Executive Director, AusBiotech Ltd

These are certainly exciting times for the Australian biotechnology industry, andconsequently I am delighted to have the opportunity of being involved and assistingAusBiotech, formerly the Australian Biotechnology Association (ABA), with the nextstage of its development as an industry organisation. AusBiotech is now emerging as theindustry focused, peak Australian biotechnology organisation.

The objectives of AusBiotech are to:

• Increase the awareness of the Australian biotechnology industry;

• Nurture sustainable biotechnology enterprises;

• Facilitate the expansion of the biotechnology industry through access to trainedprofessionals;

• Increase links to and from the biotechnology industry;

• Enable a competitive financial environment; and

• Contribute to, and represent industry interests in, a competitive regulatory environment.

The three-year Business Plan, "Growing Australian Biotechnology", released in March 2001outlines six main objectives which will enable AusBiotech to fulfil its mission. Eachobjective is focused on providing a platform of support to foster and facilitate thedevelopment and growth of the Australian biotechnology industry.

AusBiotech will, as an example of planned activities:

• Establish contracts with organisations to provide training and support services fornetwork participants, including business skill raising activities to ensure experiencedsenior managers;

• Undertake industry awareness, communications and promotion;

• Encourage the involvement of the financial community, including business angels;

• Provide services to network participants through agencies such as Invest Australia andAustrade in relation to investment promotion facilitation, export assistance and marketintelligence services to access international markets; and

• Facilitate the establishment of a world-class Directory/Database of AustralianBiotechnology making AusBiotech the first point-of-call for the industry.

The next three years will continue to be focused and exciting for all stakeholders in, andsupporting, the Australian biotechnology industry.

This section summarises recent developmentsin the environment in which biotechnologyorganisations operate in Australia. Overall,Australia provides a relatively open andtransparent environment encouragingdevelopment of biotechnology innovationsand their commercialisation.

Genetically Modified OrganismsIn June 2001, Australia’s new gene technologyregulatory regime commenced operation. Theregime is governed by the new CommonwealthGene Technology Act 2000. Its objective is:

“to protect the health and safety of people, andto protect the environment, by identifying risksposed by or as a result of gene technology, andby managing those risks through regulatingcertain dealings with genetically modifiedorganisms.”

The Act regulates all dealings (eg. research,manufacture, production and importation)with “organisms that have been modified bygene technology” (GMOs). Importantly forindustry, it provides one central, enforceablescheme for regulating GMOs.

When does the Act apply andwhat penalties are involved?The Act sets up a system whereby dealingswith GMOs are prohibited unless:

• A person undertaking the dealing isauthorised to do so by a GMO licence;

• The dealing is a notifiable low risk dealing(eg. research with low risk GMOsconducted within contained laboratories);

• The dealing is an exempt dealing (eg.research of the kind mentioned aboveinvolving dealings which are prescribed aspresenting no significant biosafety risks); or

• The dealing is included in the GMORegister (eg. dealings with GMOs whichhave been licensed for a certain period oftime and assessed by the Office of the GeneTechnology Regulator as not posingsignificant risks to public health and theenvironment are considered sufficientlysafe by the Gene Technology Regulator).

The licensing system distinguishes betweendealings that involve the intentional releaseof a GMO into the environment and dealingsthat do not involve such an intentionalrelease. Dealings that involve the intentionalrelease of a GMO that may pose significantrisks to the health and safety of people or theenvironment are dealt with more rigorously.

Substantial financial penalties andimprisonment terms may be imposed forbreaches, and penalties may be higher in caseswhere the offender has intentionallyundertaken an unlawful dealing or where thecommission of the offence causes significantdamage to the health and safety of people orto the environment. 27

REGULATORY AFFAIRS

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What procedures are involved?The Act establishes an independent statutoryofficer, the Gene Technology Regulator(GTR). The role of the GTR is to manageGMO licences, assist in the development ofpolicy principles and guidelines, and provideinformation and advice about GMOs to otheragencies and to the public.

A GMO Register is established which is aimedat “enabling certain low risk dealings to beundertaken without the requirement for alicence to be held”. The GTR may determinethat a dealing with a GMO is to be includedon the GMO Register. Any person mayinspect that Register. The GTR also has theability to vary the Register. Similarly, the GTRmay review whether a dealing with a GMOshould be a “notifiable” low risk dealing.

Community concern regarding genetechnology is reflected in the Act through theestablishment of three committees: aTechnical Advisory Committee, aCommunity Consultative Committee and anEthics Committee. The three committeesadvise the GTR and the Ministerial Councilon gene technology related issues.Applications have recently been called formembership of these committees.

Importantly, the Act requires the GTR tomaintain a record of GMO and geneticallymodified product dealings and this record is tobe publicly available. The record will alsocontain information regarding licences issuedunder the Act. Exceptions to public access aremade for confidential commercial information.

Conclusion

The stated purpose of the Act is to protect thepublic’s health and safety, and theenvironment. The intention is that this aimwill be achieved while creating a morestreamlined and certain pathway for industryand researchers seeking approval for GMOsand genetically modified products that can bemanaged safely.

Labelling of GeneticallyModified FoodsGenetically Modified Foods - foods producedusing recombinant DNA techniques that alterthe heritable genetic material of living cells ororganisms – present a range of challenges forfood producers, manufacturers, importers andretailers. Obvious challenges arise in thelabelling context – what information shouldbe stated on the labels of those foods? Issuesare also arising in the advertising contextincluding how to position GM foods so thatthey are acceptable to consumers.

GM foods will only be permitted for sale inAustralia and New Zealand if they have beenassessed by the Australia New Zealand FoodAuthority (ANZFA), are considered to be safe and comply with the labelling andinformational requirements.

From 7 December 2001, it will be necessary tocomply with the new Australia/New Zealandlabelling requirements for GM food. GMlabelling for food and food ingredients isrequired where:

• Novel DNA and/or novel protein derivedfrom the permitted GMO is present in thefinal food; and/or

• The food has altered characteristics whencompared to the conventional counterpartfood (eg. altered nutrition, allergenicity,end-use, etc).

Interim permission exists for GM foods thatwere already on the Australian market priorto 30 April 1999 on the condition that a fullapplication for approval was lodged withANZFA.

For labelling purposes, some foods are exemptfrom the definition of “genetically modifiedfood”. These are:

• Highly refined food, other than those withaltered characteristics, where the effect ofthe refining process is to remove novelDNA and/or novel protein;

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• Processing aids and food additives, exceptwhere the novel DNA and/or novelprotein remains present in the final food;

• Flavours which are present in aconcentration less than or equal to 1g/kg in the final food; and

• Food prepared at the point of sale (eg. restaurants, hotels, takeaway outlets,caterers and self-catering institutions).

These exempt foods do not have anyadditional approval or labelling requirements.

Where the food is genetically modified andcontains only one ingredient, the words“genetically modified” must appear on thelabel or packaging in conjunction with thename of that food, for example, “Soy BeansGenetically Modified”. For a multi-ingredientfood, the ingredients list on the label on thepackaging of that food must contain the words“genetically modified” immediately after anyingredient determined to require labelling, forexample, “Ingredients: Soy Protein Isolate(genetically modified)”. Additional labellingor information may also be required in certaincircumstances such as where the geneticmodification raises significant ethical, culturalor religious concerns regarding the origin ofthe genetic material.

A survey carried out in 2000 byBiotechnology Australia revealed GM foodswere not the highest area of food concern forAustralian consumers. According to thesurvey, consumers were more concerned aboutfood poisoning, pesticide use and humantampering of food than GM foods.

However, many consumers are concernedabout the safety and long term effects of GMfoods and a number of companies will takeadvantage of these concerns by aggressivelymarketing the fact that their products are“organic” or do not contain geneticallymodified ingredients. It is quite conceivablethat such marketing strategies could extend tocomparative advertisements (in which the

characteristics of competitive products arecompared) capitalising on consumer concernsand highlighting which products are or arenot genetically modified. Such campaigns maybe countered via consumer education aboutGM foods. Difficulties associated withconsumer education include simplifying theissues so that they can be understood byconsumers and doing so without making anystatements which are false or misleading ordeceptive (which would breach Australianand New Zealand laws).

Accordingly, a single scheme applyingthroughout Australia and New Zealand seeksto balance the concerns of food producers andconsumers. Also, the law prohibits misleadingcomparative advertising campaigns whichseek to put GM foods in a lesser light.

BioprospectingThe Australian Government is soon tointroduce regulations governingbioprospecting in Commonwealth areas inAustralia. Australia is one of twelve countriesin the world regarded as having a highconcentration of potentially useful livingorganisms for bioprospectors. The indigenouspeoples of Australia also have traditionalmedicines, some of which have been ofinterest to bioprospectors.

As part of a comprehensive review of lawsrelating to protection of the environment andbiodiversity conservation, the FederalGovernment passed the EnvironmentProtection and Biodiversity Conservation Act1999. That Act governs many aspects ofenvironment management, including givingthe relevant Minister of the FederalGovernment the power to make regulationsconcerning:

• The equitable sharing of the benefitsarising from the use of biological resourcesin Commonwealth areas;

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• The facilitation of access to such resources;

• The right to deny access to such resources;and

• The granting of access to such resources andthe terms and conditions of such access.

An independent inquiry established by theMinister for Environment and Heritage tooksubmissions concerning the detail of theregulations and made 71 recommendations tothe Government. The focus of the regulations,which are currently being prepared, will be toprovide a mechanism for providing permissionto access biological resources and for thebenefits derived from their use to be shared.

For jurisdictional reasons, the legislation onlyapplies to Commonwealth areas, which meansin general, land, sea, seabeds and airspaceowned or leased by the Commonwealth, andcoastal waters. However, much of Australianland is controlled by the various Stategovernments and measures are being taken toencourage a nationally consistent approach tobioprospecting management.

The scheme should enable a balance betweenthe community’s desire to conserve andprotect biodiversity, bioprospectors’ desires todiscover new compounds ultimately providingbeneficial new products to the community,and the protection of indigenous peoples’rights and cultures.

Intellectual PropertyThe Australian intellectual property (IP)system provides extensive coverage forbiotechnology advances. Australia is also aleading member of the internationalcommunity in the provision of legal rights forbiotechnology inventions.

The scope of patentable subject matter inAustralia is broad compared with many othercountries. Australian patents legislation issufficiently flexible to accommodate thepatenting of new and emerging technologies.

In general, anything that is patentable in theUSA, Europe or Japan, will also be patentablein Australia. As in the USA, methods ofmedical treatment are patentable subjectmatter. Australia’s patent examination systemis efficient, and an Australian patent that ispart of an international family of patentapplications in various countries is usually oneof the first in a patent family to be examined.Figure 8 represents typical jurisdictions forlodgements of patents derived from Australiansourced IP.

A recent development in patent law inAustralia was the commencement of a newtype of patent, namely the “InnovationPatent” on 24 May 2001. This patent replacesthe petty patent system which has been inplace for about 20 years. The primary purposeof the innovation patent is to provide the

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Australia 28%

USA 29%

Europe 25%

Asia 15%

Sth/Latin America 3%

Figure 8Jurisdictions where patent applicationshave been lodged for Australian IP

Source: Ernst & Young/Freehills/ISR survey and research data2001

same level of protection as for standardpatents for innovations of a lesser inventivelevel. The principal differences from astandard patent are that the maximum term isonly 8 years (rather than 20 for a standardpatent) and that an “innovative” step isrequired rather than an “inventive” step. Thisis defined to be a step which makes asubstantial contribution to the working of theinvention compared with the prior art, asunderstood by a skilled person in the artarmed with the common general knowledge.The words used in the Act to define an“innovative” step have not yet been tested incourt and thus the exact difference betweenan “innovative” step and an “inventive” stephas yet to be judicially decided.

In contrast to both petty patents and standardpatents, an innovation patent will be grantedwithout substantive examination. However,before a patentee of an innovation patent canenforce the patent, the patentee must requestexamination. A third party may also requestexamination of an innovation patent.Following examination the patent is certifiedif the Australian Patent Office considers theinnovation patent allowable.

Innovation patents may cover the same rangeof subject matter as standard patents.However, for innovation patents, “plants andanimals and the biological processes for thegeneration of plants and animals” areexcluded. For standard patents, only humanbeings, and the biological processes for theirgeneration, are excluded. It remains to beseen what impact the new innovation patentsystem will have in the field of biotechnology.

As far as standard patents are concerned, theAustralian Patent Office of IP Australiacontinues to adapt its processes toaccommodate particular features ofbiotechnology inventions. Gene and proteinsequences may be submitted on disk forsearching purposes, and particularly longspecifications may be submitted on CD, ratherthan in paper form. Microorganism depositshave long been recognised. As with most

major Patent Offices around the world,biotechnology inventions are examined byexaminers with particular experience andtechnical training in this field.

The hurdles for patentability in Australia are,presently, a little lower than in Europe, Japanor the USA, even for “standard” patents. Thisis principally the case in assessing inventivestep. However, in its “Innovation Statement”in January 2001, the Federal Government hasannounced its intention to raise the standardagainst which “inventive step” is assessed inAustralia, with a view to harmonising it withinternational standards. Legislation toimplement the changes was introduced intoFederal Parliament on 24 May 2001.

Further, in line with some other countries, theFederal Government has announced aproposal to introduce a “grace period” prior tofiling a patent application during whichpublication of the invention may notinvalidate any subsequent patent. Again, thisis currently being considered forimplementation.

New plant varieties are protected underspecific Plant Breeders’ Rights legislation, andnew plants and plant varieties may also bepatented. Trade secrets are also recognisedunder Australian law.

31

The

Uni

vers

ity o

f Que

ensla

nd

Data ExclusivityThe Therapeutic Goods Act 1989 provides forcompulsory listing of most drugs. Newpharmaceutical products must pass through anumber of regulatory steps with manufacturersrequired to submit test data to the TherapeuticGoods Administration (TGA) registration. Tocomply with the Trade Related IntellectualProperty Agreement (TRIPs), the legislationwas amended to protect this data from use bythird parties, such as generic manufacturersusing the originator’s data to register genericcopies of originator drugs.

Data submitted to the TGA to register aproduct containing a new chemical entity willbe protected for five years. During this time,another company wishing to register a genericcopy of the product will be required to seekagreement of the originator company to use itsdata, or otherwise develop its own datapackage.

