Competitive Positioning Strategies for Australian Biotech Companies A Road Map to Achieve Competitive Position in the Global Biotech Marketplace Part III Australia: Current Position and Key Success Factors The following article analyzes the biotechnology market in Australia and discusses key success factors as building blocks for success. All revenues in this session are presented in US dollars, unless stated otherwise. All conversions have been undertaken at a fixed rate of Australian dollar (AUD) 1.777 to US$1. 1. Market Overview Australia s strengths in biotech research include agriculture and medical research in general, but particularly immunology and vaccines, stem cells, proteomics, and medical devices. Though its research base is not large, Australia carries out high-quality research. Being an emerging industry, Australian biotechnology does not have many commercialized products. However, many products are in research pipelines and are likely to hit the market only in the next 5 10 years. Research is conducted mostly by universities and the Commonwealth Science and Industry Research Organization (CSIRO). Core biotechnology companies also perform research at their own or affiliated facilities. There is close co-operation between public sector research and the private sector in Australia, as evident from the participation and investment by private companies in the Co-operative Research Centers (CRCs) at the universities and partnership arrangements with the CSIRO. The number of spin-off companies (about 40 percent of all start-ups) is also indicative of this co-operation. Biotechnology Australia (a collaboration of five Commonwealth Government departments) is the key agency that coordinates the Commonwealth s activities in biotechnology and was established at the 1999-2000 Commonwealth Budget announcement. In 2000, Biotechnology Australia launched a National Biotechnology Strategy (NBS) that directs the Government s activities in the sector. The Australian biotech industry comprises around 500 companies. There are around 280core biotech and 220 related biotech companies in Australia. In 2001, 67 biotech companies were listed in the Australia Stock Exchange (ASX) and 40 of them were core biotechnology companies. Most of these companies are of small to medium size but possess a good amount of intellectual property. Funding for these companies is mainly from private placements, the government, and the stock market. The Australian biotech industry has excellent potential and is likely to emerge as a significant player internationally, at least in niche markets in the future. 862 APBN Vol. 7 No. 14 2003
2. Sectors of Activity (Medical/Ag/Industrial) The biotechnology segments of Australia include agri-food; genomics, proteomics, bioinformatics, human health and therapeutics (includes biopharmaceuticals and diagnostics), devices and services, and environment and biochemical. Chart 1 presents distribution of core biotech companies by sector in Australia in 2002 Chart 1 Total Biotechnology Market: Distribution of Biotech Companies by Sector (Australia), 2002. Genomics, Proteomics & Bioinformatics 15% Human health and Therapeutics (Includes Biopharmaceuticals) 41% Devices, Diagnostics & Services 20% Environment & Biochemical 5% Agri-food 19% Source: Frost & Sullivan Agri-Food Historically, Australia has been very strong in agricultural and related industries. The quick and effective adoption of biotechnology has made a big difference to the Australian agri-food industry. Biotechnology is used to improve yield and quality of crops and livestock and also focuses on viticulture, fisheries, cotton, and beef industries. Researchers are developing biopesticides, bioherbicides, and biofertilizers using biotechnology. Genomics, Proteomics, and Bioinformatics Australia has many claims to fame in these areas. Dr. Marc Wilkins of Sydney-based Proteome Systems coined the term proteomics ; the first protein sequencer was developed in Australia. Australian companies have developed successful platform technologies and have generated international interest. The Federal and State governments are very active in genomics and proteomics research. The CSIRO focuses on functional genomics, discovery, and proteomics. The Garvan Institute of Medical Research s asthma and arthritis research program has developed a genomics facility with high-density microarray technology to search for genes involved in arthritis and asthma. Some of the major facilities are Australian Proteome Analysis Facility, Australian Genome Research Facility, Australian Phenomics Facility, Australian Synchrotron Research Program, and the Nanostructural Analysis Network Organization. Some of the private players include Proteome Systems, Autogen Limited, and Bionomics. Human Health and Therapeutics Australia has gained a good reputation in this area with high quality research work and a history of innovation. Research is being carried out on a range of diseases, clinical conditions, and technologies. This category consists of drug discovery