Elsewhere on this web site I argue that Australia is one of the best countries in the world at Life Sciences. Indeed, I contend that in 2016 only the US and the UK does it better (click here). If I am right, then it begs the question: How did a country mostly known for its mining and agricultural sectors also end up so good at biotechnology and medical devices?
Two answer that question would require a book, and one of these days, when I have the time, I intend to write it. This essay, which is going to be sketchy at best given the number of people and events involved, is a first attempt.
Two answer that question would require a book, and one of these days, when I have the time, I intend to write it. This essay, which is going to be sketchy at best given the number of people and events involved, is a first attempt.
The flywheel companies - Biota and Peptech
The story of Australia's Life Sciences sector starts, in my opinion, in 1985. Two years before, in early February 1983, Australia had elected a new Labor government under Prime Minister Bob Hawke, which had started the process of freeing up the economy. As a consequence of the government's reforming efforts, the Australian equities market was one of the best performing in the world by 1985, and that year the benchmark All Ordinaries Index would rise 44%, as against only 31% for the S&P500. In this environment, raising capital in Australia for almost any promising venture was relative easy. The 1985 bull market in effect gave birth to the Australian biotech industry by allowing two biotech companies to go public that would be pivotal to the growth of the Life Sciences sector in Australia - Biota in December 1985 and Peptech in January 1986.
The Melbourne-based Biota was important because its first drug programme ended up yielding a marketed product. Between 1978 and the mid-1980s the combined efforts of three Australian scientists - Graeme Laver (1929-2008), Peter Colman and Mark von Itzstein - had figured out how to drug influenza via the neuraminidase protein, and Biota had been formed to take this project forward. In 1989 Biota was able to partner its neuraminidase inhibitor project with Glaxo, and that company went on to gain FDA approval for Relenza (zanamivir) a decade later in July 1999. The drug was, unfortunately, not a commercial success because Roche had a competing product called Tamiflu that was orally available, whereas Relenza was inhaled. It did, however, prove that we could develop safe and effective drugs in Australia.
Peptech, based in Sydney, became important because of its work in the late 1980s and into the 1990s on monoclonal antibodies. The company had gotten its start because Dr Geoff Grigg (1926–2008) at the CSIRO's Division of Biotechnology had become interested in the more efficient synthesis of peptides. Later on, when the company refocused on monoclonal antibodies, Peptech did two significant things. One was raise monoclonal antibodies against a cytokine called TNF-alpha, which became highly relevant about a decade later. The other was provide some seed capital to Sir Greg Winter, one of the pioneers of humanised antibodies, to start Cambridge Antibody Technology, the antibody platform company that hit the big time in the 1990s and was bought by AstraZeneca for US$1.3bn in 2006. The relationship with Sir Greg was to be long-lasting. When he started Domantis to go after single-domain antibodies, Peptech was a seed investor in that company as well, which earned Peptech US$140m when Domantis was bought by GSK in 2006.
The Melbourne-based Biota was important because its first drug programme ended up yielding a marketed product. Between 1978 and the mid-1980s the combined efforts of three Australian scientists - Graeme Laver (1929-2008), Peter Colman and Mark von Itzstein - had figured out how to drug influenza via the neuraminidase protein, and Biota had been formed to take this project forward. In 1989 Biota was able to partner its neuraminidase inhibitor project with Glaxo, and that company went on to gain FDA approval for Relenza (zanamivir) a decade later in July 1999. The drug was, unfortunately, not a commercial success because Roche had a competing product called Tamiflu that was orally available, whereas Relenza was inhaled. It did, however, prove that we could develop safe and effective drugs in Australia.
Peptech, based in Sydney, became important because of its work in the late 1980s and into the 1990s on monoclonal antibodies. The company had gotten its start because Dr Geoff Grigg (1926–2008) at the CSIRO's Division of Biotechnology had become interested in the more efficient synthesis of peptides. Later on, when the company refocused on monoclonal antibodies, Peptech did two significant things. One was raise monoclonal antibodies against a cytokine called TNF-alpha, which became highly relevant about a decade later. The other was provide some seed capital to Sir Greg Winter, one of the pioneers of humanised antibodies, to start Cambridge Antibody Technology, the antibody platform company that hit the big time in the 1990s and was bought by AstraZeneca for US$1.3bn in 2006. The relationship with Sir Greg was to be long-lasting. When he started Domantis to go after single-domain antibodies, Peptech was a seed investor in that company as well, which earned Peptech US$140m when Domantis was bought by GSK in 2006.