Australia’s IP protection is ranked number onein the Asian region and number four in theworld.15 The IP environment is also favourableto the pharmaceutical industry. The standardpatent term is 20 years, but with marketingapproval taking up to 12 years, the effective lifeof a pharmaceutical patent could be as short as8 years. However, the Intellectual Property LawsAmendment Act 1998 provides for an extensionof patent term for up to five years, providing aneffective patent life of up to 15 years. Thissituation has been recognised by a number ofother countries, including the USA, the EUand Japan. These markets also provide for aneffective patent life of fourteen to fifteen years.

Under the 1998 Act suppliers of genericproducts can undertake actions to achievemarketing approval once a patent extension isgranted. This ‘spring boarding’ provision meansthat competitors can test a product, develop a

prototype and seek marketing approval to list adrug so that it is in a position to market ageneric equivalent as soon as the patent hasexpired. The generic producer cannot producecommercial quantities or stockpile the productuntil the patent has expired.

Fund RaisingAustralian fundraising law has twofundamental principles. First, dealing in andadvising on securities must be done throughpersons who hold dealers licences issued bythe Australian Securities & InvestmentsCommission (ASIC). Secondly, subject tosome important exceptions, the offer or issuemust be made pursuant to a disclosuredocument that is lodged with ASIC. Some ofthe important exceptions are:

a) personal invitations to not more than 20people in any 12 month period subject to aA$2 million ceiling;

b) raising money in lots of A$500,000 or moreper investor;

c) raising money from sophisticated investors,ie people whose gross income for the last 2 financial years is at least A$250,000 orwho have net assets of at least A$2 million;and

d) raising money from experienced investorsthrough a licensed securities dealer, whocertifies the experience.

These exemptions are not cumulative so thatpotential investors who fall within paragraphs(b) to (d) above do not count underparagraph (a).

Offers to the public at large are generallymade through prospectuses, but offerings of A$5 million or less can be made through aless onerous Offer Information Statement.Prospectuses can be electronic and “shortform” prospectuses can be used in certaincircumstances.

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15 World Competitive Yearbook 2000

Foreign Investment Review BoardThe Foreign Investment Review Board isresponsible for advising the AustralianGovernment on foreign investment policy, andproposals by foreign interests for acquisitionsand investments in existing or new businesses.In many sectors, smaller proposals are exemptfrom notification and larger proposals areapproved unless judged contrary to thenational interest. Where approval is requiredand not obtained, harsh penalties may apply.

Existing businesses valued at less thanA$50 million may be acquired without theneed for notification. If the investment in anexisting business is greater than A$50 millionbut less than A$100 million, notification isrequired and, in many sectors, theGovernment normally raises no objections tothe proposal. If the investment is greater thanA$100 million, the transaction must belodged for examination. Investments of A$10million or more in new businesses need priorapproval.

Special rules apply in some industries, egbanking, natural resources, media, aviationand telecommunications.

Clinical TrialsClinical trials in Australia fall under thecontrol of the Therapeutics Goods Act 1989.The Act provides two mechanisms underwhich trials can be conducted – Clinical TrialExemption (CTX) and Clinical TrialNotification (CTN).

Approvals under the CTX scheme require anapplication to be submitted to the TGA forreview. In contrast, where the CTN route isused, applications are reviewed byInstitutional Ethics Committees (IEC) and anotification of approval by the IEC is sent tothe TGA. Although potentially quicker, theCTN route places additional responsibilitieson the IEC and its members for the review ofall of the information on the manufacturing,quality and safety data for the test product.

Product Approvals and Lead TimesThe Centre for Medicines ResearchInternational (CMR), an internationally-recognised not-for-profit organisation based inthe UK, tracks the time taken for compoundsto be approved in the major world markets. Ithas established a regular process wherebycomparable data is collected and analysed inorder to monitor and compare the relativeperformance of the authorities in thesemarkets. Comparisons of new molecular entity(NME) approval times indicates that theAustralian regulatory system is deliveringapproval times that continue to be consistentwith Canada and European MutualRecognition procedures but longer than in theUSA (Figure 9).

CMR noted that the industry is movingtowards a global and harmonised environmentin order to support simultaneous approvalsubmissions. From 1995 to 1999, there hasbeen up to ten simultaneous submissions peryear to the USA, Europe, Canada andAustralia. The time from submission to thefirst major market to the approved submissionin the last market is shortening.

Broadly, at all levels of regulatory governance,Australia is well integrated into the globalregulatory framework in the biotechnologyindustry and continues to move towardsadopting or harmonising its regulatory regimeswith those internationally.

33

34

0 0.5 1 1.5 2 2.5 3

European MutualRecognition Procedure*

Time (years)

European CentralisedProcedure

USA

Japan

Canada

Australia1996

1997

1998

1999

Figure 9Median New Molecular Entities (NME) approval times (1996 - 1999)

Source: extracted from CMR International R&D Briefing, Profile of Performance

Ern

st &

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ng

35

Optiscan – the confocal advantage

Confocal technology can be applied to the imaging of biological, semiconductor, metallurgical andmineral substances. Unlike electron microscopes, confocal systems have the advantage of imagingliving cells non-destructively.

Optiscan was formed in 1994 as a joint venture between HBH Technological Industries,Axon Instruments Inc. and Circadian Technologies Ltd. HBH had undergone a specialisedR&D program since 1987, when the first patent was lodged for an optical fibre basedconfocal laser scanning system.

The technology employs a laser to deliver concentrated light to a specimen at controllablewavelengths. The resulting reflection/fluorescence is passed back through the optical pathand through a small aperture, called a confocal pinhole, before reaching an electronicdetector or photomultiplier tube (PMT). The PMT converts the light into a digital imagedisplayed on a computer monitor.

Through the use of a confocal pinhole, only light returning from an exact plane of focus ispermitted to pass through to the PMT. Light returning from other than the specific opticalplane is blocked by the pinhole and omitted. This process creates an extremely thin opticalsection that can be positioned anywhere within a specimen to provide a sharp image with asignificantly higher resolution than a conventional microscope. The confocal systemcombines multiple optical sections into an “optical stack” to produce a three-dimensionalimage. This image provides perspective in the X, Y and Z planes when reconstructed by 3Dsoftware.

Clinical Confocal Endomicroscope

The aim of Optiscan’s R&D program is to produce a clinical confocal endomicroscope foruse in the examination and diagnosis of disease within human patients. Currently,specialists sample biopsies for analysis by pathology laboratories where they are carefullyprepared for examination under conventional microscopes. In addition to the delays inresults of these examinations, the entire area within the patient under examination cannever be fully checked by limited sampling.

A confocal endomicroscope, however, could be used at the time of examination. Withinternet technology, the pathologist could be sitting at a computer anywhere in the worldand give professional diagnosis immediately. Just as exciting is the ability to study livingtissue in vivo, which is quite different to the difficult and time-consuming process ofhistological staining of biopsies, where the cells are non-living.

To date, Optiscan’s engineers and researchers have defined the system architecture and arein the process of further miniaturisation to allow both a stand-alone system and one thatcould be used in conjunction with existing endoscopes. Optiscan generates significantlicensing fees from multinational instrument manufacturers, their findings being secured ina comprehensive patent portfolio.

36

The Performance of Australian Listed Biotechnology companies

David Lance–Technology Transactions

Given Australia’s history as a world-class producer of agricultural and animal products and acommitment to health care for more than a century, a base for a biotechnology industry haslong been established. However, Australia’s contribution to the world of biotechnologyremains modest.

The number of publicly listed companies that may be defined as ‘biotechnology’ hasdoubled in the last two years, with many based on outstanding science. But the vastmajority of these companies are valued in the $20 million to $100 million range and fewhave cash reserves in excess of $25 million.

In 1999, the US Food and Drug Administration approved only 35 drugs, out of the manythousands being researched. The process for drug approval is long and costly and it remainsto be seen if Australian investors have the patience to maintain all but a few of the stockspresently listed. Australia’s biotech stocks, even the most promising, typically suffer marketvaluations that are a fraction of those maintained by companies with similar scientificpedigrees that are based in the USA.

An American company with good science and competent management, but with littleapparent leadership over a similar Australian entity, may have a US valuation five to tentimes that of the Australian equivalent, as well as access to far greater cash resources tomaintain research and carry through expensive trial programs. As such, many of our biotechcompanies may be forced to dilute capital or seek alliances that are at an economicallypremature stage in their development.

The challenge facing management is to make R&D dollars stretch, often with the aid ofUniversities and other government funded institutions and to blend early income projectsthat might be modest in market size with the “King Hit” projects that take time andsubstantial development funding.

Cochlear and ResMed in medical devices, FH Faulding & Co. and CSL Limited inpharmaceuticals are Australian success stories, and we now have a growing community ofcompanies pursuing major drug targets that are based on world-class science. The challengefor Australian biotechnology companies will be to develop strategies that recognise therealities of the process, maintain investor interest and balance short-term incomeachievement with the long-term pursuit of major goals.

FINANCE AND INVESTMENT

CSL Ltd dominates the Australian biotech-nology market with a market capitalisation inexcess of A$5 billion (Figure 10). Theremaining biotechnology companies on theAustralian Stock Exchange account for anadditional market capitalisation in excess of

A$1.5 billion, the top ranked shown in Table8. The list does not include pharmaceuticalcompanies (such as FH Faulding & Co orSigma), or the mining or food processingcompanies that may have specialist butlimited biotechnology interests.

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0

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2000

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4000

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6000

CSL (Jun 00) Other (Jun 00) CSL (Dec 00) Other (Dec 00)

Amrad

Gropep

Gradipore

Peptech

Novogen

Biota

Other

CSL

Figure 10Market Capitalisation of Listed Core Biotechnology Companies ($ million)

Table 8Top 10 Companies By Market Capitalisation (as at 31 March 2001)

Rank ASX Code Name Share Issued Capital MarketPrice $ No. Ord. Shares Capitalisation$

1 CSL CSL 35.80 149,075,746 5,336,911,7072 RMD ResMed 8.30 311,602,240 2,586,298,5923 COH Cochlear 35.42 52,002,002 1,841,910,9114 AXN Axon Instruments 1.05 475,046,693 498,799,0285 PTD Peptech 3.23 145,381,595 469,582,5526 NRT Novogen 2.88 84,874,775 244,439,3527 BTA Biota 2.16 74,966,999 161,928,7188 IDT Institute Drug Tech 3.57 40,904,649 146,029,5979 CMP Compumedics 0.85 140,000,000 119,000,00010 CIR Circadian 2.77 41,038,000 113,675,260

38

Overview of venture financing in Australia

Brigitte Smith–Associate Director, Rothschild Bioscience Managers Limited

There has never been a better time in Australia for life science companies to raise fundsfrom venture capital investors.

A significant increase in the availability of venture capital (VC) financing has occurred inthe last two years. In 1998, fewer than five VC investors had any interest in biotechnologyinvestment, and there were only two dedicated life science specialists in the market(Rothschild Bioscience and Start-Up Australia), with a total of less than $100 million fundsavailable for life science VC investment.

Institutional and individual interest in VC funds has increased dramatically. In the contextof rapid growth in VC overall, a number of new public and private VC funds that willinvest in life sciences were raised. These include the $40 million Biotech Capital, a PooledDevelopment Fund (PDF), and JB Were, which has allocated up to a third of its total $150 million to life sciences.

This year, Rothschild Bioscience is raising a $60 million fund, bringing total funds undermanagement to more than $100 million for one specialist manager. This is more than thetotal funds available from the whole industry only two years ago. Start-Up Australia has alsoraised a $39 million second fund. Several general VC teams that include one or more lifescience specialists are also currently raising funds. Australian life science companies are nowgaining significant funds from the Commonwealth’s R&D Start matching grants, with arecent $8.6 million grant awarded to a venture backed company.

Growth in VC investment in life science companies has been exponential. In 1998-99 VCmade nine investments in life science companies and by 1999-00 this figure reached 59investments.16 This growth reflects both an increase in the supply of capital and thenumber of VC investors interested in life sciences. It also reveals an increase in the numberof high quality life science investment opportunities in Australia.

In 2000, eighteen life science companies went public on the ASX, many at valuations lessthan $30 million and raising less than $10 million17, amounts that in a less exuberantpublic market would be the preserve of VC investors. As public market appetite for verysmall under-capitalised life science companies dries up in 2001-02, we anticipate that thebigger VC investors will invest in larger amounts in private companies. Recent VC fundingrounds of $7.2 million in Thrombogenix Pty Ltd and $15.2 million in Alchemia Pty Ltd bysyndicates of VC investors are evidence of this trend.

Our new fund will invest in early and mid-stage life science companies, as does itspredecessor the ‘Australian Bioscience Trust’. To date, the Australian Bioscience Trust hasinvested in eight companies, spanning biotechnology and the application of informationtechnology and the internet to the health sector. We will continue to invest in this range ofsectors and also consider health service companies. As the market matures, we will alsohave the opportunity to invest in later-stage private life science companies. We willcontinue to syndicate our investments with the growing number of fellow life sciencespecialists in the Australian market. We consider the outlook for VC life scienceinvestment in the next two years extremely promising.

16 AVCAL Journal through Rothschild17 ASX, through Rothschild

Financing year in reviewTotal capital raised by Australianbiotechnology companies was estimated to bein excess of A$900 million since the lastreport. This includes A$26 million raisedthrough government R&D Start grants and afurther A$104 million18 of venture capitalfunding.

Publicly listed biotechnology companiesraised in excess of A$800 million through

39

Initial Public Offerings(IPOs), privateplacements and secondary offerings (Table 9).This was dominated by CSL Ltd, with itscapital raising of A$356 million to fund theacquisition of RotkreuzstiftungZentrallaboratorium Blutspendedienst SRK, afoundation of the Swiss Red Cross.

The top five capital raisings alone (excludingCSL Ltd) raised over A$136 million, clearlydemonstrating that funding is available for theright investments.

18 ABS Survey. December Quarter 2000 (document 5655.00)19 Includes both core biotechnology and other life science companies as per our definitions.