companies besides those companies that are developing other forms of therapeutics including vaccines, specialized drug delivery systems, cell and tissue engineering, stem cellbased therapies, and genetic engineering. Of the 67 biotech companies listed in ASX, 32 are into drug discovery. Many universities and research institutes also focus on this segment. Some of the research institutions where medical research is being carried out are the Garvan Research Institute of Medical Research, Walter and Eliza Hall Institute of Medical Research, Baker Medical Research Institute, Austin Research Center, Howard Florey Institute, and Queensland Institute for Medical Research. The CSIRO along with around 20 CRCs also conducts extensive medical research. Medical Devices and Diagnostics There are around 500 companies in the medical devices and diagnostics industry. The industry directly employs almost 10,000 people and has local sales worth about $1.12 billion (AUD2 billion). Approximately 70 percent of sales are made to the public sector and more than 85 percent of devices and diagnostics used in Australia are imported. About 60 percent of these come from the United States. APBN Vol. 7 No. 14 2003 863
Environment and Biochemicals Australia s biotechnology industry has been successful in terms of developing innovative environmental applications. The environmental industry has competitive sectors such as rehabilitation and remediation of mining and industrial sites, wastewater treatment, and monitoring equipment. Fields of activity in Australia include innovative waste management, pest and weed control, bioremediation, water quality, and environmental monitoring. Expertise in areas such as agriculture and the comparatively low engineering costs have aided the development of environmental biotechnology. The South Australian Research and Development Institute (SARDI), and CSIRO conduct research in this area. Some of the important companies in this segment are EcoPro, Genesearch Pty Ltd, and Ecogrow. 3. Key Success Factors The following section discusses the key building blocks that are likely to enable successful future growth of the biotech industry in Australia the role played by the government, the regulatory infrastructure of the country, the biotech hubs in the country, human resources, and funding. 3.1 Role of the Government The Federal Government of Australia has promoted biotechnology realizing its potential to help the economy, boost social growth, and improve public health. The state governments are also very supportive of the biotech industry with some announcing their own biotech policies and generous funding programs. The Federal Government has created a framework for the growth of biotech in Australia. Initiatives to boost research and development through tax concessions, research funding and a network of tertiary institutions have created a vibrant industry. The Wills Report (March 1998) recommended the government to initiate closer interaction between industry, academic research organizations and the government. The report also recommended increasing the funding for academic research. Based on the recommendations, the Federal Government announced a doubling of the base funding for the National Health and Medical Research Council (NHMRC) over the next six years to $345.33 million (AUD614.0 million). Biotechnology Australia was established in May 1999 to coordinate the involvement of the Commonwealth Government in non-regulatory aspects of biotechnology and to develop a National Biotechnology Strategy (NBS). The NBS was launched in July 2000. The NBS had an allocation of $17.15 million (AUD30.5 million) for the period 2001-2004, including $11.25 million (AUD20.0 million) for the establishment of a Biotechnology Innovation Fund (BIF) to assist with the commercialization of Australian biotechnology research at the critical proof-of-concept stage. The 2001 Budget included allocations of a further $11.25 million (AUD20.0 million) to the BIF and $26.15 million (AUD46.5 million) over five years to the Biotechnology Center of Excellence. The following are the initiatives of Biotechnology Australia as part of the NBS: Biotechnology Center of Excellence Initiative Biotechnology Intellectual Property Management Public Awareness Program Biotechnology Online for Secondary Schools The Backing Australia s Ability (BAA) is a government initiative that builds on the existing substantial Commonwealth support for innovation by boosting funding to key areas and introducing significant new initiatives. The BAA provides $1.69 billion (AUD2.9 billion) as additional funding over five years, for promoting technologies such as information technology and biotechnology. Some key aims of the NBS are to strengthen Australia s research capability, ensure flow of new ideas that underpin innovation, create critical mass in leading research fields, and build competitive advantage in Information and Communication Technologies (ICT) and biotechnology. The NBS provides significant new investment in these areas and tax incentives to ensure that Australia s research base remains strong and internationally competitive. 864 APBN Vol. 7 No. 14 2003
