Biotech; Mad or Bad?

Sydney, Aug 17, 2007 (ABN Newswire) - Perhaps the first time the world realised that the stuff of science fiction had a human dimension with genuine possibilities was in January 1998 when a Chicago physicist, Dr Richard Seed announced that he would clone a human being.

Media furore followed with calls for government regulators to deal with this emergent possibility of a new 'being'.

Seed never followed through with his intentions, after first claiming he would clone himself, and then changed his mind to cloning his wife Gloria.

This event gave the governments the task to deal with the emergence of cloning, gene modifications, and regulating the business behind these prodigious claims.

And just as controversial as the claims themselves, is the business behind it.

Biotechnology, as defined by The United Nations Convention on Biological Diversity, is: any technological application that uses biological systems, living organisms, or derivatives thereof, to make or modify products or processes for specific use."

It is a tough business.

To follow through the prodigious claims, or even those mildly off-putting, awaits a Byzantine regulation nightmare. Even to create a new vaccine against influenza - the costs, the initiatives and the resources required are mind-boggling.

And why would any investor put their hard-earned money into aspirations that usually takes at least eight years to eventuate – and hope that in the meantime it doesn't get swallowed up in the black hole of unsuccessful drug trials!

But the bottom line is the benefit to human kind.

As Michael Moore, chairman and chief scientist of Greenspirit Strategies, an environmental consulting agency states: "The programs of genetic research and development now underway in labs and field stations around the world are entirely about benefiting society and the environment."

Take, for example, the case of the Golden Rice in China. Hundreds of millions of people in Asia and Africa suffer from Vitamin A deficiency which causes blindness. After all, we are dealing with people's lives.



Scientists have found that infusing rice with a gene that makes daffodils yellow, beta-carotene, and a precursor to Vitamin A could insure that 100 grams of Golden Rice could provide 50 per cent of the daily need.

Yet, Greenpeace activists are strongly against this - they have threatened to rip the GM rice out of the fields if scientists dare plant it.

Greenpeace activists are not the only hurdle to be fought in this industry.
Its relatively young age (approx 4 decades) is a factor as well as the perceived 'unnaturalness' of the work done.

Firstly, the regulation can be restricting, and in Australia's case, it certainly is. In simple terms, any new drug has to undergo clinical trials, which are only a small part of the research that goes into developing a new treatment.

Potential drugs, for example, first have to be discovered, purified, characterized, and tested in labs (in cell and animal studies) before ever reaching clinical trials.

This is where Australia hits a wall. Our regulatory facilities only allow testing to be done up to this level, i.e. animal testing.

Once it passes this, it is then off to the actual 'clinical trial' which consists of different so-called phases, and as no such facilities exist in Australia, then it is off to one of the big nationals to complete the process – and in turn pocket a large portion of any proceeds.

The nation's tradition of discovery was highlighted again in 2006 with the world's first cervical cancer vaccine, developed by 2006 Australian of the Year, Professor Ian Frazer.

It has now been government subsidised and is free for women ages 12-26 and it has also been approved in more than 60 countries.

Doctor Ian Frazer started researching the link between human papilloma viruses and cancer, and ways to reduce the incidence of cancers associated with these viruses more than 20 years ago. Almost 100 per cent of cervical cancer is caused by infection with the sexually transmitted human papilloma virus (HPV).

Consequently, Dr Frazer and his late research partner Dr Jian Zhou developed Gardasil at the University of Queensland, in collaboration with Australian pharma giant, CSL Ltd and US-based Merck & Co., Inc.

According to the World Health Organisation, cervical cancer kills about 250,000 women annually all around the world. The vaccine passed the regulatory authorities, Drug Administration (FDA) and Australia's Therapeutic Goods Administration (TGA).

That is definitely a show-stopper, enough to catapult Australia onto the international market.

The only injustice here is that most of the hard and well-earned money from these ventures end up in the accounts of huge international pharma companies. Dr Ian Frazer points this out in a recent TV interview:

"There's a gap in our industry here at the moment and it's quite a big one, and that is that we can't actually make the products here for testing clinically.

"We don't have the facilities that we need to get that done". So now instead of pocketing 30% of the billion-dollars-a-year sales we receive just a small return for intellectual property.

"We have all the talent here and we have the small biotech companies here. It may not be that we end up with one Merck or Roche in Australia but if we're producing the products through to the stage where they're of great value to American Roche, we'll get a lot more back into the country as a return for that".

On the international circuit, Australia is not faring badly, considering the performance of the biotech firms on the stock market.

According to Professor Michael Vitale from Australian Graduate School of Management who says that investors in the IPO of biotech companies have done well despite the fact that most of those companies are trading well below the initial public valuation.

However, we shouldn't forget the unplanned breakdowns. We all remember what was dubbed to be the biggest drug recall in history - Merck's Vioxx; an osteoporosis drug that had been linked to an increase in heart attacks and had cost Merck $28 billion dollars, and not to mention the public liability fees.

Then, there are displays of inherent human opportunism, not amiss in this industry either.

There is Graham Kelly, the founder of Novogen Ltd whose offshore trusts and Swiss connections have been revealed in court documents, showing how Professor Kelly sent millions of dollars offshore, parked it in tax havens, and then brought it back into the country under the guise of loans.