Table 9Capital Raisings of listed Australian biotechnology companies 19

Company Amount Raised (A$)

Initial Public Offerings $’000Analytica 8,000 Aquacarotene 1,129 Australian Vaccine Technologies 300 Bionomics 7,000 Biotech Capital 20,000 Biotron 12,000 BresaGen 12,000 Chemeq 3,500 Clover Corporation 21,000 Compumedics 15,000 Epitan 1,000 GroPep 17,400 Norwood Abbey 30,000 Peplin Biotech 7,000 PI2 17,457 Prana Biotechnology 8,000 Q-Vis 11,000 SSH Medical 7,000 Starpharma Pooled Development Fund Ltd 22,400

Total 221,186

Company Amount Raised (A$)

Other Capital RaisingsAmrad Corporation 70 Anadis 4,257 Australian Vaccine Technologies 4,362 Autogen 11,067 Bionomics 3,000 Biota Holdings 1,272 Biotech International. 2,616 Bresagen 6,255 Chemeq 3,203 Circadian Technologies 16,086 Cochlear 1,580 CSL 356,000 Geneis Biomedical 15,500 Genesis R&D 46,074 Genetic Technologies 500 Gradipore 30,588 GroPep 688 IDT 1,340 Medica Holdings 8,996 Medicine Quantale 1,380 Meditech Resrearch 2,615 Metabolic Pharmaceuticals 8,730 Micromedical Industries 5,572 Novogen 18,000 Optiscan Imaging 13,190 Polartechnics 13,946 Progen Industries 11,000 Psiron 500 Sirtex Medical 2,000 Virax 881 Vita Life Sciences 407 Total 591,675

Estimates made in our previous reportindicated a total capital raising by theindustry of A$172 million in 1998–1999,being IPOs, private placements and secondaryofferings (about $87 million) and the balance(about $85 million) raised by private andunlisted companies. Survey data indicates thatthere is roughly an 8 fold increase in capitalraised by listed companies (half this if CSL isexcluded), and a 5 fold increase in theindustry overall compared with 1998–1999.This is emphatic evidence of growth.

Where the money comes from

Of the 60 companies replying to the survey,32 disclosed their sources of capital raisedover the past 12 months. The sources andaverage amount raised per transaction (basedon survey responses) are shown in Table 10.This sampling of a sub-set of the industryconfirms the recent trend towards IPOs,supported by funds from Angel and VCinvestment.

Table 10Sources of External Capital (Average amount raised per transaction A$)

1999-2000 1998-1999$’000 $’000

Private placement 6,445 5,200

IPO 23,500 5,050

Secondary offering 8,100 19,000

Other sources 3,084 2,367

Venture Capital 2,470 1,950

Parent company loan 200 2,063

Government grant 957 1,347

Strategic Partner 535 666

Friends/angel investors 1,804 258

Source: Ernst & Young/Freehills/ISR survey and research data 2001

Separate analysis of the total population ofIPOs for listed core biotechnology companiesduring 1999-2000 indicates that the averageamount raised in each IPO was of the order of$11 million.

What the money is used for

Companies responding to the survey wereasked to indicate the way in which they wouldutilise the cash from capital raised to supporttheir business. This is shown in Table 11 (theaverage being that reported by companies ifresponding to any category). Of the fundsearmarked for specific purposes, the bulk wasfor R&D and overall product development,and the remainder for commercialisation.Direct comparison between years is unreliabledue to changes in categorisation and toomany respondants being unwilling to identifya specific category (hence ‘other’ is inflated).

Table 11Purpose of Extra Finance (average amount raised A$)

1999-2000 1998-1999$’000 $’000

R&D 2,456 3,759

Regulatory Approvals 99 464

Process scale up 334 1,104

Commercialisation 1,978 934

Clinical and field trials 4,200 Not Available

Other 8,318 729

Source: Ernst & Young/Freehills/ISR survey and research data 2001

An aggregate of the survey responses (Figure 11) shows how companies will beinvesting capital raised and also indicates forcomparison their future capital requirements.Requirements for 2001–2002 are all up onthat acquired for 1999–2000, with processscale-up notably increasing the most. Again,too many future intentions were undisclosedin ‘other’ as a consequence of commercialsensitivities.

40

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1999–2000

2001–2002

Figure 11Capital Acquired and Required

Source: Ernst & Young/Freehills/ISR survey and research data 2001

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Finance raising intentions next yearThe total amount of capital sought for 2001-2002 is estimated to be at least in theorder of A$500 million based on projectionsfrom survey results. It is as yet unclear if thefinance industry will make futurecommitments of this magnitude, withevidence of value from present raisings beingimportant in the next 12-18 months.

Survey responses showed that half of thecompanies intended to raise capital fromexternal sources in the next 12 months withan average ask of about A$14 million.Intended sources of capital raising wereprivate placement (33%) and the venturecapital market (31%), as well as a spread ofother fund sources being considered by CEOswhen assessing financing options (Figure 12)and their present stage of growth.

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The supply of venture financeThe venture capital market in Australia hasaccess to approximately A$4.9 billion20 offunds. Of this, A$2.3 billion is committed forfuture investments. The extent to which thisfuture commitment is accessible by thebiotechnology and closely related industry isnot clear. However from the fundraisingachieved in the last year, it is reasonable topredict that good investments will continue toattract funding as required. For the year ended30 June 2000, approximately A$104 million(4.6%), A$76 million (3.3%) and A$44 million (1.9%) of total A$2.27 billioninvested funds were directed to biotechnology,health care equipment and services andpharmaceutical investments respectively20.

0 2 4 6 8 10 12 14 16 18

Friends/Angels/Private placement

Venture Capital

Stock Market

Strategic Alliance Partner

Pooled Development Fund

Public Grant – R&D Start Grant

Parent Company Loan

Other

Sour

ces

Frequency

2001 Survey

1999 Survey

Source: Ernst & Young/Freehills/ISR survey and research data 2001

Figure 12Intended Sources of Capital

20 ABS Survey December Quarter 2000 (document 5655.00)

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Australia is a LowCost Location for Biotechnology Investment

A benchmark study21 across 15 countries shows that Australia is a low cost location forbiotechnology investment. The study analysed establishment and running costs of a (30-person) biotechnology company and was referenced to costs in cities of knownbiotechnology activity in 15 countries. This included Australia, Canada, France, Germany,Hong Kong, Ireland, Japan, Korea, Singapore, Sweden, Switzerland, Taiwan, the UnitedKingdom and the United States. Comparisons were made across five sectors, including agri-food, biomedical, biopharmaceuticals and therapeutics, diagnostics and clinical trials.

Establishment and running costs for the countries benchmarked included salaries and on-costs for a diverse range of staff, typical laboratory set up and running costs, includingequipment, consumables and services. Further cost data collected covered occupancy,utilities(electricity and telecommunications), patent applications, airfares, hotel, car hireand courier rates and basic office equipment. Costs were all converted to A$ and thenpresented with Australian costs indexed at 100, and other countries scored relative to this.

Australia was found (as at December 2000) to be the lowest cost country when all factorswere aggregated and modelled for establishment and running of a 30-person biotechnologybusiness across all five benchmarked sectors. This is due to Australia’s competitive ratescompared with other nations on three of the most costly elements, being: R&D labour costs;on-costs of these staff; and the cost of offices and occupancy. This low cost structure is furtherreinforced by low or middle rank utility costs such as for electricity and telecommunications.

Australia is neither more nor less costly than most other countries when comparing generalR&D equipment. This is despite the fact that some of the more sophisticated R&Dequipment is imported from competitor countries. This overall picture is reinforced byAustralia’s generally competitive operating expenses, such as for hotel/accommodationcosts, motor vehicle hire, courier rates and domestic airfares. Only as a result of distancedoes Australia have high costs for international travel. Compared with other countries,Australia has a distinct cost advantage to locate biotechnology businesses.

Australia is strongly positioned to rapidly expand its biotechnology industry. This will, inpart, be stimulated by Australia’s cost competitiveness and attractiveness for inboundinvestment. Both quantitative data and qualitative indices on the relative cost of living andquality of life show that Australia has the lowest cost of living and amongst the highestquality of life compared with the benchmarked group of countries. These messages deservefar stronger international marketing and promotion at all levels, in order to realise suchpotentials.

Emphasis in the future will be placed on more intangible capabilities, such as human andintellectual capital being attracted to hubs of multi-disciplined expertise. Regulatoryregimes imposed in Australia are sophisticated and will gradually harmonise to meet theterms of market entry set by the major American and European markets.

21 “Benchmarking Study of R&D Costs in Selected Segments of Australian Biotechnology” Ernst & Young, Hay Group andStrategic Industry Research Foundation, January 2001.

Innovation InvestmentFund ProgramThe Innovation Investment Fund (IIF)Program is designed to promote thecommercialisation of Australian R&D. Itprovides venture capital to small, high-techcompanies (including biotechnologycompanies) at the seed, start-up or earlyexpansion stages of their development.Funding for the program is provided on a 2:1government to private sector ratio and totalsA$358 million.

Under the program, the Commonwealthgovernment licenses 9 private sector fundmanagers to make eligible investeecompanies. The fund managers directinvestment decisions and have access tobetween A$30 million to A$50 million in each fund.

Overall, two IIFs are dedicated to thebioscience sector (Rothschild and Start-up)while Coates Myer focuses on the combinedarea of IT/Life Sciences.

Pooled Development Fund ProgramThe Pooled Development Fund Program(PDF) program is designed to increase thesupply of equity capital for growing Australiansmall and medium-sized enterprises (SMEs).PDFs are private companies (established underthe PDF Act) that raise capital to take equityin Australian SMEs–providing opportunitiesfor venture capitalists, SMEs and investors.

During 1999-2000 A$148 million of newcapital was raised by 36 PDFs, an increase ofmore than 200% on the previous year. SinceJune 1992 a total of A$476 million has beenraised by 57 PDFs.

The aim of the PDF Act is to develop anddemonstrate the market potential for patientequity capital, including venture capital, forgrowing SMEs. PDFs and their shareholdersare entitled to a more competitive taxtreatment (they generally are taxed at thelower rate of 15%) on income generatedthrough PDF activities.

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Graeme Browning - Partner, Ernst & Young NASDAQ Centre of Excellence, BrisbaneAustralia, comments as follows on this issue:

The year 2000 saw an unprecedented amount of venture capital become available forAustralian biotechnology companies. As investors’ faith in the business models of manytechnology companies wavered, biotechnology companies were seen as an attractivealternative whilst still offering substantial growth potential. This change in investorsentiment was partially driven by the correction in high technology markets, but alsofollowed the significant advances made in mapping the human genome. In addition to thegenerally more favourable sentiment from investors, Government programs such as thePooled Development Fund and Innovation Investment Fund schemes also contributed tothe increase in available funds for the industry.

A number of specialist biotechnology venture capitalists successfully raised funds during2000, as well as several existing managers raising significant follow-on funds. The year alsosaw a number of venture capitalists invest for the first time in the sector. These eventscombined to create a substantial quantity of funds available to fund the growth of theAustralian biotechnology sector. With an increasing pool of funds available for investmentin this sector, the ability of quality Australian biotechnology companies to successfully raiseventure capital has never been greater.

During 2000, Robin Batterham, Australia’sChief Scientist, released a report entitled TheChance to Change22 to provide a framework tofoster successful innovation in Australia. Thereport noted:

“We must support initiatives that encourage thetake-up of researchers and research by industry.Companies that wish to succeed in the neweconomy must be prepared to invest in newskills and technologies and align themselves withresearch institutions that perform basicresearch. Without this access and alignment,the downstream benefits to our society of basicresearch will be greatly reduced.

…Submissions by the business sector to thisreview have highlighted the need for researchersto have a broader skill set, particularly withregard to commercialisation. This broad skillset is developed in part from the interactionsresearchers have in the domestic andinternational science arena, and associationswith the commercial world.”

Although the rate and magnitude ofannouncements in biotechnology R&D andcommercialisation advances by companies grewimpressively in the past two years there is asignificant variation in the capabilities ofAustralian companies to effectivelycommercialise their discoveries. The

Australian industry is still establishing a criticalmass of players and success stories that willcreate much needed momentum to help carryforward the many new start-up companies. TheAustralian industry is, however, capable ofestablishing international alliances. Increasingnumbers of relationships between Australia andthe US/EU now flourish both at an academicand commercial level, despite thedisadvantages of geographic separation.

Recent example announcements include:

• The largest Australian biotechnologyinvestment yet in the acquisition of theplasma fractionation assets and business ofRotkreuzstiftung ZentrallaboratoriumBlutspendedienst SRK for approximatelyA$890 million plus performance paymentsof up to A$117 million by CSL Ltd.

• Biota Holdings Ltd acquisition of the US-based start-up company NuMAX;

• Gradipore Ltd strengthening its Europeanmarketing position with theannouncement of two new strategicalliances; and

• Peptech Ltd taking both an equity positionand entering into a joint researchcollaboration with Diversys Ltd, a UKstart-up company.

45

COMMERCIALISATION:PATHS, MODELS ANDBARRIERS

22 The Chance to Change, Robin Batterham, November 2000, p81

Strategic IntentOur research and survey confirms that themajority of core human health biotechnologycompanies in Australia have business modelsthat develop their IP, technology or productcandidates to either pre-clinical or (far lessfrequently) phase I or II clinical stage. Theirvalue is then on-licensed typically to an off-shore multinational (Figure 13).

In the non-medical area, business models morefrequently include more advanceddevelopment of the product before licensing,joint venturing or distribution agreements usedto deliver the product to the marketplace. Forexample, GroPep Ltd produce growth factorsfor use in biotechnology culture media, whichthey developed and now exploit through astrategic alliance with JRH Biosciences Inc, abulk media supplier.

In their negotiations with overseas companies,Australian companies are showing increasingmaturity and professional ability whenpresenting their opportunities to potentialinvestors and licensees. The best Australiancompanies are now able to joint venture with,or even acquire, entities overseas. Growth inthis trend will mark future success in theindustry’s global outreach.

Low and slow commercialisation successes arestill, however, an ongoing issue for manyAustralian companies, as is the competitionfor market leadership in a particular diseaseindication, plant variety or diagnostic test.This has led a number of companies into nichemarkets that contain characteristics including:

• Small target markets, which, in the case ofmedical treatments, may be eligible forprotection offered through orphan drugprograms;

• Unique regional features, such as plantvarieties; and

• Focus on a small number of high valuesteps in the supply chain. For example,Filtron Pty Ltd is a supplier of foetal bovineserum to JRH Biosciences (both nowwholly owned by CSL Ltd) for use by thebiotechnology industry.

Strategic DecisionsAs part of the industry survey, CEOs wereasked to nominate the three most importantstrategic decisions that they had made in thelast 12 months, from a selection of 22categories. The results reflect the pivotal roleof human resources, capital raising andalliances as being critical to company growth(Figure 14). Importantly, key staffappointments did not appear in the top eightdecisions two years ago, but are now seen ascrucial to the success of companies. In the lastsurvey, refocussing product development wasby far the most significant decision made byCEOs. Now, whilst still important, CEOs arefocused on employing the right people andraising capital to fund their operations.Strategic capital investments in facilities andrelated infrastructure fell as a priority nowrating 16th overall. Probably this is now seenas a less preferable strategy to accessinginfrastructure through cooperative alliances.