3.2 Regulatory Structure Australia has a well-structured and transparent regulatory regime in place. The gene technology regulations have roughly followed the US model, which helps in conducting business between the two countries. Australia is a participant in many international forums related to biotechnology and pharmaceuticals. The Therapeutic Goods Administration has signed a memorandum of understanding with the US FDA to permit organizations to exchange information on Good Manufacturing Practices (GMP) inspections of pharmaceuticals facilities. The main regulators are: Therapeutic Goods Administration (TGA) Office of the Gene Technology Regulator (OGTR) Food Standards Australia New Zealand (FSANZ) Australian Competition and Consumer Commission (ACCC) Australian Quarantine and Inspection Service (AQIS) National Occupational Health and Safety Commission (NOHSC) National Registration Authority (NRA) The Genetic Manipulation Advisory Committee (GMAC) Intellectual Property Regulations Australia s intellectual property regime complies with the WTO standards. In fact, Australia was the first country in the world to be granted a valid patent for a living organism in 1976. A wide range of biological materials and technical processes can be patented in Australia. The IP Australia is the Federal Government agency that grants rights in patents, trademarks, and designs. IP Australia controls the Patent, Designs, and Trademarks offices. 3.3 Geographical Hubs in the Country All the states and territories of Australia promote biotechnology. The Federal Government has encouraged the wide acceptance of biotechnology as a thrust area for socio-economic growth and has aided it with encouraging policies and generous economic grants. However, local academic and business interests have played a key role in the biotechnology adoption process. Concentration of companies across states varies, depending on various factors such as the academic environment, financial incentives offered by the state, and logistics. States vie with one another in promoting themselves as the best destination for biotech investments and offer substantial funding to start-ups. State assistance generally takes the form of grants, funds, and infrastructure assistance but states are also increasingly offering commercialization and networking assistance to companies. Most of the biotechnology activities are concentrated in the following states: Victoria New South Wales (NSW) Queensland Western Australia (WA) Australian Capital Territory (ACT) APBN Vol. 7 No. 14 2003 865
3.4 Human Resources The availability of qualified human resources is a prerequisite for ensuring a competitive position within the biotech industry, which is knowledge-intensive. Australia has a good number of graduates qualified in biotechnology and allied subjects. This is made possible by the many biotechnology courses introduced by the Australian universities. According to Ernst & Young/Freehills/ISR survey and research data 2001, there are in excess of 5700 full-time equivalent employees in the biotechnology industry, representing a growth of 46 percent since 1999. This figure does not include employees in supporting industries such as contract research and those in universities and research institutes. 3.5 Funding of Biotechnology Ventures in Australia Government Funding Both Commonwealth and state governments fund the biotechnology industry in Australia. States compete to attract knowledge industry companies by offering financial incentives and funding schemes to biotechnology companies. To enable companies overcome shortage of capital, programs such as the Innovation Investment Fund (IIF) and the Biotechnology Innovation Fund (BIF) were set up. The Federal Government spends around $176 million (AUD300 million) annually on biotech R&D through various agencies. Venture Capital Investment The Australian biotechnology industry has not been very successful in attracting seed and start-up venture capital. Unlike areas such as information technology, biotechnology is a highrisk area where investments are generally long-term. This factor combined with the high volatility of biotech stocks has contributed to the shortage of venture capital. Australia s capital gains tax structure was another impediment to venture capital partnerships and foreign investment in biotech start-ups. According to the Australian Bureau of Statistics, only five percent of the country s $2.86- billion (AUD4.9-billion) venture capital investment was for the biotechnology sector in 2000. However, recent legislative changes aim to remove some of these hurdles. This should augur well for the funds-starved biotech companies. Australia s leading lifesciences investors are BioTech Capital, Macquarie Bank, Rothschild Biosciences Managers Limited, and Queensland Investment Corporation. Upcoming... Vol 7 No 14 Part IV: Competitive Positioning Strategies and Road Map 866 APBN Vol. 7 No. 14 2003