So let's take a look at the state of the Biotech companies in Australia.

Hopper and Thorburn's 2007 Bio-Industry Review, Australia & New Zealand cite: "Number of core biotechnology companies in Australia has more than doubled over a period of just five years to 427 in 2006. As at December 2006, the market capitalisation for biotechnology and medical devices companies listed on the Australian Stock Exchange (ASX) was A$26.5 billion."

That looks promising, however, Ernst & Young's 'Beyond Borders: The Global Biotechnology Report 2007' states that there was only biotech IPO in 2006.

According to the 2007 BioIndustry Review for Australia and New Zealand this was 'partly due to the difficult market for financing'. The Asia Pacific region did not fare well in terms of biotech start-ups, and EY argue this is due to the fact that a lot of the time, investors are unsure of how to value these companies or understand their business models.

With figures such as these, it is no wonder investors are not lurching in the way of biotech investing.

On the one side of the coin, you have to deal with the moral dilemma of investing in something that the general public perceives as immoral. In their paper titled 'Public Perception of Biotechnology', researchers (Blain, Kamaldeen and Powel, 2002) explain the "public associates the industry with negative constructs: ethical concerns, harm, unnaturalness, risk, danger and tampering with nature."

So if you are an investor, what do you do?

Of course, public perception is not set in stone, and Blain, Kamaldeen and Powel explain trust in government regulation is a strong predictor for human support, and there has been slight change of perception towards the positive in UK and Europe.

The paper also attributes lack of knowledge as a factor in this atmosphere, and as the awareness about the positive facets surface and become common understanding, then, we could expect more support.

Plus, there's no end to cynicism. We are all a bit sceptical of any new company trying to herald a cure for HIV, depression or heart attacks.

Similarly, exotic diseases are not that greatly viewed. True, there are millions of people dying from those, but not all have the money to buy it.So you have to be a little bit of a niche player. Whilst on the topic of HIV, one really promising Australian biotech is Avexa.

Spun-off from Amrad and listed on the ASX in 2004, it went from strength to strength after raising A$11.5 million through two share offerings in early 2005. The company's principle research programs focus on the discovery of medicines for treatment of diseases caused by HIV.

Julian Chick, chief executive of Avexa, is confident that the biotechnology company's focus on one product will pay dividends when the drug passes phase three trials. Avexa has a suite of intellectual property from its parent company, Amrad.
CSL bought Amrad in 2006. Avexa is developing an HIV drug, which it bought the rights to from Shire Pharmaceuticals Group.

The drug is targeted at HIV patients who have developed a resistance to existing treatments.

While Avexa has the potential to take the drug all the way to market, it would be less of a risk to licence the drug to a known pharmaceutical company with an established brand.

Avexa is fourth on the list of the fastest-growing biotechnology companies in the 'BRW Biotech Top 50'.

It's based in Victoria (those in the industry would know this is the leading biotech state, although Premier Beattie did pledge millions of dollars in 2001 to Queensland's biotech industry to close in on its Victoria rivals).

Other companies with big market capitalisations are Cochlear, CSL and Resmed, amongst others. Resmed is in sleep-assisting devices, Cochlear is of course involved in helping people hear. They are not biotechs as such.

Cochlear this week reported its biggest-ever annual profit of $107 million and has forecast a 15% to 20% improvement this year. The recent sharp fall in the value of the Australian dollar, if sustained, will help COH achieve that.

Resmed has reported a lower 2007 result thanks to the costs of a product recall and the impact of the higher Australian dollar.

In comparison, Switzerland has been dubbed the hotbed for IPOs.

That doesn't come as a surprise seeing it is the home of some of the world's largest pharma companies such as Roche and Novartis.

It seems the Swiss aren't just renowned for chocolates and watches.

In a country of 8 million people, biotech provides employment for 15,000 people. In contrast, Australia's 420 biotech companies employ 6,000 from a population of 21 million. A small difference in scale?

Dr Ian Frazer, says: "Australia's research scientists have shown over the last decades that they can help to turn their groundbreaking basic research into health care products with considerable international impact.

"They include the colony stimulating factors, the bionic ear, Relenza and the recently received cervical cancer vaccine Gardasil. Each of these has the potential to improve significantly the health and well being of the world's citizens – and Australia's prosperity."

The key to success would be to increase investor confidence in this sector. And this can be done by changing public perspective.

Patrick Moore says: "The biotechnology sector needs to ramp up its communications program and get a lot more aggressive in explaining the issues to the public through the media. Nothing less will turn the tide in the battle for the minds, and hearts, of people around the world.'

Although biotech is not necessarily the 'next big thing', the more we get away from the notions of 'Dr Jekyll and Mr Hyde', the more the progress could be exponential for both investors and the beneficiaries alike.

Sources:-

Blaine, K., Kamaldeen, S., and Powell D., Public Perceptions of Biotechnology, Journal of Food Science, Vol. 67, Nr. 9, 2002

Ernst & Young, Beyond Borders: The Global Biotechnology Report 2007

Invest Australia, Biotechnology Industry Report: Compelling Value for Biotechnology Investment, April 2007.
Thorburn L. & Hopper K., BioIndustry review of Australia: A review of the year just gone and predictions on the year ahead, 2007.

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