The formative years - 1999-2004
I argue that Biota and Peptech was really all that it took to get the Life Sciences ball rolling in Australia. Sure, other factors helped. The Australian government privatised its Commonwealth Serum Laboratories as CSL Ltd in 1994, and in 1995 Pacific Dunlop floated Cochlear, however it was Biota, Peptech, and another antibody company in Brisbane called Agen (floated 1987) that showed scientists in Australia that it was was possible to form companies around their work, and that in a good year they could even take them public. Gradually more and more scientists started doing this. In the beginning it was a trickle - Novogen in 1994, Progen in 1995, Virax in 1997, Metabolic Pharmaceuticals in 1998, Autogen and Bionomics in 1999. Then it became a rush - Prana Biotechnology, Gropep, Genetic Technologies, Peplin and Starpharma in 2000; Panbio, Cellestis, Psivida and Prima Biomed in 2001. By around 2002 a typical month would see one or two Life Science companies arrive on the ASX, either through the 'front door' (a conventional IPO) or the 'back door' (a reverse merger into an old listed company shell).
What prompted the market to fund so many companies in the late 1990s and early 2000s? That's simple. Around 1997 the Australian resources sector just died. The stock market in Australia has traditionally been a mining and oil market. However every now and then, when mining is out of favour, the market needs sectors other than mining to channel its animal spirits. And in the late 1990s and early 2000s, when gold was under US$300 an ounce, mining was definitely out of favour. Around 2001 the market chose biotech and medical devices as one of its alternative sectors to back. By early 2002 there were not only a large number of listed Life Sciences companies, but the people who would follow those companies on behalf of investors were also coming in to the market. David Blake and Mark Pachacz had founded Bioshares in 1998 to cover the sector, and by 2002, when I started looking at the Life Sciences, there were analysts at other stockbroking firms in Australia doing the same.
I mention elsewhere on this site that it was Peptech that first drew me into the game (click here). The context was this: those monoclonal antibodies against TNF-alpha which Peptech had raised way back in the late 1980s had become, potentially, quite valuable, because Big Pharma had since figured out that drugging TNF-alpha was the Next Big Thing in treating Rheumatoid Arthritis. Remicade and Enbrel, which targeted TNF-alpha, had gained FDA approval in 1998 and Peptech could now make the case that it had prior art on those drugs. It finally shook the owners of those drugs down for a valuable royalty stream around 2004. I got asked the write about Peptech in February 2002 when US patents over the TNF antibodies were granted.
Times were relatively good for the Life Sciences sector in Australia up until around 2004. By that stage, however, the Resources Boom was on, and that made it much more difficult to raise capital for Life Sciences ventures in Australia for the next five or six years.
What prompted the market to fund so many companies in the late 1990s and early 2000s? That's simple. Around 1997 the Australian resources sector just died. The stock market in Australia has traditionally been a mining and oil market. However every now and then, when mining is out of favour, the market needs sectors other than mining to channel its animal spirits. And in the late 1990s and early 2000s, when gold was under US$300 an ounce, mining was definitely out of favour. Around 2001 the market chose biotech and medical devices as one of its alternative sectors to back. By early 2002 there were not only a large number of listed Life Sciences companies, but the people who would follow those companies on behalf of investors were also coming in to the market. David Blake and Mark Pachacz had founded Bioshares in 1998 to cover the sector, and by 2002, when I started looking at the Life Sciences, there were analysts at other stockbroking firms in Australia doing the same.
I mention elsewhere on this site that it was Peptech that first drew me into the game (click here). The context was this: those monoclonal antibodies against TNF-alpha which Peptech had raised way back in the late 1980s had become, potentially, quite valuable, because Big Pharma had since figured out that drugging TNF-alpha was the Next Big Thing in treating Rheumatoid Arthritis. Remicade and Enbrel, which targeted TNF-alpha, had gained FDA approval in 1998 and Peptech could now make the case that it had prior art on those drugs. It finally shook the owners of those drugs down for a valuable royalty stream around 2004. I got asked the write about Peptech in February 2002 when US patents over the TNF antibodies were granted.
