Blue Sky BioTech

Can Nobel prize win­ner Barry Mar­shall and oth­ers com­mer­cialise sci­ence?

The Australian - The Deal - - Front Page - Story by Adam Shand

AUS­TRALIAN Nobel lau­re­ate Barry Mar­shall used to think two years was a long time in sci­ence. In 1984, he was so ea­ger to prove that a bac­te­ria, he­li­cobac­ter py­lori, was the cause of pep­tic ul­cers, he used him­self as a guinea pig, swal­low­ing the bac­te­ria and mak­ing him­self se­ri­ously ill. Since step­ping from the lab into the board room, he’s learnt to be more pa­tient.

In 2006, the Perth-based gas­troen­terol­o­gist founded Ondek, a biotech company that aims to use his Nobel Prize-win­ning dis­cov­ery to de­velop a range of ther­a­peu­tics. Th­ese in­clude a pro­bi­otic drink, with a non-harm­ful form of H. py­lori, which can de­liver med­i­ca­tion to sup­press al­ler­gies.

Mar­shall is 24 months away from what he sees as the “the sweet spot”, for his pa­tient in­vestors. If the pro­bi­otic drink passes fi­nal safety tri­als – he sees it as a po­ten­tial “bil­lion dol­lar prod­uct” – it will be on pharmacy shelves in 2016, about the same time the company will float. “At that time we want to re­ward our orig­i­nal loyal in­vestors,” Mar­shall says. They should get their ini­tial in­vest­ment back but get to keep half of their orig­i­nal stake.”

Aus­tralia has a poor record of cap­i­tal­is­ing on its world-class sci­en­tific and med­i­cal re­search. It’s not for want of in­no­va­tion, as Aus­tralian med­i­cal re­search is boom­ing but turn­ing bright ideas into com­mer­cial suc­cess has been dif­fi­cult in the small Aus­tralian mar­ket. Lo­cal in­vestors have found it hard to value the blue sky in start-up biotech com­pa­nies. But there are an in­creas­ing num­ber of Aus­tralian-based sci­en­tists seek­ing to change that pic­ture. The Deal spoke with three Aus­tralian biotech com­pa­nies at dif­fer­ent points on the jour­ney to turn­ing their sci­en­tific dis­cov­er­ies into com­mer­cial re­al­i­ties.

Syd­ney-based Sir­tex has de­vel­oped tech­nol­ogy to de­liver ra­di­a­tion ther­apy for pa­tients ter­mi­nally ill with liver can­cer. It can’t cure can­cer but its “mi­cro­sphere”, or small-par­ti­cle tech­nol­ogy, is ex­tend­ing lives, almost dou­bling the rate of tu­mour shrink­age and re­mis­sion in pa­tients. Doc­tors can tar­get tu­mours with the Sir­tex prod­uct more ac­cu­rately than with tra­di­tional meth­ods. Its share price has taken off, from about $4 in 2012 to more than $20 this year.

But it was a very dif­fer­ent story in 2004 when the company was run­ning out of money. Gil­man Wong was in­volved in business-build­ing and mar­ket­ing in the white-goods in­dus­try, be­fore he was ap­proached in 2005 to run Sir­tex. Wong laughed when a re­cruiter sug­gested he could run Sir­tex. Listed in 2000, the company was los­ing $1.5 mil­lion a year and had just $6m left in the bank.

Man­age­ment was too “heav­ily weighted on the tech­ni­cal side, the sci­ence side”, says Wong who took over as chief ex­ec­u­tive in 2005. He says it had a prod­uct which was ef­fec­tive but it was too ex­pen­sive. Ad­dress­ing costs in the man­u­fac­tur­ing process and across the business un­der­pinned Wong’s turn­around strat­egy. “There have been no red num­bers since, and we have grown our cash bal­ance (to $52m),” he says. “Our mar­ket cap 10 years ago was $50m which has climbed to over $1 bil­lion to­day,” Wong says.

Pro­fes­sor Sil­viu Itescu, the chief ex­ec­u­tive of Aus­tralian Se­cru­ties Ex­change listed Me­soblast, was a world renowned med­i­cal en­tre­pre­neur even be­fore set­ting up his Mel­bournebased stem-cell ther­apy company. Work­ing at New York’s Columbia Univer­sity in the 1990s, Itescu saw how bio­phar­ma­ceu­ti­cal com­pa­nies in the United States forged close ties with univer­si­ties and hos­pi­tals, help­ing to di­rect and com­mer­cialise re­search. As a physi­cian sci­en­tist in the emerg­ing field of stem-cell bi­ol­ogy, he could see both the scope of the sci­ence and the com­mer­cial pos­si­bil­i­ties.

Re­turn­ing to Aus­tralia, he founded Me­soblast in 2004, spe­cial­is­ing in us­ing stem cell tech­nol­ogy to cre­ate a pipe­line of ther­a­peu­tic prod­ucts. While its first prod­ucts are still in the fi­nal phase of de­vel­op­ment, the company has al­ready de­liv­ered a

ten­fold re­turn to found­ing in­vestors which in­clude Thor­ney In­vest­ments and the Tel­stra Su­per­an­nu­a­tion Fund.

