Biotech’s rebirth
Whether on the brink of a boom or something a little quieter, Kiwi biotechnology businesses are piquing renewed investor interest.
Kiwi biotechnology businesses are piquing renewed investor interest.
Financial analyst Stuart Roberts is bullish about New Zealand’s life-sciences sector. An Australian, Roberts has been telling all and sundry this country is on the cusp of a biotechnology and medical technology boom. Is he right? Or is this is the sort of exuberance you’d expect from someone who makes a living doing commissioned research for Australian Securities Exchange-listed biotech and medical devices companies and keeps a close eye on emerging Kiwi ones? Others in the sector support Roberts’ view but are less bullish, talking of “turning a corner” in 2017, or an upswing, rather than a boom year.
Until now, biotech has largely failed to deliver on the promise of 13 years ago when the country’s first national biotech strategy was unveiled. Instead, many investors remember the 2012 collapse of Genesis Research and Development. Some of them got burnt.
Given that biotech is both high risk and capital intensive, requiring patient investors with deep pockets, it struggles at the best of times to attract capital, says Will Barker, chief executive of the NZBio lobby group. However, Barker predicts more capital will flow this year after an upturn in 2016.
Working out the size of the sector is hard because the Government stopped collecting industry figures in 2011. There are an estimated 150-200 New Zealand biotech companies, doing about 10% of the business of their Australian counterparts, who have already enjoyed a boom.
NZBio has 70 members versus more than 3000 for AusBiotech, and New Zealand fails to come close to the swag of ASX-listed biotech companies valued at billions of dollars.
Whereas New Zealand, at fourth on the Scientific American Worldview scorecard of biotechnology sectors, outranks Australia at No 5, star performer Fisher & Paykel Healthcare is the only company of scale from the sector that’s listed on the New Zealand sharemarket. A handful of small fry make up the rest.
UPBEAT ANALYSIS
Nevertheless, Roberts, of NDF Research, provides several reasons for his optimism. New Zealand Pharmaceuticals, the world’s second-largest manufacturer of cholic acid, used to treat bile acid disorders, had a $49.6 million cash injection last year from Australian private equity firm Archer Capital, which Roberts claims could put the country on the map for world-beating speciality pharma companies.
Two other life-science success stories
are about to create investor interest on both sides of the Tasman, he says. Innate Immunotherapeutics and Living Cell Technologies will report this year on phase II data from clinical trials that, if successful, could give them a fast track to market.
Meanwhile, a billionaire US investor has been sniffing around GlycoSyn, a complex carbohydrates company owned by Callaghan Innovation, which could use any funds raised to renovate its Gracefield campus in Wellington.
Most Kiwis think to make it big you “have to do a Rutherford – leave the country permanently and visit every now and then” – but that’s changed, says Roberts.
“You can get everything you need to get things done in New Zealand, including finding talented staff.”
The country has highly rated universities and, although successful university research spin-offs are still rare, a number of homegrown listed and private biotech companies are rapidly growing in overseas markets. These include AFT Pharmaceuticals, Volpara, Aranz Medical and Aroa Biosurgery.
Although outside the bio- or medtech spheres, accounting software company Xero has trail-blazed New Zealand as a place for tech ventures. “When investors get comfortable investing in technology, it isn’t long before they start getting into biotech and medical devices as well,” Roberts says.
He believes capital will start flowing into the lifesciences sector once more success stories play out, with plenty of local private wealth available, as well as money from overseas investors. “Traditionally, wealthy people support medical charities, but we’ve moved into the era of venture philanthropy – social good you can make money out of. It’s a US trend spreading globally.”
One of the country’s most senior investment bankers, Rob Cameron, is involved in just such a project to support the Gillies McIndoe Research Institute, led by pioneering Wellington cancer researcher Swee Tan.
SHARING IN THE SPOILS
A biotech boom won’t just make rich Kiwis richer, Roberts says. When working for ASXlisted immune-oncology companies, he would habitually check their share registers to see who owned the stock and was surprised to see hundreds of New Zealand investors. “I realised Kiwis could and would invest in a biotech company headquartered 2000km away and not even traded on their local exchange. Imagine how investors will react should one of their own companies come up with the Next Big Thing in Parkinson’s disease or MS.”
Angel investment in pharma and biotech companies was high during the first half of last year, accounting for $5.6 million, or 20%, of total angel investment. The amount of venture funding available in New Zealand has increased and the Government last April joined Australia’s Medical Research Commercialisation Fund, a collaborative structure involving more than 50 research institutions, including six from New Zealand. MRCF’s largest pool of money, A$200 million managed by Brandon Capital on behalf of major Australian superannuation funds, can be invested in New Zealand.
Brandon Capital’s New Zealand investment manager, Duncan Mackintosh, says he’s confident about the sector, in which
Kiwis think to make it big you “have to do a Rutherford – leave the country and visit every now and then” – but that’s changed. New Zealand has great research and no trouble starting companies. The problem is growing them fast enough.
collaboration is increasing. He’s considering a number of potential investments, the first of which is likely early in the year.
Kimberlee Jordan, who oversees biotech for Callaghan, is also positive about the industry outlook, saying it has “turned the corner” after more than a decade of overpromising and underdelivering. She cites three technology incubators, set up to commercialise intellectual property mainly from universities and crown research institutes, as a boost to biotech.
“Biotech is a bit harder” than other investments, says Brett Oliver, head of tech incubator Astrolab, although he’s invested in one venture and is close to backing another. He reckons New Zealand has great research and no trouble starting companies. The problem is growing them fast enough, which takes access to capital and the connections to tap it.
One thing holding Kiwi biotech investment back is underpromotion of local companies, says Roberts, although the country has done a good job selling its story to the world. “Those people that don’t want to live in Donald Trump’s America are desperate to get to New Zealand, not Australia.”