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Figure 13Success factors in the commercialisation path

Strategic AlliancesStrategic alliances for both R&D and businesspurposes are a key feature of the businessmodels of Australian biotechnology companies.Figure 15 (showing regions nominated byrespondents) indicates that domestic R&Dalliances outnumber domestic businessalliances by 3:1, but that this ratio is more on a1:1 basis for international strategic alliances,across all major regions. This suggests therelatively increased importance of businessalliances at the international level comparedwith local alliances. Compared with responsesin our 1999 survey to these questions, thepercentage of international alliances has risen(38% to 53% of total responses) while thosebetween Australian partners have fallen (62% to 47% of total responses). The growthof international relationships, both in R&Dand business, spreads across the USA, Europeand Asia. One example is the recentannouncement by Gradipore Ltd of theGradipore Chair of Separation Science at theTexas A&M University.

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0 2 4 6 8 10 12 14 16

Key staff appointment

Raised public capital

Raised private capital

Refocussed currentproduct development

Increased the size ofthe organisation

Launched new product

Entered product trials

New alliance formation

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last

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Source: Ernst & Young/Freehills/ISR survey and research data 2001

Figure 14Top 8 strategic decisions made by CEOs

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It is estimated that at least 15 Australiancompanies either have established, or are inthe process of establishing, permanent officesoff-shore. These offices are typically formarket penetration, access to newtechnologies and capital raising. CSL Ltd,with operations in Australia, New Zealand,the USA, the UK and Switzerland hasretained its head office in Melbourne, whilstthe CEO has relocated to the USA. Thismove comes as CSL begins to develop itsNorth American market following theirrecent acquisition of ZLB, which providesimmediate access to US markets throughZLB’s range of licensed products.

During the survey process, many companiesflagged their intention to establish a presenceoverseas in the short to medium term. Thistrend highlights the future need for expertadvice associated with international financial,tax and transfer pricing issues in this industry.

Sources of BiotechnologyInnovationAlmost three-quarters of the companiessurveyed are developing technology from theirfounders or in-licensed from universities andthe CSIRO (Figure 16). On the basis of thesurvey results, almost half of Australia’sbiotechnology companies have been createdto commercialise inventions and discoveriesof one or more of their founders rather thanby in-licensing new technologies. A further26% have been licensed from universities, andthe CSIRO. The survey indicates a healthydiversity of sources of new business ideas. Thechallenge for biotechnology companies is tocreate networks to identify new opportunitiesin an ever more competitive environment.

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Figure 15Global network of strategic alliances (2001)

Source: Ernst & Young/Freehills/ISR survey and research data 2001

0

10

20

30

40

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Australian Partner USA Partner Europe Partner Asia Partner Other Partner

Strategic alliance -Business focused

Strategic alliance -R&D focused

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Barriers toCommercialisationAs part of the industry survey, CEOs wereasked what they saw as barriers tocommercialisation and impediments to theirearly success. Results of present day views andthose of 18 months ago are shown in Figure 17.

The top four issues for the industry as a wholeare:

• Access to capital including ‘smart’ capital(funding bundled with expert managementand tax advice) necessary to developtechnology;

• The availability of skilled human resources;

• The relatively small size of the domesticmarket; and

• Effective protection of intellectual property.

These are the issues that show the most markedincrease in prominence in CEO’s thinking. Asignificant change from the 1999 survey is thefall in relevance of capital gains tax as an issue(then ranked 2nd, now ranked 13th); suggestingthat the business environment in Australia haschanged. This may either reflect an increasingsignificance of other issues, or changes resultingfrom the Federal Government’s recentlyintroduced new tax system.

Figure 16Source Of Business Ideas

Source: Ernst & Young/Freehills/ISR survey and research data2001

Other 11%

Australian parent company 2%

CSIRO 5%

University 21%

An original ideaby the founder(s) 47%

Joint venture 5%

International parent company 9%

Figure 17 Barriers to commercialisation - an industry perspective

Source: Ernst & Young/Freehills/ISR survey and research data 2001

0 5 10 15 20 25 30 35 40 45

Access to capitalAccess to smart capital

Skilled human resourcesDomestic market size

IP protectionTime for gaining regulatory approval

Lack of info about marketsCost for gaining regulatory approval

Inadequate public sector supportConsumer acceptanceAccess to technology

Limited international harmonisationCapital gains tax

Insufficient domestic manufacturing capabilityLack of mobility of personnel

Access to equipment, knowledge, problem solvingLabelling regs

Other

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Frequency2001 1999

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Tax Issues in the Biotechnology Industry

Keith Hardy–Tax Partner, Ernst & Young

The agenda of tax changes has been driven by business tax reform since the Ralph Reportwas released in September 1999. The Ralph Report contains recommendations, and theGovernment responded with major announcements on 21 September and 11 November1999. The business tax reform process is likely to continue for some years although anumber of major measures (eg tax consolidation) have been deferred to commence from 1 July 2002.

Outlined below are some of the key areas of business tax reform that are relevant to theBiotechnology industry and its corporate and individual investors.

Change of company tax rate

From the 2001-2002 tax year, the company tax rate will decrease to 30% (from 34%). Thereduction was introduced in an effort to increase Australian international competitivenesstogether with reinvestment at the corporate level.

General Capital Gains Tax (CGT) changes

• Removal of indexation for assets acquired from 21 September 1999

• Frozen indexation for other assets as at 30 September 1999

• Removal of CGT averaging on assets disposed of after that time;

• Introduction of 50% CGT discounts for trusts (under current legislation andannouncements), individuals, and superannuation funds for assets held for at least 12 months regardless of acquisition date (although frozen indexation cost base may bealternatively chosen for assets acquired before 21 September 1999); and

• Small business rollovers and concessions.

CGT relief for Scrip for Scrip rollover

The scrip for scrip rollover provisions (operative from 10 December 1999) are aimed aneasing the CGT burden on companies (or unit trusts) that seek to takeover othercompanies/unit trusts or engage in internal restructures. Under the new provisions, CGTrollover relief is available for shareholders/unitholders where the entity succeeds inacquiring more than 80% of the interests in the target entity. CGT is not payable in suchcircumstances until the shares/units in the takeover or restructured entity are disposed of bythe taxpayer. This relief has been used effectively for on and off market takeovers.

The interest in the target must be exchanged for a similar interest in the acquiring entity, ieshares for shares, units for units.

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Thin capitalisation

The new thin capitalisation rules will apply from 1 July 2001 (or in the case of substitutedaccounting periods the first day of the income year commencing after 30 June 2001). Priorto the introduction of the reform measures, the thin capitalisation regime applied only toforeign controlled companies investing in Australia. The allowable debt to equity ratio was2:1. A company was considered a foreign controller if it was able to control more than 15%of the Australian entity.

The new provisions, currently in draft legislation form, propose to overhaul the taxationtreatment of the deductibility of interest for multinationals. The regime seeks to limit thetax deductibility of interest and other debt expenses where a disproportionate amount ofdebt funding is utilised. The key points are:

• The rules encompass Australian controlled outbound investment and/or foreigncontrolled inbound investment. The rules apply to entities and permanentestablishments (ie branches). The concept of control will include actual control (deemedat 50%) and effective control (deemed at 40%, unless an unrelated party has actualcontrol).

• A broader definition of debt, which will include all forms of debt which give rise to a debtdeduction (including unrelated third party debt) to the extent that it exceeds the maximumallowable debt (3:1 debt to equity ratio – referred to as the safe harbour ratio). However, anarm’s length test is proposed to act as an alternative to the 3:1 debt to equity ratio toascertain whether an independent lender would lend under such terms and conditions.

• Special rules apply to financial institutions.

• A deminimus rule, which provides that the thin capitalisation rules will not apply unlessthe debt deductions exceed $250,000 threshold.

Venture Capital IncentivesIn an effort to increase domestic and international investment in Australian venturecapital, the following key reform measures were introduced:

Incentives for investment via Pooled Development Funds (PDFs)

• PDFs that derive taxable capital gains on the disposal of their small medium enterprise(SME) investments can distribute these gains to (all) shareholders in the form of aventure capital franked dividend.

• Shareholders that are complying superannuation entities (apart from excluded superfunds with less than 5 members) will be able to treat such dividends as exempt income,and also claim a venture capital rebate (equivalent to a franking rebate) which can beoffset against other income.

• Other shareholders will treat such dividends similar to franked PDF dividends, ie, eitherexempt with no franking rebate, or claim a franking rebate if the dividend and a gross-upamount is included in assessable income.

These rules were effective from 30 June 2000.

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CGT exemption for foreign pension fund venture capital investment

There is a CGT exemption (operative on 10 December 1999) for specific country nonresident tax exempt pension funds on the disposal of eligible venture capital investments.The new rules apply to pension funds which are resident in the US, UK, Japan, France orCanada. The investment must be in new equity companies, which do not have total assetsexceeding A$50 million and the investments must be held at risk and for at least 12 months.

The CGT exemption for foreign pension funds was made law on 10 December 1999.

Tax Concession for Research & Development

The Government recently announced changes to the Tax Concession for Research andDevelopment. These include:

• Retention of the base rate for the concession at 125%, effectively reducing the benefit asthe business tax rate drops from 34% to 30% from 1 July 2001;

• Introduction of a rebate for companies with annual turnover less than $5 million andannual R&D expenditure less than $1 million;

• Changes to the definition for R&D, requiring demonstration of both innovation andhigh levels of technical risk for eligible ‘core’ R&D activities;

• Changes to the R&D plant provisions whereby plant no longer needs to be usedexclusively for R&D activities in any one year to qualify (plant can be depreciated overeffective rather than an accelerated life); and

• Introduction of a 175% premium concession for R&D expenditure above a base level,calculated as a rolling three year average.

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Agribusiness and FoodAustralia has world-class biotechnologycapabilities in a range of agriculturaldisciplines, and our industries have areputation for excellence, efficiency andcompetitiveness. Biotechnology is routinelyapplied to breeding to improve yields andquality for both crops and livestock, as well asfocusing on leading agricultural sectors such asviticulture, fisheries, cotton and beef industries.

In 1998-1999, the gross value of Australianagricultural production was some A$30billion, of which cereals and other cropscomprised $16 billion, and livestock products,wool, and dairy products were worth $12billion. In that year Australian exports of farmproducts were valued at A$23 billion,including $12 billion for grains, oilseeds andother crops, $4 billion for meat and liveanimals, $3 billion for wool, and $2 billion fordairy products. Australia spends aroundA$256 million per annum on R&D for fieldcrops, A$120 million for horticulture, and A$265 million for meat, dairy andaquaculture. There is ongoing change in thecomposition of the products exported. In1997-1998, income derived from the export of

wool, beef and wheat accounted for 60% ofAustralia’s agricultural earnings. Thecomposition in the future will be increasinglygeared to the export of products such ascanola, wine, horticulture, sugar and variousdairy products.

Food processing companies spent A$206million on R&D in 1998-1999, and generatedexports worth about A$9 billion. TheAustralian processed food industry is a vitalpart of manufacturing, and critical to addingvalue to Australia’s primary food produce. It isAustralia’s largest manufacturing industry, withan annual turnover of A$50 billion and valueadded of A$15 billion in 1998-1999. Thesevalues are predicted to rise to A$60 billion and A$16 billion respectively by 2001-2004. Keyto this is the uptake of novel foodbiotechnologies by food processors, so as tomanufacture higher value products/exports perkilogram.

The Australian industry’s strengths include areputation for food product quality, highstandards of hygiene and safety, and freedomfrom contaminants, as well as access to a cost-competitive supply of a wide variety of rawcommodities. The nation’s proximity to theexpanding food markets of the world,particularly in the Asia-Pacific region, togetherwith a multicultural domestic market thatdemands product diversity, are further strengthsthat equip the industry to meet export marketrequirements. Changing consumer expectations

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MARKET SECTOR OVERVIEWS

and increasing awareness of the role of diet inpromoting health and protecting against diseasewill require the development of new foodproducts. These factors drive growth in globalfunctional foods and nutraceutical markets.

Australia generally compares less favourablyon labour costs and/or process efficiency“beyond the farm gate,” compared with itsinternational competitors in areas such asmeat processing. There is also limitedincentive in Australia for capital investmentin automated processing, for example, ofmeat, and relatively fewer companies capableof the intensive capital investment required tomatch some European nations in processingautomation.

Human Health andPharmaceuticalsAustralia is internationally recognised for itsbiomedical and clinical research, with a solidhistory of ingenuity and innovation.Australian researchers have outstandingresearch credentials with the development ofpenicillin, the cochlear implant, the world’sfastest AIDS test and the computeriseddetection of cancerous cells.

The range of research into disease and clinicaldisorders is extensive covering: for exampleoncology, osteology, orthopaedics, infectiousdiseases, cardiology, haematology,rheumatology, endocrinology, nuclearmedicine, sleep research, immunology, surgery,pharmacology, children’s health, obstetricsand gynaecology.

From a biotechnology perspective, relevantsectors in Australia include biomedical,pharmaceutical and human therapeutics,clinical trials and health diagnostics.

Bio-medicalThis segment encompasses research andcommercial activity that is broadly directedtowards medical devices, prosthetics, andother scientific (micro) equipment, such asheart assist devices, artificial lenses, diagnosticimaging equipment, DNA micro-arraytechnology or automated DNA amplificationinstrumentation. A major part of theAustralian scientific industrial hightechnology products includes those that fallinto the biomedical segment including

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biomedical instruments and diagnostics.Australian exports of medical equipment andscientific equipment are worth over A$1 billionper annum with growth at more than 15% peryear. This figure includes medical equipmentas well as related veterinary, and agriculturaldiagnostic products. More than 65% of localproduction is exported.

Pharmaceutical and HumanTherapeuticsIn 1998-1999 the Australian pharmaceuticalindustry accounted for at least a A$5 billionturnover and value added of nearly A$2 billion.Exports were greater than A$1 billion andimports A$3 billion. This was supported by agross expenditure on R&D of A$950 million.Compared with agribusiness and agrifoodsectors, both in revenue and net exports, thepharmaceutical industry is still relatively smallin the overall Australian economy. However,it is expanding rapidly, with growth of exportsaveraging 15% per annum. Coupled withother biotechnology-related sectors it is one ofthe fastest growing segments, often throughstart-up companies. National growth in R&Dexpenditure and employment is significant.OECD data shows the Australianpharmaceutical industry increased its R&Dexpenditure in real terms by 15% per annumbetween 1985 and 1995 – near double the rateof OECD countries.