The company is de­vel­op­ing a range of re­gen­er­a­tive prod­ucts de­rived from its pro­pri­etary Mes­enchy­mal Lin­eage Cells. All in the fi­nal stage of test­ing, Me­soblast’s prod­ucts aim to com­bat con­ges­tive heart fail­ure, help re­pair dam­aged spinal discs and im­prove out­comes for peo­ple with life-threat­en­ing com­pli­ca­tions from bone mar­row trans­plan­ta­tion. Itescu says th­ese prod­ucts will even­tu­ally be worth more than the company’s cur­rent mar­ket cap­i­tal­i­sa­tion of $1.7bn.

He says con­ges­tive heart fail­ure is the lead­ing cause of hos­pi­tal­i­sa­tion and mor­tal­ity in the West. In the US alone, there are more than five mil­lion peo­ple with heart fail­ure and there are 825,000 new cases ev­ery year. Over time, th­ese pa­tients will in­evitably be hos­pi­talised and die. “If we can in­ter­vene in the sick­est 40 per cent of that pop­u­la­tion and make a dif­fer­ence in de­lay­ing hos­pi­tal­i­sa­tion and death, that’s a prod­uct you can ex­pect to war­rant a sig­nif­i­cant pre­mium,” he says. Itescu spends a lot of his time on planes as he builds a net­work of of­fices, re­search part­ners and in­vestors in the US, Europe and Asia. Me­soblast is quickly out­grow­ing its Aus­tralian base, but he says it will al­ways have a pres­ence here.

Mar­shall agrees that it is dif­fi­cult to man­u­fac­ture biotech prod­ucts in Aus­tralia with its dis­tance from in­ter­na­tional mar­kets. Ondek plans to li­cense its pro­bi­otic prod­uct to other bio­phar­ma­ceu­ti­cal com­pa­nies around the world while “keep­ing the re­ally in­ter­est­ing part of the tech­nol­ogy at home. It’s not like you are shipping out the en­tire tech­nol­ogy and wash­ing your hands of it. Hav­ing a small per­cent­age of a global mar­ket that’s fab­u­lous, it’s re­ally big,” he says.

It’s th­ese crit­i­cal de­ci­sions that make or break start-ups. Mar­shall, who is also a clin­i­cal pro­fes­sor at the Univer­sity of Western Aus­tralia, says it is vi­tal to know when the men in white coats should step back and al­low the business suits to take over. “The task changes when you get the prod­uct to­wards the mar­ket,” he says. “Now you have to prove the safety and the ef­fi­cacy of the prod­uct. You have to present the right kind of data to the reg­u­la­tors. It’s just as much work as the re­search.”

Mar­shall has stepped back from ex­ec­u­tive du­ties as the company builds the next gen­er­a­tion of man­agers. It is run by Jenny Harry, who has 12 years’ ex­pe­ri­ence in the biotech business. Ondek has also lured ex­pa­tri­ate Aus­tralian tal­ent home like its head of im­munol­ogy Alma Fu­lurija, who re­turned from Switzer­land after a suc­cess­ful ca­reer in the fields of novel vac­cines and im­munol­ogy. Be­fore join­ing Ondek, she worked at Cy­tos Biotech­nol­ogy, voted Switzer­land’s most ex­cit­ing new biotech­nol­ogy start-up float in 2005. Mar­shall says the right team is in place to take Ondek through its fi­nal phase of ef­fi­cacy tri­als and a prob­a­ble float within the next two years.

Re­searchers at the helm of start-ups “tend to spruik their prod­ucts and can burn off in­vestors be­cause they sell a story which they later can’t de­liver,” says Wong. “You need that pas­sion and belief but you need some­one who will play the devil’s ad­vo­cate and chal­lenge the decision-mak­ing. Meet­ing a med­i­cal need is not good enough, if the prod­uct costs ten times more than the cur­rent treat­ment it isn’t go­ing to sell, so it’s not go­ing to help any­body.”

The key el­e­ment of suc­cess is “op­tion­al­ity”, de­vel­op­ing sev­eral prod­ucts and strate­gies, says Itescu. Many med­i­cal start-ups fail be­cause they rely on a sin­gle prod­uct and the hand­ful of suc­cess sto­ries like Cochlear and ResMed have tended to be de­vice­fo­cused. It’s a risky strat­egy to bet ev­ery­thing on a sin­gle wa­ger. Me­soblast also has a pipe­line of prod­ucts that will tackle di­a­betes, in­flam­ma­tory and auto-im­mune dis­eases. It ex­pects sales of its heart prod­ucts to reach $2bn a year in the com­ing years. “If we are suc­cess­ful in any of our first three prod­ucts let alone the rest of our pipe­line, then we are tar­get­ing ma­jor un­met mar­kets and med­i­cal needs that puts us in a unique po­si­tion,” says Itescu. “If you aren’t able to ad­just and are fix­ated on one thing, you will po­ten­tially make some er­rors along the way. Op­tion­al­ity in the business is al­ways the smart thing, op­tion­al­ity around hav­ing sev­eral part­ners and fund­ing sources.”

