PERTH, Australia – A number of initiatives over the last decade have helped to stimulate research and development in Australia, and the country does pretty well globally as far as its mix of intellectual property and research and development.

But what is lacking is the experience and understanding to raise capital and take products to market, particularly the global market, Paul Kelly, partner and managing director of venture capital firm Oneventures, told BioWorld Today. "The market in Australia is just too small to build a sustainable company, so that means thinking about how to position a product globally from day one."

The challenge for Australia, he said, is managing funds with the appropriate expertise, because there is a dearth of capital and a dearth of venture capitalists (VCs), and the institutional investor market is not as sophisticated as in the U.S. and Europe.

"In the U.S., analysts understand the timeline and the landscape and what is needed to commercialize. But Australia lacks that depth of understanding and there is also a dearth of analysts that know the [biotech] space," Kelly said.

"On top of that, a number of companies that seek to raise capital go to the ASX [Australia Securities Exchange] way too early, and raise it from an ill-informed investor base that doesn't understand the R&D regulatory space, and a management team that hasn't taken a drug all the way to registration," he added. "So you have a formula for disappointment."

THREE TOP COMPANIES DOMINATE

Australia's biotech landscape is dominated by one homegrown multinational company, CSL Ltd., which earned revenues of $1.35 billion in the financial year that ended June 30. (Australia's financial year runs from July 1 to June 30.)

After CSL, two med-tech titans, Cochlear and Resmed, make up the large-cap firms in the country.

Australia's ASX-listed life sciences sector has a market cap of roughly A$86.9 billion (US$66.1 billion), according to Bioshares analysts, and those three companies take the lion's share of that market. CSL has a market cap of A$48 billion, with Resmed following at $11 billion, and Cochlear standing at $8 billion. About 120 life sciences companies are listed on the ASX.

The next tier is littered with a few hundred small players, most of which have market caps below A$50 million.

VCs have overwhelmingly pointed to med-tech companies as their big success stories. The listed sector has seen a fairly significant decline in therapeutic product development but an increase in health IT and med-tech investment, Bioshares analyst David Blake told BioWorld Today.

Australia's pharmaceutical market is projected to top $22.85 billion in 2016 and could reach $25.2 billion by 2020, registering a compound annual growth rate of 2 percent, according to research firm Globaldata.

The pharma industry receives a fair amount of financial support from the government through the sale of drugs listed in the Pharmaceutical Benefit Scheme (PBS) and the R&D tax incentive. There are about 140 separate firms listed as suppliers to the PBS, the single payer under the country's universal health care system.

R&D TAX INCENTIVES A BIG DEAL

AusBiotech CEO Glenn Cross told BioWorld Today that the R&D tax incentive is a big deal to the biotech sector. A recent proposal aims to cut back the tax credit to a A$2 million cap for smaller companies, and if those recommendations go through, they would have a "very bad impact" on early stage companies, he said. (See BioWorld Today, Oct. 3, 2016.)

Keeping clinical trials in Australia and attracting global trials continues to be a key focus for the association. "That's another reason we need to retain the full R&D tax incentive since most companies engaged in trials can take advantage of that tax incentive, which translates into additional dollars to keep trials running longer," he added.

Currently about $1 billion is spent on clinical trials in Australia, according to Cross. About half of that comes from big pharma, and the remaining half comes from investigator-led and biotech-sponsored trials.

"Australia is also attracting trials from Asia, particularly Korea and China," he said. China has been a particular focus, especially when it comes to phase I trials, because it takes so long for the CFDA to clear companies to begin phase I. The CFDA also accepts the data generated in Australia, he said.

Cross pointed to regenerative medicine as one area in which AusBiotech believes Australia has a competitive advantage. To that end, the association is forging ties with Japan and Korea in the field of regenerative medicine.

"VC funding is still what most CEOs go to bed worrying about and wake up worrying about," Cross said.

And it's tougher for biotech than med-tech because the amount of capital required to start a biotech is significantly more than a med-tech company, and it has a longer runway.

"We are quite confident we will see some global companies develop along the lines of Cochlear and Resmed, but Australia isn't likely to build another global pharma company again," he said referring to CSL, which celebrated its centennial anniversary this year.

"We are seeing more listings on the ASX for biotech companies," and "we expect a few more listings to come through," he said. "I think there's an appetite at the moment for life sciences companies that have products in phase II or phase III or are getting ready to launch....but early stage companies struggle for funding."

One positive move is the new Biomedical Translation Fund, which provides $250 million matching government funds to private investor funds.

"If that works well, we'll be calling on the government to institute these types of funds every two years or so," Cross said. "We believe there is enough appetite in the capital markets to raise the matching funds for these types of funds."

Bill Ferris, chairman of the National Innovation and Science Agenda (formerly Innovation Australia), told BioWorld Today that the agency is looking at incentive programs across multiple government agencies and departments to make sure there is credible valuation.

Intended to build upon research excellence in the country, the Biomedical Translation Fund is a "bold new initiative designed as a for-profit co-investment pool of venture capital targeting companies with projects that are through proof of concept or entering phase I/II clinical trials."

The funds could go toward drugs, med-tech or new digital tech services for health delivery or diagnostics, he said.

Part of the goal is to build up core companies within Australia "to avoid premature out-licensing and a premature approach to public IPO sources of capital."

DEARTH OF VC CAPITAL

"Until this last year, there's been a bit of a drying up of capital," Brandon Capital Partners Managing Director Stephen Thompson told BioWorld Today, adding that only a handful of venture capital companies are making investments in the life sciences sector.

Brandon Capital and Oneventures piggyback on each other, with Brandon making early stage investments, and Oneventures entering later in a product's life cycle. Bioscience Managers also recently announced a new fund that allows new migrants to invest in the sector. (See BioWorld Today, Oct. 6, 2016.)

A clutch of VCs that were investing in the sector have either run out of money or are no longer investing in life sciences, including Uniseed, which invested in research coming out of universities, Thompson said. When the capital dried up, a number of small companies disappeared.

Brandon is the only pure life sciences VC, and it has a portfolio of about 20 companies it's incubating. The company plans on forming about 35 newcos a year coming out of medical research institutes across the country via its Medical Research Commercialization Fund (MRCF), a partnership with 50 medical research institutes in Australia and New Zealand. The MRCF has A$251 million under investment.

Most of Brandon's companies are small drug companies with new chemical entities.

"We're constantly turning over soil and looking at IP to reach decisions. Because of the way the collaboration works, we are agnostic about indications or technology," Thompson said.

Brandon also has a A$50 million Biosciences Fund 1, a venture capital limited partnership under an Innovation Investment Fund (IIF) license from the federal government.

There have been some recent successes with companies listing on the ASX, and that gives people faith in supporting those companies, Thompson said. "The ASX was a bit subscale with companies that should never have been listed, but now some high-quality companies are beginning to come through."

Editor's note: See tomorrow's issue for more on Australia's biopharma sector.