Clinical TrialsA small number of multinational ContractResearch Organisations (CROs) havesubsidiaries in Australia, offering serviceswhich historically have focused on phase IIIand IV studies. Australia has an excellentopportunity to further develop its pre-clinicalphase and clinical trial capabilities as localbiotechnology companies develop therapeuticcandidates for clinical development.Technical expertise in these fields exists inAustralia but it remains insufficiently

integrated or coordinated. There are a smallnumber of Australian companies whosebusiness model is focused on selected parts ofthis overall trials process. In addition, manypublic hospitals and research institutescontract regularly with pharmaceuticalcompanies to run trials where the former haveniche expertise and access to suitable patients.A limited number of research institutes havedeveloped the expertise to initiate trials oftheir own lead discoveries. At least threecentres are capable of running Phase 1 trialsin Australia.

DiagnosticsAustralia has excellent capabilities in thisarea both at a research level and in thenumber of companies whose business model iswholly or mostly based on diagnosticproducts. This includes simple point of careand/or patient use or field test procedures suchas indicative “diagnostic kits” for patient self-monitoring; in-line process controldiagnostics in manufacturing (eg. foodprocessing or environmental monitoringsituations); human health intensive care andin vivo monitoring diagnostics controlled bytrained staff; and pathology and generalbiochemical/microbial testing laboratories (in vitro diagnostic market). Associateddevelopments include componentmanufacture of hardware/software, materialsfabrication and specialist chemicals, such asfluorescent dyes, as part of new diagnosticreporter systems.

However, diagnostics in basic R&D settings,particularly in genomics/proteomics whenlinked with “structure based” drug designpresently needs greater State levelcoordination of infrastructure in order forAustralian companies to rapidly developnovel therapeutic canditates from genomicsdata.

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Xenome – novel pharmaceutical discovery

Xenome combines skills in genomics, peptide chemistry and pharmacology, together with access to awealth of animal biodiversity, to develop a leading position in the discovery of novel pharmaceuticalsbased on venom-related peptides.

Animal venom has evolved to immobilise and capture prey, mainly through the inhibitionand activation of neural pathways. Individual peptides when used in isolation from thesevenoms are often highly active and extremely selective at specific protein targets inhumans. Venom peptides can be used directly as pharmaceuticals. They can also be used todefine the pharmacology of drug targets and to discover small molecule drug compoundsthat mimic the pharmacology of the peptide compounds. Recently, these molecules havebeen a rich source of new drugs aimed at treatment of important disorders such as cancer,hypertension and pain.

Xenome has considerable expertise in the characterisation of venom genomes that it uses tounderpin new compound discoveries. This program has been coupled with a state of the artpeptide synthesis facility, which includes a new generation high throughput peptidesynthesiser and a custom designed high throughput mass-directed fractionation system. Thistechnology platform enables Xenome to produce libraries of peptides for use in both ‘in-house’ and partnered assay-screening programs. It will also improve the specificity andactivity of the native compounds through structure and activity based molecular modelling.Xenome’s R&D platform includes the development and acquisition of recombinant cellbased assay systems to identify peptide therapeutics active at new sites on known drugtargets.

Xenome has access to a large variety of unique venomous animals including coneshells,spiders, snakes, scorpions and centipedes. Coneshells provide a particular focus due to theirability to produce a highly complex venom containing an enormous number and variety ofsmall sized peptides. These conopeptides are often highly potent and very site specificinhibitors of known human drug targets. These characteristics enhance the potential ofconopeptides as therapeutic drugs, as a powerful means of validating drug targets, and asvaluable leads to the identification of small molecule drugs that mimic the pharmacology ofthe peptide/drug target interaction.

Given the enormous chemical and structural variety of venom peptides and the large‘volume’ of information contained within any one peptide molecule, it is likely that venompeptides exist that will interact with virtually any protein located within a cell membrane.This provides an unparalleled opportunity to discover new classes of compounds withtherapeutic potential. The screening of selected assays is being conducted at Xenome.Partnership opportunities also exist with assay rich biotechnology or pharmaceuticalcompanies to expand the screening coverage of the peptide libraries.

Environmental and Waste ManagementAustralian biotechnology has a proven trackrecord in developing innovativeenvironmental applications in competitivesectors such as mining and industrialremediation and rehabilitation, waste-watertreatment, monitoring technology and pestand weed control. Australia will continue todevelop capabilities in these areas to protectnatural resources, maintain air and waterquality and to minimise environmentalpressures from mining, shipping and tourism.

The market demand for environmental andwaste management services and products isinfluenced by population size and land mass;industry and household demand for disposaland recycling services; and Governmentregulations over environmental protection.Australia is party to various internationalcovenants and treaties concerning theprotection of terrestrial and marineenvironments.

From a biotechnology standpoint, R&D willfocus on renewable food (eg. aquaculture andfuel sources); remediation of environment (eg. re-vegetation, soil/plant nutrient systems,exotic pest eradication and weed control);redressing unsustainable land use practicesand vegetation clearances (eg. salinity acrossvast land masses and algal blooms); andextraction of value added products from wastestreams (eg. growth hormone substances fromwhey waste from cheese production). Some ofthese (eg. salinity) are of critical nationalimportance, such as to attract commercial andpublic good R&D investment from thebiotechnology sector.

This activity will undoubtedly generateunique Australian solutions to environmentalproblems capable of international application(eg. fast growth eucalypt forests and availableland mass for future trading in catbon credits).

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Stem cells, cloning and ethics

Professor Alan TrounsonChairman, Scientific Advisory BoardEmbryonic Stem Cells International Pty Ltd

Stem cell technologies have developed in two parallel streams, which are now merging asthe similarities between them increase. The two streams relate to the source of the stemcells. The streams are embryonic stem (ES) cells, and adult stem (AS) cells.

ES cells are found in developing post-implantation embryos, and have long been known tobe pluripotential, with the capacity to be directed down any development pathway if theright triggers are applied. Cell lines developed from human ES cells have an unlimitedcapacity to multiply, and based on current technology, existing cell lines appear to besufficient for treating appropriate ES cell areas. Once the triggers have been defined, EScells can be programmed to mature into specific cell lineages, including liver, blood, nerveor other cells as required. Opportunities exist for stem cell therapies to treat illnessesincluding stroke, Alzheimer’s disease and Multiple Sclerosis.

AS cells on the other hand, are self-regenerating cells found in adults. In contrast to EScells, AS cells are generally committed to a specific cell lineage (eg. skin), during theirdevelopment and maturation. Recent observations suggest that there is an extremely lowfrequency of multipotent AS cells with the capacity to mature into a range of cell types,albeit a smaller range than the pluripotential ES cells. Unlike ES cells, AS cells have alimited capacity to grow in culture. However, using AS cells can produce stem cell therapiesgenetically matched to the patient, potentially improving the success of any treatment.

The complexity of the underlying stem cell technology makes the broad application of“designer therapies” such as therapeutic cloning unlikely in the modern health careenvironment. Such therapies are likely to be restricted to major research-based health carefacilities. Significant opportunities exist for stem cell technologies in biotechnology,through the development of stem cell-based solutions to:

• Tissue grafts (eg. Skin);

• Organ grafts (as the technology develops);

• Gene therapy; and

• Drug discovery – using stem cells as screening tools or expression systems.

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The ethical debateStem cell technology is unlikely to offer a simple pathway to the cloning of humans, and assuch, the issues surrounding human cloning are considered to be a separate but importantethical issue, which is currently being debated across the world.

To date, much of the ethical debate on the use of stem cells has focused on the use of humanembryos as a source of ES cells. Now that a number of ES cell lines have been developed, it isunlikely that ongoing use of human embryos will be necessary. As a result, the ethical debatehas moved from harvesting cells from embryos to the use of these cell lines in therapies anddrug development strategies.

There is clearly a range of views on this topic, with the challenge for the biotechnologyindustry being to demonstrate the safety and utility of stem cell therapies in increasing thequality and/or lifespan of individuals suffering from serious and life threatening diseases.

Competing technologies such as xenotransplantation (transplantation of tissues and organsfrom one species into another) are developing in parallel with stem cell technology. Asignificant issue being addressed by proponents of this alternative, is the potential forviruses embedded in the genome of donor animals to become activated in thetransplantation process and subsequent period of immunosuppression, resulting in theemergence of new human pathogens.

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Australia has world-class agricultural,biotechnology and medical sectors supportedby a well-developed public sector researchcommunity. Traditionally, Australian publicsector research has been a significantcontributor to the intellectual property andhuman capital resource base accessed by localand international biotechnology research andindustry.

The Australian Government also provides acomprehensive range of programs, whichsupport commercial biotechnology activities.While significant support is available throughgeneric programs such as the R&D TaxConcession, the CommonwealthGovernment’s National BiotechnologyStrategy (NBS) delivers specific programs tosupport biotechnology sectors. These specificprograms have been supplemented bymeasures announced in the InnovationStatement Backing Australia’s Ability, launchedby the Government in January 2001.

The key role for biotechnology in Australia’sfuture demands a strategic approach. Tospearhead this approach, BiotechnologyAustralia–A Federal Government Initiative,was established in 1999 to coordinate theGovernment’s non-regulatory biotechnologyactivities.

The NBS recognises that biotechnology is amajor element of many governmentregulatory, research, education and industrydevelopment programs. Six key themes areaddressed in the strategy:

• Biotechnology in the community;

• Ensuring effective regulation;

• Biotechnology in the economy;

• Australian biotechnology in the globalmarket;

• Resources for biotechnology; and

• Maintaining momentum and coordination.

The significant linkages between public andprivate sector research and industry supportare summarised in Figure 18. This illustrates:

• The major types of contributing publicsector institutions and their fundingsources;

• The approximate positioning of principalcontributions by institutes in theinnovation continuum of basic researchthrough to exports; and

• The government incentives accessible bybiotechnology companies to advance theirgrowth and enhance linkages with thepublic sector.

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INFRASTRUCTURE ANDPUBLIC SECTOR LINKAGESWITH INDUSTRY

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Basic R&Dfundamental

research

PrincipalPublic Sector

Funding &Services

DETYA

DHAC

NHMRC

Producer levys& AFFA

Various C’wealth& State funds

ISR

Applied R&Dpre-clinical

development

R&D uptake,Industry innovation,clinical development

Universities

Cooperative Research Centreseg. agricultural, biomanufacturing, medical science

R&D Industry Incentiveprograms accessed by privatesector

Includes:• Tax Concession eg R&D

Tax Concession• Grants

eg Biotechnology Innovation Fund R&D Start

• Loanseg R&D Start'sCommercialisation Loans

• Equityeg Innovation InvestmentFunds, Pooled DevelopmentFunds

• R&D Manufacturing Incentiveseg Pharmaceutical IndustryInvestment Program

• Export Facillitationeg Export Market DevelopmentGrants

• Technology Diffusioneg Technology DiffusionProgram Funding

CSIROeg. agribusiness, pharmaceuticals and human health

Medical Research Institutes and Hospitals

Rural Industry R&D Corporations

State R&D Facilities & Other

Commercialisation &Marketing

products services exports

BIOTECHNOLOGYCOMPANIES

DHAC

States & Private

ARC

Figure 18Public and private sector biotechnology industry linkages

DETYA = Department of Education, Training and Youth Affairs ARC = Australian Research CouncilDHAC = Department of Health and Aged Care NHMRC = National Health and Medical Research CouncilISR = Department of Industry, Science and Resources AFFA = Agriculture, Fisheries and Forestry—Australia

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UniversitiesAustralian universities are a significant sourceof innovation for the biotechnology industry.Their capabilities encompass many fields ofbiotechnology, ranging from basic research toapplied industrial projects, as well asdevelopments in the diagnosis and treatmentof diseases in humans, animals and plants.

Many universities have their own specialistresearch centres in biotechnology and relatedfields which are developing strong linkagesnationally and globally. This collaborationenables the flow of creativity, ideas, skills andpeople between various players in theinnovation system, including other researchinstitutes and private enterprise.

Australian universities receive theiroperational grants from the Department ofEducation, Training and Youth Affairs(DETYA). The National Health and MedicalResearch Council (NHMRC) and theAustralian Research Council (ARC) providecompetitive grants for medical and non-

medical research respectively. These researchgrants support excellent fundamental researchto expand Australia’s knowledge base andcapability, as well as significant funding toencourage long-term collaborative researchbetween universities and industry, such as theARC Linkage – Projects program. Australianuniversities are responding strategically andflexibly to the challenges and opportunitiesprovided by knowledge-based industries suchas biotechnology.

Australian universities are increasingly activein promoting the commercialisation ofintellectual property. Most universities havespecialised commercialisation units orincorporated arms for managing thecommercialisation of research outcomes.Many university commercial arms aremembers of the Australasian TertiaryInstitution Commercial CompaniesAssociation (ATICCA). Some examplesinclude:

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• Business Liaison Office (University ofSydney) promotes and facilitatesinteraction between the university,business and government throughcollaborative and contract research,consulting, joint ventures, facilitation ofthe formation of start-up companies,technology transfer under licensing andother arrangements.

• IMBCom (University of Queensland) isthe commercial arm of the Institute forMolecular Bioscience (IMB). IMBComprovides the vehicle for promoting thecommercialisation of IMB’s innovativeresearch programs, which range fromgenomic discovery through to developmentof new pharmaceuticals and diseasetherapies. IMBCom is involved indeveloping alliances with industry, spin-offs and programs for promotingentrepreneurship and IP commercialisation.

• Insearch Limited (University ofTechnology, Sydney) provides consultancyservices to government and industry bothin Australia and internationally includingfacilitating collaboration between UTSresearchers and industry partners in a rangeof areas.

• Luminis Pty Ltd (University of Adelaide)provides contract research,commercialisation of IP throughdeveloping start-up companies, syndicationand licensing, as well as consultancyservices in a broad range of areas includingagriculture, environment and naturalresource management, biotechnology andmolecular biology.

• Montech Pty Ltd (Monash University)assists with technology licensing andcommercialisation, contract research anddevelopment, consultancy, IP protectionand valuation, and development of spin-offcompanies. Montech also includes theCentre for Bioprocess Control.