Sir­tex is cre­at­ing a pipe­line of prod­ucts, some with po­ten­tial beyond medicine. Its mag­netic nanopar­ti­cle tech­nol­ogy is al­ready be­ing used as a propul­sion sys­tem for nanosatel­lites be­ing de­vel­oped by Michi­gan Tech­no­log­i­cal Univer­sity.

The com­pa­nies have faced chal­lenges in find­ing “pa­tient cap­i­tal” in Aus­tralia. Mar­shall says Ondek has sub­sisted on a com­bi­na­tion of gov­ern­ment grants and an­gel in­vestors, in­clud­ing Syd­ney ven­ture cap­i­tal company Exto Part­ners, which he says keeps the company “lean and mean”. He would like more in­vestors but they are not easy to find. “We don’t have enough peo­ple who have made money in biotech and are now look­ing for the next level,” he says.

While Me­soblast has found lo­cal in­sti­tu­tions very sup­port­ive, other biotechs find Aus­tralian fund man­agers a hard sell as they strug­gle to un­der­stand the in­flec­tions of value that oc­cur well be­fore rev­enue in a med­i­cal start-up. “They haven’t been suf­fi­ciently ex­posed to suc­cess sto­ries in the biotech space. They are more com­fort­able in­vest­ing in ar­eas they un­der­stand such as re­sources or re­tail where they can pre­dict re­turns quar­ter on quar­ter,” Itescu says. He says Aus­tralian fund man­agers have to stop try­ing to pick win­ners in biotech and mak­ing short-term bets. “Early stage in­vestors must take a port­fo­lio ap­proach. They have to buy shares in a group of com­pa­nies, not just one at a time. This is a high-risk in­dus­try. By chance alone, the majority are not go­ing to make it,” Itescu says.

Fed­eral In­dus­try min­is­ter Ian Macfar­lane has claimed univer­si­ties are part of the prob­lem. Re­search grants should be linked to the num­ber of patents regis­tered by univer­si­ties, not how many pa­pers they have pub­lished in aca­demic jour­nals, Macfar­lane told the Queens­land Me­dia Club in a speech which re­ceived an angry re­ac­tion from academia.

Mar­shall, Wong and Itescu doubt whether Macfar­lane’s idea of ty­ing gov­ern­ment grants to patent ap­provals ad­dresses the com­plex­ity of the chal­lenge. While patent pro­tec­tion is vi­tal to any business, they ar­gue that re­search must be un­fet­tered in its early stages to cre­ate the break­throughs. But bring­ing business dis­ci­pline to the ta­ble is just as im­por­tant. Mar­shall says he would like to see the fed­eral gov­ern­ment pro­vide in­cen­tives to re­searchers to take their ideas com­mer­cial much ear­lier. He says patent pro­tec­tion by univer­si­ties is not the only an­swer be­cause “univer­si­ties are too greedy” when valu­ing the in­tel­lec­tual prop­erty. He says gov­ern­ment should iden­tify and en­cour­age en­trepreneurs within the univer­sity sys­tem. “At the mo­ment, ev­ery­one in univer­si­ties says, ‘Oh my god I didn’t get a grant, what if I don’t get a grant?’ If th­ese guys could jump out and cre­ate a biotech start-up that would be pretty ex­cit­ing. [Presently] there is not enough in­cen­tive to move out of the rel­a­tive lux­ury and safety of the univer­sity sys­tem, and to stick their necks out.”

As Aus­tralia’s biotech in­dus­try ma­tures, there will be more com­pa­nies work­ing with in­sti­tu­tions spon­sor­ing re­search and driv­ing com­mer­cial­i­sa­tion. And our pen­sion funds could be­come po­ten­tial in­vestors if they see the global profit po­ten­tial from Aus­tralian sci­en­tific break­throughs. US in­sti­tu­tions are more than a decade ahead of their Aus­tralian coun­ter­parts, re­flect­ing the ma­tu­rity of the biopharma in­dus­try. There is “a har­mony be­tween academia and in­dus­try in terms of the value chain”, Itescu says. “There is tremen­dous tal­ent in Aus­tralia but by its na­ture this is a high-risk in­dus­try. The majority of tech­nolo­gies will never make it to com­mer­cial­i­sa­tion just be­cause of the in­her­ent risk. In­vestors need to un­der­stand what those hur­dles are: tech­nol­ogy risk, reg­u­la­tory risk, the safety of the prod­uct, can you man­u­fac­ture cheaply enough, is the business model right?”

Gil­man Wong’s Sir­tex is de­vel­op­ing a pipe­line of prod­ucts, some with po­ten­tial beyond medicine

Sir­tex Med­i­cal Limited

Me­soblast is quickly out­grow­ing its base, but Sil­viu Itescu says it will al­ways have a pres­ence here

Barry Mar­shall says it is vi­tal to know when to re­place the peo­ple in white coats with those in business suits

Me­soblast Limited

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.