Australia’s role as a performer of biomedical research

Australia’s contribution to the international biomedical research effort has been marked by a number of high-profile discoveries.

Past successes have included development of Cochlear’s bionic ear device, first cloning of three of the major factors involved in blood cell formation, a pioneering position in stem cell research, discovery of the role of bacteria in stomach ulcers, and development of Relenza, the first rationally designed small molecule drug based on protein structure.

Each of these achievements has sprung from the vision of an outstanding individual or small team, and has drawn from an extensive background of medical research funded over many years, largely from public sources.

Over the past 20 years we have seen concentration of much of Australia’s biomedical research effort into a number of high-profile research institutes. Following two major reviews of medical research, there has been a significant increase in National Health and Medical Research Council (NHMRC) grants, with a tripling in funding between 2001 and 2007, and further increases foreshadowed. As well, there is an increasing awareness that excellent research requires state-of-the-art infrastructure, provision of which has further focused activities in major centres (somewhat to the detriment of smaller research groups and many universities).

In the past, early leadership in a new field was often lost because Australian research teams could only infrequently approach the size and level of funding of overseas groups, with which they were competing. However, the emergence of larger and better-funded research institutes, along with their increasing capability in commercialising important discoveries, is changing this situation.

Australian research teams are now the largest recipients of US National Institutes of Health funding outside the US – a remarkable achievement considering the still small relative size of our research community.

Potential for future biomedical research – doing less but doing it better

Research Australia has suggested that Australia has relative strengths in areas such as:

• development of medical devices and biomaterials;
• stem cell science and tissue replacement, together with increasing expertise in clinical evaluation in these areas;
• immunology – a traditional research strength; and
• cancer research, both at a fundamental level and via access to extensive tissue libraries, documented patient cohorts and a twin registry.

While this is not a comprehensive list, it highlights the potential to further build our edge in selected areas, taking advantage of available government support, as well as increasing funding from donor, commercial and international sources.

Current support covers the spectrum from basic research (NHMRC) through to commercial development, including the Cooperative Research Centres Program (researcher-industry linkages), the P3 program to assist pharmaceutical company development in Australia, and incentives for venture capital.

Continuing investment in infrastructure will increase the competitiveness of our biomedical research, and broaden the skills and capabilities available to turn discoveries into products in Australia.

Discovery to profits – the rise of biomedical technology industries

The initial emphasis for Australian biotechnology was on agriculture (based on the relative strength of this sector), rather than pharmaceuticals and diagnostics. However, biomedical technology is the major focus of today’s industry in Australia, as it has been from the start in the US.

The sector is now well-established and healthy, although still vulnerable to stock market fluctuations, but small in international terms. It is around one-tenth the size of the industry in the US, based on measures such as investment and employment, and much smaller in terms of revenues.

The local industry is also much less mature than that of the US. For example, the peak period for new company formation in the US was 1981-87 – in Australia it peaked more than 10 years later, in 2001. We presently have three to four times more companies than can be reasonably supported from available investment capital, suggesting that further consolidation of the industry is overdue.

US biotechnology is characterised by many companies in the therapeutics sector generating revenues (more than US$70 billion in 2006), while in Australia, companies such as Pharmaxis and Cellestis are only just beginning to bring their products to the market.

The more successful Australian companies have developed business strategies to cope with local deficiencies in markets and supply of capital. Some have focused on one, or a small number of, niche products, a high-risk, but potentially high-return strategy. Others spread risk by developing technologies with wide application, such as in drug delivery, or by partnering later development of their products with large pharmaceutical or diagnostic companies, more along the lines of companies in the US.

Although Australia was a follower in setting up a biotechnology industry, it was an early achiever in the field of medical devices, and export earnings of established companies, such as Resmed and Cochlear, are substantial. There are currently about 600 medical device companies in Australia, with 30 listed on the ASX and annual revenues of about $900 million.

The market capitalisation of listed device companies is greater than $9 billion (about 90 per cent of this attributable to Resmed and Cochlear), compared with a market capitalisation for all biotechnology companies, excluding CSL, of $5.5 billion.

Leadership in the medical device sector resulted from the visionary approach of Paul Trainor, who founded the Nucleus Group in the 1960s to take Australian-manufactured medical products to world markets. This group spawned a number of successful companies, including Cochlear, Ausonics and Telectronics. As well, it generated competitive activity in adjunct areas, such as biomaterials, and a cohort of commercially experienced individuals. Many of these are now the CEOs driving the continued expansion and maturity of Australia’s medical device sector, which has established capabilities across the full range from discovery to marketing.

Opportunities and challenges for the future

With the biomedical technology industry in Australia lagging some five to 10 years behind its US counterpart, further maturation following the pathway already trodden in the US, is needed.

We can expect:

• more company consolidation – companies more advanced and closer to revenues on ASX listing, with an expectation of greater venture capital investment prior to their initial public offering (IPO);
• strategies to grow companies more rapidly and overcome competitive disadvantages, such as distance from customers, through international acquisitions and more realistic (internationally competitive, often internationally sourced) levels of investment; and
• successful companies moving further along the value chain from discovery through to manufacturing and marketing, leading to significant revenues from marketed products.

Continued government support is needed to maintain competitive advantage through an excellent research base, and for research infrastructure, providing a focus for clustering of researchers and industry to maximise the benefits from public and private investment.

The biomedical technology sector provides excellent opportunities for the future, as a source of wealth based on intellectual – rather than resource – capital. Increasing success by local companies and acceleration in areas of competitive advantage should provide the impetus for expanding investment opportunities and continued sector development.

Dr Merilyn Sleigh has just completed six years as Managing Director of antibody therapeutics company EvoGenix Ltd, successfully building the company from its start-up stage, through listing on the ASX, to its recent merger with Peptech Ltd to form Arana Therapeutics. At earlier stages in her career she was a senior researcher and manager with CSIRO, Director of Pharmaceutical Research with Peptech and Dean of the Faculty of Life Sciences at the University of New South Wales. She is now working as a non-executive company director in the broad life sciences sector, and an adviser to biotechnology companies and their investors.