• Office of Commercial Services(Queensland University of Technology,Division of Research and Advancement)undertakes contract research andcommercialisation of inventions fromQUT research, including IP rights andpatents, consultancies and testing.

Some Australian universities are involved inthe development of clusters such astechnology parks, incubators and research andeducation precincts. These facilitatetechnology transfer from academic andresearch institutes into commerce andindustry. Some examples include:

• The Australian Technology Parkinnovation in Sydney represents aconsortium of four Australian universities,comprising the University of Sydney, theUniversity of New South Wales, theUniversity of Technology, Sydney and theAustralian National University. TheTechnology Park includes a corebiotechnology incubator to facilitate andaccelerate development of start-upcompanies.

• The Bio21 – Parkville biotechnologydevelopment in Melbourne involves theUniversity of Melbourne, RMITUniversity, the Victorian College ofPharmacy (Monash University), a numberof hospitals, research institutes and privateenterprises. It is being developed as a majorcentre for medical and bioscientificresearch, education, clinical trials andpractice, and the production ofpharmaceuticals and biotechnologyproducts.

• The Cellulose Valley Technology Park atSouthern Cross University provides a focusfor companies developing, commercialisingand manufacturing natural plant productsand for companies developingenvironmental technologies and otherinnovative businesses.

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Cooperative Research CentresCooperative Research Centres (CRCs) arecollaborative research ventures bringingtogether researchers from universities, thepublic sector and business. CRCs alwaysinclude university membership, often includeCSIRO and must contain industry partners.They serve as a strong link between the publicand private sectors in areas of longer-termcollaborative research and provide a pool ofindustry-aware graduates.

The Cooperative Research Centres programcurrently supports 65 CRCs, 19 of whichcommence on 1 July 2001. Since itsinception, a total of 91 centres have beenfunded. Of these, around 24 have hadsignificant biotechnology programs. CRCs areselected following a competitive processgenerally every two years with fundingprovided typically for up to seven years.Federal funds from the Department ofIndustry, Science and Resources (ISR) arematched or enhanced by cash or in-kindcontributions by the CRC partners, resultingin annual operating funds in the order of A$8-15 million for each CRC – creating anenterprise of small business size.

The CRC for Chronic Inflammatory Diseaseswill focus on finding better treatments forserious chronic degenerative inflammatorydiseases, especially rheumatoid arthritis andchronic obstructive pulmonary disease. Thesediseases, as well as inflammatory boweldisease, atherosclerosis, and psoriasis, afflictone in three people in the developed world atsome time during their lives and annuallyconsume tens of billions of dollars in healthcare costs.

Another example is the CRC for ValueAdded Wheat, announced in early 2001. ThisCRC will apply a range of platformtechnologies, including proteomics andmarker technology (including microchipadvances) to increase knowledge of wheatquality. This will allow the CRC to developwheat germplasm with novel properties thatwill improve processing for a consistent wheatsupply, end-use flexibility, greater productprofitability and nutritional benefits. TheCRC will also develop methods for early stagequality testing through novel on-the-spotdiagnostics and decision support systems.

Other CRCs have either a core focus inbiotechnology or certain biotechnologyapplications and demonstrate the broad rangeof biotechnology applications underdevelopment. These include the:

CRCs for Medical Science and Technology -Tissue Growth and Repair; Cellular GrowthFactors; Eye Research and Technology;Cardiac Technology; Vaccine Technology;Diagnostic Technologies; Aboriginal andTropical Health; Discovery of Genes forCommon Human Diseases; Asthma; andCochlear Implant and Hearing AidInnovation.

CRCs for the Environment - SustainableProduction Forestry; Bioproducts; TropicalPlant Protection; Biological Control of PestAnimals; Freshwater Ecology; Great BarrierReef World Heritage Area; Australian WeedManagement; Conservation and Managementof Marsupials; and Weed ManagementSystems.

CRCs for Agriculture and Rural BasedManufacturing - Molecular Plant Breeding;International Food Manufacture and PackingScience; Viticulture; Innovative DairyProducts; Value Added Wheat; AustralianSheep Industry; Cattle and Beef Quality;Australian Cotton; Food Industry Innovation;Sustainable Sugar Production; Quality Wheat;and Sustainable Rice Production.

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Commonwealth Scientificand Industrial ResearchOrganisation (CSIRO)The CSIRO is Australia’s largest and mostprestigious public sector R&D organisation.Within the ISR portfolio, CSIRO has linkageswith industry at many levels, both nationallyand internationally. CSIRO is one of the mostdiverse scientific research organisations in theworld employing over 6 000 staff inapproximately 70 laboratories acrossAustralia.

Last year, CSIRO earned revenues fromindependent sources of A$250 million andhad public sector appropriations of A$598 million. Increasingly, CSIRO isrequired to derive revenue from businessactivities. Divisions are now positioned withdefined alliances and market sectors, with thefollowing Divisions having either a core focusin biotechnology, or some significantbiotechnology applications:

• General pharmaceuticals, human health andrelated areas are the Divisions of: MolecularScience; Health Sciences and Nutrition;Entomology; and Mathematical andInformation Sciences.

• General agribusiness and related areas of fieldcrops, food processing, horticulture, meat,dairy and aquaculture are the Divisions of:Entomology; Food Science Australia;Health Sciences and Nutrition; Land andWater; Mathematical and InformationSciences; Plant Industry; TropicalAgriculture; Sustainable Ecosystems;Livestock Industries; Forestry and ForestProducts; and Marine Research.

CSIRO’s recent achievements include:

• Designer grapevines: CSIRO Plant Industryscientists have identified the gene thatcauses sultanas to turn dark brown whendried and hope to turn this gene off inAustralia’s first genetically modifiedgrapevine;

• Bioremediation with insect enzymes: CSIROPlant Industry has signed an agreementwith an Australian company tocommercialise the technology developed tobreak down pesticides into harmlesssubstances; and

• Insecticides that target insect life cycles:CSIRO Entomology, in collaboration withthe University of Nebraska, have clonedgenes that produce the juvenile hormonesthat regulate the passage from juvenileinsects through their various moults tobecome adults in several different insects.

Other Commonwealth Research OrganisationsSignificant public sector research institutionswith biotechnology programs include: theAustralian Institute of Marine Science(AIMS) and the Australian Nuclear Scienceand Technology Organisation.

Over 2000–2003, AIMS will develop its“Deriving Benefits from Marine Biotechnology”plan, to create opportunities for new marineindustries based on biotechnology. Priority areasinclude sustainable aquaculture and marinegenetic resources for pharmaceutical andcommercial use.

Medical Research Institutes and HospitalsAustralia has a strong health and medicalresearch base, which makes a considerablecontribution to nearly all areas of medicine.Underpinning this strength is a large numberof public sector and independent medicalresearch institutes covering both clinical andpublic health research. These institutes alsohold affiliations with major public hospitals,research and teaching universities, andhealth-focused CRCs.

Since the 1980s there has been an increasingcommitment to commercialising medical andbiotechnology research, with successes bothnationally and internationally. Australiangovernments recognise the potential socialand economic opportunities and have

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Commonwealth’s Vision for Australian Biotechnology

Consistent with safeguarding human health and ensuring environmental protection, that Australiacapture the benefits of biotechnology for the Australian community, industry and the environment.

The Government’s goals for biotechnology supporting this vision are based on theresponsible use of biotechnology to drive economic and community benefit. The goals are:

• To ensure that research into, and the applications of, biotechnology safeguard humanhealth and the environment through:– A rigorous, efficient and transparent system of regulation for gene technology research

and for genetically modified organisms and products; and– Observing the highest ethical standards.

• To ensure that the community:– Has access to quality information about biotechnology, the potential risks and benefits

of its applications, and the ethical issues they raise;– Has confidence in the way risks are assessed and managed; and– Can contribute to public policy in this area.

• To enhance the economic and community benefits of biotechnology through:– An internationally competitive environment for investment and enterprise

development;– Stronger links between the biotechnology research sector and industries that apply

biotechnology; and– Better management of intellectual property.

• To maintain and develop the infrastructure for generating biotechnology applicationsthrough:– Productive investment in biotechnology research and development;– World class education in biotechnology;– Secure access to genetic and biological resources; and– Conserving genetic and biological resources.

These goals are achieved by addressing the six key themes of the National BiotechnologyStrategy, which are:

• Biotechnology in the Community: provision of balanced and factual information onbiotechnology and its applications through a long-term public awareness program;

• Ensuring Effective Regulation: through legislation, the Office of the Gene TechnologyRegulator (OGTR) and other regulatory bodies;

• Biotechnology in the Economy: supporting commercialisation of biotechnology with a suiteof Government programs;

• Australian Biotechnology in the Global Market: pursuing a consistent, global approach totrade in biotechnology areas;

• Resources for Biotechnology: through higher education research and training that isinternationally competitive, and enhancing access to Australia’s marine and terrestrialbiological resources; and

• Maintaining Momentum and Coordination: through the Australian Biotechnology AdvisoryCouncil, which advises the Commonwealth Biotechnology Ministerial Council on non-regulatory biotechnology issues and Biotechnology Australia.

Source: Australian Biotechnology – A National Strategy

implemented a number of measures to capturethe benefits while increasing support formedical research. The CommonwealthGovernment has doubled the budget for theNHMRC, which is Australia’s peak medicalresearch funding body, and StateGovernments are encouragingcommercialisation and investment throughinfrastructure support for medical institutesand technology parks.

Australian medical institutes owe theirsuccess to the strong linkages betweenuniversities and hospitals, and to theireffective networking with local andinternational research centres. This has led tosignificant capabilities in immunology,endocrinology, oncology, haematology andmolecular genetics, which are now attractingsignificant interest from overseas partiesseeking partners for research and productdevelopment. The NHMRC Clinical TrialsCentre is one facility that capitalises onAustralia’s demographic, disease profile,regulatory and research advantages. Thecommercial sector also supports clinicaltrialing and facilities provided through majorhospitals.

While many Australian biotechnology andmedical research facilities (for example,Victoria’s Bio21 and Queensland’s Institutefor Molecular Bioscience) are supported byCommonwealth or State Governmentfunding, privately funded medical institutes(such as the Walter and Eliza Hall Institute ofMedical Research and the Garvan Institute ofMedical Research) are also of internationalnote. Many of these institutes continuesignificant cooperative R&D projects withmultinational biomedical or pharmaceuticalcorporations.

Agriculture, Fisheries andForestry—Australia:support for R&D andagbiotechnologyAustralia’s long standing excellence inagribusiness is partly due to the links betweenprimary producers and R&D service providerssuch as universities, CSIRO, CRCs and state-funded departments of naturalresources/agribusiness. The agribusiness sectoralso includes rural industry research anddevelopment corporations dedicated tomarket sectors, and two independent researchbureaux, the Bureau of Rural Sciences (BRS)and the Australian Bureau of Agricultural andResource Economics (ABARE).

The R&D corporations represent marketsectors including cotton, dairy, fisheries, forestand wood products, grains, grape and wine,pig, sugar and tobacco. In addition, there isthe Dried Fruits Council, HorticultureAustralia Ltd, Land and Water Australia Ltd,Meat and Livestock Australia Ltd, and AWBLtd. Resources directed to R&D, industryassistance for producers and producemarketing are based on a producer/grower levythat is matched by Commonwealth funding,predominantly from Agriculture Fisheries andForestry–Australia.

Federal Government R&D,industry incentives andsupport programsBiotechnology companies (in common withother industries) can apply for a range ofR&D incentive programs aimed at supportingboth entrepreneurial growth of smallcompanies as well as large corporations.

The incentives are typically matching grantswith private sector contributions, such asSPIRT grants, CRCs, R&D Start Grants,Technology Diffusion Program, InnovationInvestment Funds, Pharmaceutical Industry

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Investment Program and the R&D TaxConcession. Only private sector companiesare eligible for many of these programs.

Targetted support programs include abiotechnology specific innovation fund—firstdeveloped as part of the NBS and laterextended in the Innovation StatementBacking Australia’s Ability. A BiotechnologyCentre of Excellence was also announcedunder Backing Australia’s Ability.

Biotechnology Innovation FundThe Government has allocated A$40 millionover three years for a BiotechnologyInnovation Fund (BIF) program to increasethe flow of biotechnology projects proceedingto commercialisation. The program will boostthe early commercialisation of biotechnologyresearch by reducing the cost ofdemonstrating proof-of-concept and helpingcompanies attract later stage investmentfunding. The program is nationallycompetitive, with grants up to 50% of projectcosts, to a maximum of $250 000.

Biotechnology Centre of ExcellenceThe Government will invest A$46.5 millionover five years, commencing in 2001, toestablish a Biotechnology Centre ofExcellence to consolidate and buildAustralian capability in one or more key fieldsof biotechnology. The Centre will aim todevelop strong links with internationalcentres of research; attract leading Australianand international biotechnology researchers;attract investment from major internationalcompanies; develop closer alliances withAustralian companies; and developcommercial applications of its research.

Relevant Federal Government Agencies

The major Government agencies withresponsibilities for supporting technology-based projects including biotechnology are:

• Biotechnology Australia - established todevelop a whole-of-government approachto the industry and to foster its growththrough a National BiotechnologyStrategy.

• AusIndustry - the CommonwealthGovernment’s central point for businessassistance and information, including BIF,R&D Tax Concession and the R&D Startprograms;

• Invest Australia - established to attractinvestment into Australia withbiotechnology identified as a strategicpriority; and

• Australian Trade Commission (Austrade) -the Commonwealth Government’s exportand investment facilitation agency.

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Within Australia, there is a vast array ofopportunities in biotechnology. Many of theseopportunities have great potential, althoughsome are still in their infancy. For examplescientists at Macquarie University recentlydiscovered that the pouch of the koalacontains antimicrobial compounds that helpto keep the pouch sterile as the infant koalagrows.

Biotechnology has developed within each ofthe States and Territories of Australia,essentially driven by local academic, businessand government interests. Governmentfunding for biotechnology is primarily throughinitiatives funded by the Federal Government,including academic research grants (providedthrough the NHMRC and the ARC),business grants for R&D (primarily throughthe R&D Start Programs) and support forcommercialisation through theCommercialising Emerging Technology(COMET) program and R&D StartCommercialisation Loans. Significant fundsare also provided through rural industry leviesin agbiotechnology and related areas.