Times were relatively good for the Life Sciences sector in Australia up until around 2004. By that stage, however, the Resources Boom was on, and that made it much more difficult to raise capital for Life Sciences ventures in Australia for the next five or six years.
The true believers struggle through the dark times - 2004-2009
The years 2004 to 2009 were difficult ones not just for a paucity of investor attention but also because there were a few clinical failures. The most notable were those experienced by Metabolic Pharmaceuticals, which had developed a new obesity drug based on human growth hormone. The drug looked good in the early studies but failed Phase II twice, in 2005 and 2007.
A lot of us had to do other things in these years to help create value for our clients. I spent the years from 2006 to 2009 focused more on larger cap healthcare companies. That was still fun because I love doing all sorts of research and I met some inspirational people like Chris Roberts at Cochlear and Peter Farrell at ResMed, but I badly missed the early stage stuff.
That said, the mid-2000s weren't all gloom and doom for Life Sciences in Australia. Gropep, an Adelaide-based supplier of non-animal derived ingredients for cell cultures, was acquired by Denmark's Novozymes in 2006 for A$84m. Meanwhile in late 2007 Inverness Medical Innovations, now Alere, acquired the Brisbane-based diagnostics company Panbio for US$37m.
I think the five years from 2004 to 2009 were important because they consolidated the leadership in the Australian Life Sciences sector of people I call the 'True Believers' - Australian bio-entrepreneurs who were in this sector for the long haul who, by their commitment to excellence in what they were doing, gradually improved the quality of our sector. Many of the True Believers were with just one company. I think, for example, of Deborah Rathjen, CEO of Bionomics, who had originally been recruited into Peptech by Geoff Grigg and whose name is on the patents for those famous anti-TNF monoclonals that were company-making for Peptech. At Bionomics, which she joined in 2000, she took a genomics play without much of a business plan and gradually turned it into what is widely recognised as a globally-competitive mid-stage drug developer focused on cancer and CNS. There were other True Believers rising in this period - Jackie Fairley at Starpharma, Silviu Itescu at Mesoblast, Richard Treagus at Acrux (and now at Neuren), Brad O'Connor at Cogstate, and the husband-and-wife team of Paul and Sue Macleman at a number of companies in succession, most of them turnarounds. Then there was a different kind of True Believer, who tended to be simultaneously involved in a number of companies at board level, such as Mel Bridges (founder of Panbio) and Roger Aston (another Peptech alumnus).
One interesting development of 2007 that I think was noteworthy was Martin Rogers and his colleagues taking control of a cancer immunotherapy company called Prima Biomed. In 2007 Prima had Phase IIa data in ovarian cancer for its CVac product, but did not have the funds to progress further. Before Martin stepped down as CEO of the company in mid-2012 he had helped, through adroit promotion, to increase the market capitalisation of his company above A$300m, raised about A$82m in new capital for Prima, and moved CVac into Phase IIb with a runway into Phase III. I think Martin's arrival at Prima was important because it raised the bar for the Australian Life Sciences sector in terms of having to engage the capital market in a serious way. Later on, between 2010 and 2015, Peter French at Benitec also proved particularly good at promoting his company to the capital markets.
The years of increasing maturity - 2009-2016
The years after the Global Financial Crisis have been much better for the Australian Life Sciences sector. For one thing, capital has been easier to raise due to the relative maturity of many companies compared to a decade previous. There were still clinical failures, most notably in October 2014 when Alchemia failed at Phase III with a reformation of irinotecan in metastatic colorectal cancer. However the positives have significantly outweighed the negatives. Consider the following generally favourable timeline.
- Cephalon bought Arana, the old Peptech, for A$318m in April 2009.
- The Danish company Leo Pharma bought Peplin, a dermatology company, for A$288m in September 2009
- In March 2010 the transdermal drug developer Acrux licensed its testosterone spray, called Axiron, to Eli Lilly for US$50m upfront, plus US$87m on FDA approval (which happened in November 2010) and US$195m in sales milestones.
- Mesoblast, a leading stem cell company, executed a major partnering deal with Cephalon in late 2010, which helped propel the company's market capitalisation above a billion dollars not long afterwards.