Individual States and Territories have recentlybegun providing support to emergingcompanies, which often require anexperienced mentor. New initiatives inVictoria, Queensland and South Australia, inparticular, are providing funding for additionalinfrastructure to support biotechnology,addressing both the need to develop productcandidates quickly, and the high cost for thebasic tools.

A significant element missing from theAustralian biotechnology industry is a largemanufacturing base. The two largestAustralian biotechnology/pharmaceuticalcompanies (CSL Ltd and FH Faulding & Co)operate manufacturing facilities in Victoriaand South Australia, whilst multinationalpharmaceutical companies including Pfizer,GlaxoSmithKline and Eli Lilly operatemanufacturing facilities in New South Walesand Victoria. Many of these facilities producepharmaceutical chemicals, rather thanbiological products. A limited number ofcompanies undertake contract manufacture ofhuman biopharmaceuticals in TherapeuticGoods Administration (TGA) and/or Foodand Drug Administration (FDA) licencedpremises. These include IDT Ltd, Progen Ltdand Biotech Australia Pty Ltd.

Agbiotechnology continues to be a significantfocus for most States and Territories inAustralia. This focus is the result of longstanding government and industry supportprograms, and research within CSIRO.Agriculture is a key industry for Australia,with exports of grains, wool, fruits, vegetables,meats, wines, seafood and cut flowers. Manyof these industries are yet to benefit from thebiotechnology revolution. To protect theseindustries, Australia has strict quarantineguidelines that are managed by the AustralianQuarantine and Inspection Service (AQIS).AQIS works to deliver effective quarantineservices, allowing movement of biologicalmaterial while protecting Australia’s flora andfauna, agricultural and livestock industriesand human health.

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BIOTECHNOLOGY ACROSS AUSTRALIA

All States and Territories are continuingprogress towards the goal of a truly nationalscheme to regulate gene technology activitiesby working on implementing complementarylegislation to the Gene Technology Act 2000.Some jurisdictions are also consideringwhether to implement legislation declaringGMO-free or GM-areas for marketing purposes.

The emergence of clusters in StatesAs with other nations, biotechnology R&D isdeveloping in geographic clusters, primarilythrough the proximity of universities,hospitals and medical or agricultural researchinstitutes with essential business and financialservices. These now steadily spawn start-upcompanies. Clustering may be eitherevolutionary by building on existing localattributes, or more formal through plannedand purpose built technology parks (housingdesigned incubation facilities).

Activities within clusters are very oftenrelated to the local environment. In Australiathis ranges in the extreme from tropical tosub-temperate climatic zones of both land andmarine environments and all their associatednatural resources.

Given the vast size of the country and limitedresources, State and Territory Governmentsplay a vital role in funding sharedinfrastructure with the strategic intent ofencouraging local alliances and collaborationin order to create much needed critical mass.

Building infrastructure and supportTechnology incubators play a significant rolein the development and support of clusters. InAustralia, there are two primary incubatormodels. The first, represented by the Bio21initiative in Melbourne, Victoria will enhancethe integration of an existing group of world-competitive universities, medical andscientific research institutes. The secondmodel is the commercially funded incubator,such as that operated by Xcelerator Ltd inNew South Wales. Xcelerator providescomplete support to start-up companiesworking in the biotechnology and life sciencessectors, allowing them to get on with the taskof developing their new venture and growingrapidly. It is located close to two prominentfast growth companies in Proteome Systemsand Peptech amid the North Sydney cluster oflife sciences companies and researchinstitutes.

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AustralianCapitalTerritoryWhile the ACT isyet to fully developits commercialbiotechnology

capacity, it is home to an impressive numberof biotechnology research facilities coveringmedical research, agriculture andbioinformatics. This concentration of mainlypublic sector research institutions means thatthe ACT contribution to the nation’sbiotechnology R&D is disproportionatelygreater than its size suggests.

The ACT is very well resourced with theAustralian National University (ANU) andCanberra University, eight CRCs and sixCSIRO facilities (along with CSIROHeadquarters). Specific biotechnologyfacilities include: John Curtin School ofMedical Research; the BioinformaticsResearch Group at the ANU; the CSIRODivisions of Plant Industry, Wildlife andEcology, Entomology, and Vertebrate PestControl; and the Centre for the Applicationof Molecular Biology in InternationalAgriculture.

New SouthWalesSydney, the capitalof NSW, is home tothe majority ofmultinationalpharmaceutical-

related companies in Australia, including:Pfizer; Merck Sharpe & Dohme; Amgen;Genzyme and AstraZeneca. Johnson &Johnson Research also has a majorinvolvement with the Australian TechnologyPark.

A number of platform technology companiesincluding Gradipore, Proteome Systems Ltd,Entigen Corporation and the AustralianProteome Analysis Facility are located aroundSydney. These platforms include proteomicsand bioinformatics and provide the localindustry with a useful resource in discoveringand developing biotechnology products.

Other biotechnology companies and researchcentres located in this region include: theGarvan Institute; St Vincent’s Hospital; theUniversities of NSW and Sydney; PeptechLtd; Sirtex Medical Ltd; and Novogen Ltd. Inregional NSW, the Charles Sturt andSouthern Cross Universities are significantcontributors to agricultural biotechnology.

New South Wales thus accounts for about40% of the biotechnology companies inAustralia and includes a number of platformtechnology companies.

New South Wales has particular researchcapabilities in pharmaceutical discovery,medical devices and agriculture. NSW alsooffers an existing network of world-classtechnology parks, high quality researchfacilities and a commitment by the StateGovernment to foster biotechnologyinnovation.

The NSW Department of State and RegionalDevelopment is the primary contact forbiotechnology companies needing servicessuch as: investment facilitation; dealing withregulatory and planning issues; coordination

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of government processes; and post-investmentservices. The government has recentlyestablished a Cabinet Standing Committee onBiotechnology with a broad representation ofGovernment Ministers to coordinate itsbiotechnology activities.

New South Wales has several world-classuniversities including: the University ofSydney; University of Technology, Sydney;Macquarie University; University of NSW;and Southern Cross University.

New South Wales has four research parks: theAustralian Technology Park; MacquarieUniversity Research Park; RiversideCorporate Park; and ANSTO Business &Technology Park. A fifth park is beingdeveloped at Southern Cross University inNorthern NSW. The CRC program is verywell represented with over 20 biotechnologyCRCs in manufacturing, agriculture,environment and medical fields located orhaving partners in NSW. CSIRO also has asignificant presence with 17 sites distributedacross the State covering agriculture,medicine, food science and manufacturing.

NorthernTerritoryThe NorthernTerritory is rich innatural diversity,with unique tropical,subtropical, marine

and desert ecosystems. Also unique to theseenvironments are a range of specificaboriginal health issues, which are asignificant focus of research institutes such asthe Menzies School of Health in Darwin, as itstrives to deliver better health outcomesthrough biotechnology.

Government support for innovation andinvestment and facilitation services isdelivered by a range of agencies including theDepartment of Asian Relations and Trade, theDepartment of Primary Industry and Fisheries,and the Office of Communications, Scienceand Advanced Technology.

For its size, the Northern Territory is stronglyinvolved in the CRC program with fourCRCs represented at six facilities. TheseCRCs cover tropical plant protection,aquaculture, cotton and Aboriginal andtropical health.

QueenslandBiotechnology inQueensland coversperhaps the mostdiverse spectrum inAustralia, withspecial interest intropical and marine

biotechnology. The state has a vigorous groupof companies including Alchemia Pty Ltd;Xenome Ltd; Pan Bio; Peplin Biotech Ltd;and Fungi-Gulp Pty Ltd.

The Queensland State Government has been actively investing in biotechnology andrecognised early the importance ofbiotechnology. In partnership with the FederalGovernment and CSIRO, the QueenslandGovernment established the Institute forMolecular Bioscience at the University ofQueensland in Brisbane. The QueenslandGovernment has also established (with FederalGovernment involvement) the Centre forBiomolecular Science and Drug Discovery onthe Gold Coast campus of Griffith University.These facilities provide infrastructure thatpromises to provide access to additional state-of-the-art facilities for biotechnology drugdiscovery and development.

The Queensland Government has also beguna ten-year strategy for developing localbioindustries, covering: investment attraction;public confidence in bioindustries; businessand industry development; and establishmentof the Queensland Bioindustries Office tocoordinate policy across Government,implement the strategy, facilitate access toState and Commonwealth Governmentprograms and act as a single point of contactfor bioindustries.

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The State’s leading-edge education, researchand development includes: James CookUniversity; the University of Queensland; theQueensland Institute for Medical Research;the Griffith University; and The QueenslandUniversity of Technology. These arecomplemented by 18 CRCs, the AustralianInstitute of Marine Science (AIMS) intropical Rockhampton and 11 CSIRO sitesacross the State.

The Government supports the industry bysponsoring industry forums, regional clusterdevelopment and international conferences,providing an interface betweenentrepreneurial firms, financiers and globalstrategic partners.

SouthAustraliaSouth Australia ishome to a significantbioscience industryand researchcommunity, covering

the fields of health care, agriculture andenvironment. The overall life-sciences researchfunding totals about A$200 million per annum.The State Government has a strong interest ininnovation and biotechnology, with acommitment to develop an internationallyrecognised bioscience industry.

It has a small but vibrant biotechnologyindustry. FH Faulding & Co is one of thelargest pharmaceutical companies in Australiaand since the last report, has expanded itsgeneric pharmaceuticals business into theUSA.

South Australia hosts a dedicated industrialbioscience precinct–Thebarton BiosciencePrecinct–which is adjacent to AdelaideUniversity’s technology precinct. This ishome to BresaGen Ltd, GroPep Pty Ltd,Bionomics Ltd and the University ofAdelaide. Flinders University is also asignificant contributor in sectors includinghuman health and bioremediation, producingcompanies such as Flinders Bioremediation, aspecialist in environmental biotechnology.

The State has a substantial life-sciencesresearch and commercial infrastructure, asuite of core capabilities at world-competitivestandards in growth factors, celldifferentiation, cancer, molecular plantbreeding, plant genomics, neuroscience,animal cloning and transgenics, and industrial‘parks’ suitable for clustering of bio-industrycompanies.

Bio Innovation SA (BISA) was launched inMarch 2000 to develop and implement keyinitiatives to increase bioscience collaborationand commercialisation in the State. ABioscience Industry Advisory Council has alsobeen established to support BISA andchampion specific sectors.

South Australia has three universities ofinternational standing: the University ofSouth Australia; Adelaide University; andFlinders University, and three medicalresearch centres (Institute of Medical andVeterinary Science, Hanson Centre forCancer Research and the Child HealthResearch Institute).

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There is also a Plant Sciences Precinct(Adelaide University, SARDI, CSIRODivisions of Land and Water, and PlantIndustry-Horticulture, and the AustralianWine Research Institute) and the LivestockSystems Alliance (Adelaide University,SARDI, Primary Industries & Resources SA).

South Australia is also home for the HeadOffice of CSIRO Division of Human Scienceand Nutrition, and Headquarters for 6 CRCs(Tissue Growth & Repair; Molecular PlantBreeding; Sustainable Aquaculture of Finfish;Viticulture; Australian Weed Management;and Water Quality & Treatment).

South Australia has also benefited fromrenewed investor confidence in biotechnologywith three companies, BresaGen Pty Ltd,Bionomics Ltd and GroPep Pty Ltd all havingrecently completed a successful public capitalraising. Other South Australian companiesinclude: FH Faulding and Co Ltd; NorthfieldLaboratories Pty Ltd; GeneWorks Pty Ltd;MedVet Science Pty Ltd; HamiltonPharmaceuticals Pty Ltd; and CMAX.

TasmaniaThe Department ofState Developmenthas completed adetailedBiotechnologySector Analysis,

examining the capabilities, constraints andopportunities for Tasmanian biotechnologyactivity. Tasmania is unique in Australia,being an island of its own separated from themainland by Bass Strait, an effective barrier tomany agricultural diseases. Tasmania declareda 12-month moratorium on environmentalreleases of GMOs while the issue of genetechnology (including theadvantages/disadvantages of GMO-free status)is considered by a Joint Parliamentary Inquiry.

Tasmania’s biotechnology strengths areconcentrated in agriculture; aquaculture &marine; environment; food; health; andgenomics, informatics and bioprospecting.

The primary State organisation withresponsibility for biotechnologycommercialisation is the Department of StateDevelopment, which has a BiotechnologyWorking Group.

Tasmania has a strong research infrastructurebase with the University of Tasmania (and itsMenzies Centre for Population HealthResearch); the Australian Maritime College;Tasmanian Institute of Agricultural Research;Tasmanian Aquaculture and FisheriesInstitute; Tasmanian Museum and ArtGallery; Department of Primary IndustryWater and Environment; Royal HobartHospital Molecular Medicine Unit; threeCRCs (Antarctica & Southern Ocean,Aquaculture, and Sustainable ProductionForestry); and CSIRO Marine Research.

Biotechnology spin-off or start-up companiescan access the Tasmanian Technopark, atechnology incubator which has already hadsuccesses in developing other high technologystart-ups. Tasmania provides funding for thecommercialisation of R&D activities throughthe Tasmanian Innovation Program, whichprovides financial assistance up to $150 000to companies that have innovative newproducts or services to help pay for direct costsin the product/service development process.

Biotechnology companies in Tasmaniainclude: Abalone Farms Australia; BioRemedyPty Ltd; Bonlac Foods Ltd; BotanicalResources Australia; Envirocycle; MolecularMedicine Unit RHH; North Forest Products;Plant Biotechnologies; Serve-Ag; SelbourneBiological Services (Australia); andTasmanian Alkaloids Pty Ltd.

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VictoriaVictoria accounts formore than 32% ofthe biotechnologycompanies inAustralia. A numberof major listed

biotechnology companies have their headoffices in Melbourne, including CSL Ltd,Biota Holdings Ltd, IDT Ltd, Virax HoldingsLtd, Anadis Ltd, Autogen Ltd, and AMRADLtd. There are also concentrations of highquality universities, research institutes andteaching hospitals in several clusters aroundMelbourne.

These clusters include Parkville, Clayton,Heidelberg and Werribee. Research facilitiesin these clusters include the Walter and ElizaHall Institute of Medical Research, theHoward Florey Institute, the Ludwig Institutefor Cancer Research, the Baker Institute, theAustin Research Institute, the VictorianInstitute of Animal Science, the University ofMelbourne, Monash University and the RoyalMelbourne Hospital. There is also asignificant interest in agriculture throughorganisations such as Aventis Crop Science,Food Science Australia and AWB Limited.

Victoria has recognised the need to provideaccess to infrastructure to support innovationin industry sectors including biotechnology.Government support has not only providedfunds for new infrastructure in biotechnology,but also the formation of the Bio21 initiativeto create a biotechnology precinct in theinner Melbourne suburb of Parkville and thecreation of Biocomm International,specifically to support the commercialisationof biotechnology in Victoria.

The Victorian Government is committed todeveloping both its research and commercialstrengths in biotechnology with a strategicplan to develop its biotechnology skills base,develop its research base, commercialise itsbiotechnology research, build its

biotechnology corporate base and providegovernment leadership and support.Responsibility for coordinating Victoria’sbiotechnology activities lies with the Science,Technology and Innovation Division of theDepartment of State and RegionalDevelopment.

As a significant focus of biotechnologyactivity in Australia, Victoria is home to 21 ofthe biotechnology CRCs and 13 CSIRO sites.Universities with significant biotechnologyinterests include: the University ofMelbourne; Monash University; RMITUniversity; LaTrobe University; and theVictoria University of Technology.

The Technology Commercialisation Program(TCP) has been developed to address thecommercialisation of science, technology andinnovation to stimulate thecommercialisation of ideas to drivetomorrow’s technology businesses andindustries. The TCP provides a $20 millionover four years for commercialisation oftechnologies and concentrates on the marketend of the innovation system.

WesternAustraliaWestern Australiahas a unique place inAustralianbiotechnology with anumber of mining

exploration companies now investing inbiotechnology. These investments cover thefacilitation of mining activities (bioleachingand bioremediation) and diversification intonew areas such as human health. ExodusMinerals has made a number of suchinvestments in biotechnology and recentlychanged its name to Australian CancerTechnology Limited. Biotechnology strengthsin Western Australia include human health,the environment and agriculture. In theagricultural field, Grain Biotech Australia is

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Australia’s first private company to combinebiotechnology with applied plant breeding.

Western Australia is home to a significantmining industry, supporting a specialisedsector to develop environmentally friendlysolutions for use in mining operations and forbioremediation to restore old sites. WesternAustralia, in particular, is home to a newbreed of biotechnology investor—cashed-upformer mining companies. Examples ofcompanies that have made the transition areExodus Minerals Pty Limited and PrimaResources Pty Limited.

The Western Australian Technology andIndustry Advisory Council has prepared areport entitled Biotechnology West: Strengths,Weaknesses and Opportunities, which reviewsbiotechnology resources in the State. TheState’s biotechnology resources include: fourpublic universities offering biology orbiotechnology courses; a large number ofworld-class research facilities covering aspectsof biotechnology including the TVWTelethon Institute of Child Health Research,the West Australian Institute for MedicalResearch (WAIMR), the Lions Institute ofEye Research, and the AustralianNeuromuscular Research Institute; the Centrefor Bioinformatics and BiologicalComputation; and the Centre for HumanGenetics, associated with the HumanGenome Project at the Edith CowanUniversity.

The Centres of Excellence in IndustryFocussed Research and Development Program(COE) provides funding to science andtechnology research centres with a significantbase in Western Australia and are involved inindustry focussed research and development.The support is usually additional to thatprovided by other funding sources although itcan be used to leverage additional funds. Thefunding is to be used for the purchase ofresearch infrastructure to enhance researchoutcomes for the benefit of Western Australia.

Provision of between 10 and 50% of the totalcentre funding is provided for this purpose

Western Australian Innovation SupportScheme (WAISS) aims to encouragecompanies to undertake research anddevelopment leading to internationallycompetitive commercial products or processes.WAISS is a competitive scheme that providesproject grants to help offset the risks involved.Project grants of between $20 000 and$50 000 are available and are awarded on adollar for dollar basis. The Western AustralianBiomedical Research Institute (WABRI) hasrecently been formed as a joint venturebetween Murdoch and Curtin universities.

Further information can be found in theDirectory at the end of this report.

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OTHER REPORTS AND SITES OF INTEREST ANDRELEVANCE

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Prior Ernst & Young Reportswww.ey.com/global/gcr.nsf/Australia/Australian_Biotechnology_ Previous Australian Biotechnology Report

Report_1999

www.ey.com/global/gcr.nsf/US/Welcome_-_Biotech_ 2000 US Biotechnology Report “Convergence”

Convergence_-_Ernst_%26_Young_LLP

www.ey.com/global/gcr.nsf/International/Biotech99summary 1999 US Biotechnology Report “Bridging the Gap”

www.ey.com/global/gcr.nsf/UK/Ernst_&_Young_Life_Sciences 2000 European Life Sciences Report “Evolution”

www.ey.com/global/gcr.nsf/International/EuroBiotech99 1999 European Biotechnology Report “Communicating Value

Other Significant Reports www.innovation.gov.au Backing Australia’s Ability – An innovation action plan

for the Future

www.isr.gov.au/science/review/thechance.html “A Chance to Change” Batterham Report

Chief Scientist of Australia (2000)

www.biotechnology.gov.au/Industry_Research/National_Strategy/ “Australian Biotechnology – A National Strategy” (2000)

national_strategy.asp Biotechnology Australia

www.isr.gov.au/industry/summit/ois/biotechnology.doc “Biotechnology in Australia – Submission to National Innovation

Summit” (2000) Biotechnology Australia

www.health.gov.au/hmrsr/oldindex.htm “The Virtuous Cycle – Working together for health and medical

research” Wills Report (1999)

www.pc.gov.au/inquiry/drugs/final/final_ov.html The Pharmaceutical Industry Report Industry Commission Report

May 1999

www.pc.gov.au/inquiry/medsci/final/overview.html Medical and Scientific Industry Report Industry Commission

Report Dec 1996

www.pc.gov.au/icpubs/biepubs/96-12/prelims.pdf Agri-food Report – An assessment of recent government

assistance to the agrifood industry

Report by Bureau of Industry Economics (June 1996)

www.isr.gov.au/invest/R_D_BIOTECH_Final.doc Benchmarking Study of R&D Costs in Selected Segments of

Australian Biotechnology: report by Ernst & Young,

the Hays Group and the Strategic Industry Research Foundation

Industry and Other Business Associations and Technology Parks “Australian Stock Exchange” http://asx.com.au and includes… Provides listings of public companies.

Healthcare and Biotechnology Index Limited company details and links to biotechnology

company www sites.

www.asx.com.au/scripts/nd_ISAPI_50.dll/asx/research/

CompanyInfoSearchResults.jsp

Australian Securities and Investments Commission Australian company regulator

www.asic.gov.au/

AusBiotech Ltd National biotechnology industry association

www.aba.asn.au

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Australasian Biotechnology – Journal of the Australian Regular journal covers industry issues with focus on company

Biotechnology Association. (Bioline International) news.

See bioline.bdt.org.br/au

Australian Venture Capital Association Limited (AVCAL) Venture Capital Association

avcal.com.au

Medical Industry Association of Australia Industry association for medical devise and diagnostics industry

www.miaa.org.au/

Australian Pharmaceutical Manufacturers Association Directory of Australian pharmaceutical and medical companies

www.apma.com.au/headers/contact_directory.html and manufacturers

Scientific Suppliers Association of Australia Inc. Association covering all scientific suppliers – including

www.scienceindustry.com.au/default2.htm biotechnology goods/services

Australian Food and Grocery Council Peak body food industry

www.afgc.org.au/

Australian Technology Parks Association Links to many Australian Technology Parks, with some residents

www.techparksaus.com/ involved in biotechnology

Public Sector and Related Organizations with Activities in Biotechnology CSIRO web site www.csiro.au Covers details of CSIRO activities in agribusiness, food, health

and pharmaceuticals

Cooperative Research Centres Covers details of some CRCs in health and life-science areas

www.dist.gov.au/crc/centres/index.html

Australian Research Council Major funds source of basic (non-medical) research for

www.arc.gov.au Universities

Australian University www sites List of Australian Universities – sites may contain biotech. R&D

www.detya.gov.au/tenfields/contact.html information

National Health and Medical Research Council Major funds source of basic medical research for Universities

www.health.gov.au/nhmrc/index.htm

NHMRC Clinical Trials Centre Information on Australian clinical trials centres

www.ctc.usyd.edu.au/1home/about.shtml

Rural Industries Research and Development Corporation Provides information regarding new and emerging agri-business

www.rirdc.gov.au industries in Australia

State Based Reports and Information on Biotechnology Western Australia

Biotechnology West: Strengths, Weaknesses and Opportunities (2000) Report for Western Australian Technology and Industry Advisory

www.wa.gov.au/tiac/reports.html

New South Wales

New South Wales – NSW First For Biotechnology (-2000) Report prepared by the NSW Department of State and Regional

www.business.nsw.gov.au/industry/pro_biotech.asp

Victoria

Victoria Number One in Biotechnology (2000) Report prepared for the Victorian Department of State and

www.innovation.vic.gov.au/news/article.asp?id=155 Regional Development

Queensland

Queensland Biotechnology Brilliance (2000) Report prepared by Queensland BioIndustries Taskforce

www.statedevelopment.qld.com.au

Tasmania

www.dsd.tas.gov.au/ist/science/biotechnology.html Report on State biotechnology

AuthorsErnst & Young

GPO Box 67BMelbourne VIC 3001www.ey.com.au Ernst & Young Life Scienceswww.ey.com/au/hlsciences

Freehills101 Collins StreetMelbourne VIC 3000www.freehills.com.au

Biotechnology AustraliaDept of Industry, Science andResourcesGPO Box 9839Canberra ACT 2601www.biotechnology.gov.au

Key AustralianGovernment Contacts

Principal DepartmentsIndustry, Science and Resources

GPO Box 9839Canberra ACT 2601www.isr.gov.au

Agriculture, Fisheries and ForestryAustralia (AFFA)GPO Box 858Canberra ACT 2601www.affa.gov.au/

Department of Education, Training and Youth Affairs (DETYA)GPO Box 9880Canberra ACT 2600www.detya.gov.au/

Environment AustraliaGPO Box 787Canberra ACT 2601www.ea.gov.au/

Health and Aged CareGPO Box 9848Canberra City ACT 2601www.health.gov.au/

RegulatorsOffice of the Gene Technology

RegulatorDepartment of Health and Aged CareMail Drop Point 54PO Box 100Woden ACT 2606www.health.gov.au/tga/genetech.htm

Australia New Zealand Food Authority(ANZFA)PO Box 7186Canberra Mail Centre ACT 2610www.anzfa.gov.au

Therapeutics Goods Administration(TGA)PO Box 100Woden ACT 2606www.health.gov.au/hfs/tga/

Australian Quarantine and Inspection Service (AQIS)GPO Box 858Canberra ACT 2601www.affa.gov.au/outputs/quarantine.html

IP AustraliaPO Box 200Woden ACT 2606www.ipaustralia.gov.au

Commonwealth IndustryAssistance AgenciesInvest Australia

Dept of Industry, Science andResourcesGPO Box 9839Canberra ACT 2601www.investaustralia.gov.au

see Pharmaceutical Industry InvestmentProgram (PIIP)www.isr.gov.au/industry/pharmacy/piip/index.html

AusIndustryGPO Box 9839Canberra ACT 2601www.ausindustry.gov.au

AustradeHead OfficeGPO Box 5301Sydney NSW 2001www.austrade.gov.au

Key Australian State andTerritory GovernmentsContactsAustralian Capital Territory

Chief Minister’s Department BusinessDevelopment & Internationalwww.act.gov.au/cmd/organisation/bdi.cfmwww.business.gateway.act.gov.au/documents/dir7/doc506407.html

New South WalesDepartment of State and Regional

Developmentwww.business.nsw.gov.au/industry/pro_biotech.asp

Northern TerritoryDepartment of Asian Relations and Tradewww.nt.gov.au/dart/HTML/index.htm

QueenslandState DevelopmentQueensland Bioindustries Taskforcewww.statedevelopment.qld.gov.au/invest/information/opportunities/biotech/

South AustraliaBiotechnology Innovation SAwww.bioinnovationsa.com.au/home.htm

TasmaniaDepartment of State DevelopmentInnovation, Science and TechnologyUnitwww.dsd.tas.gov.au/ist/science/biotechnology.html

VictoriaDepartment of State and RegionalDevelopmentScience, Technology and Innovationwww.biotechnology.vic.gov.au

Western AustraliaDepartment of Commerce and Tradewww.commerce.wa.gov.au

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DIRECTORY

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ABOUT ERNST & YOUNGErnst & Young pioneered professional services in support of biotechnology and is recognised asthe leader in serving the health and life sciences industry. The firm provides a broad range ofservices across the industry, including:

Ernst & Young biotechnology service teams are part of an extensive global network ofprofessionals with industry specific backgrounds. Ernst & Young has leading biotechnologypractices in Australia, the US, Canada, Europe and Asia, supported by a worldwideorganisation of over 78,000 people around the globe.

Ernst & Young is committed to supporting companies within each phase of the life sciencesindustry life cycle. Whether your business a mature company or a visionary start-up we canhelp. Our long standing commitment to the life sciences companies, coupled with ourtechnical service capabilities, makes Ernst & Young the firm of choice for the biotechnologyindustry.

For further information about the issues discussed in this publication, or for more information,contact your local Ernst & Young office or access the web page at www.ey.com/au.

Product development and commercialisation Benchmarking analysis

Strategic asset management New venture development

Regulatory strategy and compliance Corporate development

Financial planning Feasibility studies

Information systems and technology Strategic partnering

Business performance improvement International tax strategy

Corporate finance/mergers & acquisitions Best practice reviews

International business development Real estate services

Business planning Worldwide accounting, auditing and tax

ABOUT FREEHILLSFreehills is an Australian based international law firm which has grown to be one of the largestcommercial legal practices in Australia and South East Asia. With more than 230 partners and900 legal practitioners across Australia and the Asia Pacific, Freehills’ reputation for providingexcellent and innovative commercial legal advice has been built over more than 140 years.

The firm maintains a leading reputation in traditional practice areas such as corporate, bankingand finance, dispute resolution, taxation and infrastructure development, and is one of theleading Australian law firms in intellectual property, patents, technology commercialisation,privatisations, major projects and energy and resources. Freehills has also developed leadingpractices in newer areas of law such as telecommunications, biotechnology, competition law,media, e-commerce and outsourcing, and was at the forefront in advising on Year 2000 issues.

Freehills has a specialist patent attorney firm, Freehills Carter Smith Beadle, for its patent andtrade mark services.