- Cephalon also bought Chemgenex, which had developed a new drug for the treatment of Chronic Myeloid Leukemia, at a A$225m valuation in March 2011.
- Qiagen bought Cellestis, which had developed a new-generation tuberculosis diagnostic, for A$341m in April 2011.
- Iroko Pharmaceuticals bought iCeutica, a Perth-based drug reformulation play, in April 2011 for an undisclosed sum but one that was reportedly ‘more than 10 times the closing valuation of its first fundraising round’ , which had happened less than six years’ previously.
- In April 2012 the respiratory drug developer Pharmaxis gained European approval for its Bronchitol drug for the treatment of cystic fibrosis.
- Admedus gained FDA approval for CardioCel, its tissue replacement product, in February 2014.
- Fibrotech Therapeutics was acquired by Shire in May 2014 for US$75m upfront and US$482.5m in milestones. At the time Fibrotech was in a Phase 1b study diabetic nephropathy with an anti-fibrosis small molecule FT011.
- In June 2014 the Adelaide drug discovery company Bionomics partnered an Alzheimer's drug development programme with Merck for $US20m upfront and US$500m in milestones.
- In December 2014 Clinuvel gained European approval for a peptide drug Scenesse. The drug was indicated for the prevention of phototoxicity in adult patients with erythropoietic protoporphyria (EPP).
- In May 2015, Pharmaxis partnered its PXS-4728A compound, for the treatment of NASH, with Boehringer Ingelheim for €27.5m upfront and €390m in milestones.
- In June 2015 Spinifex Pharmaceuticals was acquired by Novartis for US$200 million upfront payment plus undisclosed clinical development and regulatory milestones. The attraction was EMA401, a novel angiotensin II type 2 receptor antagonist for the treatment of chronic pain without the usual CNS side effects of opioids.
The secrets to Australia's success since 2009
I think three main factors have been at work to help this sector grow in maturity over the last seven years
- Good people have joined it. I think of Rick Carreon from San Diego as a good example. Rick, a senior Medtronic veteran, joined a tiny ASX-listed company called Impedimed in July 2012. That company, originally from Brisbane, had developed and gained FDA approval for a new generation diagnostic for lymphedema, but it hadn't figured out how to get paid for it. Rick and his colleagues helped solve that problem over the next few years and Impedimed now has a market capitalisation of close to A$500m. I well remember having lunch in Sydney with Rick and his CFO Morten Vigeland in mid-2013 where he laid out his plan to turn Impedimed around. The Impedimed team has since done just about everything they told me they'd do at that time. Every time the Life Sciences sector here attracts a Rick Carreon to help it out - and he has been a generous supporter of our sector - we move to a higher level.
- Better companies have raised the quality. When I look at a prospectus for a new listing now and compare it to the kinds of companies we were doing 15 years ago I feel like we've made a lot of progress. Consider as a recent example the listing of Race Oncology, which went public on the ASX in July 2016. That drug is resurrecting Bisantrene, an anthracene derivative for which Lederle actually gained approval in France in 1990 for the treatment of Acute Myeloid Leukemia. They've since found that Bisantrene has an immuno-oncologic mechanism of action. Once Phase IIb 'bridging study' and a pivotal trial gets you what could be the Next Big Thing in AML by 2021 in the US at the latest. And in the meantime they think they'll have a Named Patient Programme to launch in Europe maybe in 2017. ASX just didn't have that kind of quality when I first started looking.
- There's now some real strength in the 'ecosystem'. Every July, a large group of people representative of the biotech and medical device industry in Australia and New Zealand gathers in Queenstown on New Zealand’s South Island for the annual ‘Bioshares Biotech Summit’, put on by the Bioshares publication. This three-day meeting is essentially an investment conference focused on ASX-listed Life Science companies, with a twist. The twist is that each presenter has to do more than just pitch their company’s story. They also have to teach us something about the bigger picture – about particular classes of drugs, new treatment approaches, how clinical trials work, the regulatory environment, and so on. As a strong supporter of the Life Sciences sector in Australia, Bioshares is a highlight of my calendar, and these days I wouldn’t miss it. And as I listen to the talks and mix with the attendees, I recognise that this group of maybe 170 people contains the elements that will ensure the growth and prosperity of our Sector.
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