A better tomorrow

Biotechnology, the innovation sector of the moment, has an estimated global worth of US$628b. With surging interest and investment, can it deliver?

At the peak of the pandemic, when hospitals put elective procedures on hold to prioritise COVID-19 cases and social distancing rules were enforced, most clinical trials for other medical conditions stopped. For Avita Medical — which produces the spray- on skin technology that first revolutionised treatment of acute burns — it meant delays to trials of its ReCell technology in other skin conditions, including vitiligo and chronic wound injuries.

It also restricted its representatives’ ability to visit hospitals and engage with surgeons to demonstrate how the product could most effectively be used with burns patients, says Lou Panaccio MAICD, chair of the dual-listed company, which redomiciled to the US in 2020. Panaccio is also a director of Rhythm Biosciences, ASX 50 company Sonic Healthcare and Genera Biosystems.

“Selling medical devices isn’t about convincing one person that your device is good,” says Panaccio. “There are a number of parties involved in the purchase decision — the clinician, patient, payer, hospital administrator, and so on.”

He notes delays in clinical trials could be “devastating” for newer biotech companies because they depend on outcomes before getting their products into the hands of a regulator to embark on the next step. “In a pre-commercial phase, the extension of the clinical trial time has meant that their roadway to commercial revenues has actually been extended — and that puts more pressure on the company to raise money, while still incurring significant costs.” 

Business is booming

The pandemic drove dramatic cooperation and innovation around the mRNA technology and vaccine development, as well as testing and treatment. Startups and established companies alike manufactured ventilators. Some used existing platforms to develop diagnostic testing. Others even repurposed existing drugs to treat COVID-19 symptoms.

In a recent development, the Australian government announced it would buy 300,000 doses of Merck’s experimental Molnupiravir antiviral pill, which will be the first oral medication if it gets regulatory approval. Merck is seeking US emergency use authorisation and will make regulatory applications worldwide.

The biotech sector has never been bigger or more visible, with an estimated global worth of US$627.63b, according to the 2021 Global Biotechnology Market report. According to AusBiotech, Australia has more than 161 life sciences companies listed on the ASX, up 15 per cent from 2017. The largest is CSL with its market capitalisation of $139.55b. The four next biggest (Imugene, Clinuvel Pharmaceuticals, Telix Pharmaceuticals and Pacific Edge) collectively account for $7.6b.

Facing the challenge

The complexities of biotech can present challenges for boards tasked with managing multiple priorities. Long lead times from research to commercialisation mean that many Australian companies with “outstanding technologies” have collapsed because they couldn’t raise enough capital to ensure their success, says Panaccio. “Introducing medical devices and new tests is time-consuming. It takes years and it’s expensive. Avita, from memory, took 15 years before it got its device approved for sale in the US.”

Adding to this risk is that the outcome of any new medicine or medical product is never guaranteed, says Helen Souris, who spent 12 years at AstraZeneca and three at Eli Lilly before becoming CEO of Cardihab, a CSIRO spin-off company behind a cardiac rehabilitation smartphone app that offers an alternative to traditional in-centre cardiac rehabilitation.

Souris recalls a “magnificent” respiratory product that nevertheless failed at the final hurdle because they’d overlooked the patient experience. “It was innovative, it had a built- in spacer that was fabulous, it ticked all the theoretical boxes of what should be a gold- class product,” she says, adding there was unfortunately one crucial problem. “When patients inhaled it, it had this horrible, disgusting taste, so they didn’t use it. Fast-forward and the product dies. When important things like the patient’s sensory experience are overlooked, it can be catastrophic for a product.”

Not all pharmaceutical products make it through the testing and development process. The University of Queensland COVID-19 vaccine, was yanked after delivering false-positive test results for HIV; the QRxPharma painkiller Moxduro failed to gain US regulatory approval; and the Alchemia anti-cancer drug failed to impress during clinical trials.

Development costs are also steep. In digital health, for instance, Souris notes the average development cost of an mHealth app ranges “between $400,000 and $1m to build” — with equivalent annual maintenance costs.

Matt McNamara MAICD, a director and chief investment officer of Horizon 3 Biotech — a fund that invests in Australian and international preclinical and clinical private and public healthcare biotechnology companies — says raising funds is particularly problematic in the Australian environment. “There is a real dearth of capital, even though we have a handful of good fund managers, the amount of capital available to companies that are at that feasibility stage is very small compared to the US.”

Australian companies were listing when they were “not mature enough”, which left them struggling from capital raise to capital raise, says McNamara. “They’re living zombies because they’re alive and keep raising a million or three every year, which just helps them lurch to the next capital raise.”

McNamara points out that there are 150 listed healthcare companies on the ASX, which is “second to the US” — largely due to the lack of capital available at the early stage.

Jumping the hurdles

The regulatory obstacles involved in getting products to market are also considerable — and growing. In August, for instance, the TGA introduced stringent new regulation of software as a medical device (SaMD).

“The regulations now require the same sort of governance frameworks as you would have for any other therapeutic product that wants to make a clinical outcomes claim,” says Souris. “Medical devices and electronic systems that enable clinical decision support, disease management and/or monitoring of patients are now in the TGA’s remit.”

A strong focus on governance around quality- management systems and frameworks — and ensuring a product does what it promises — is crucial for any digital health company, she says. “You can’t lose sight of governance in the race for a launch, because that’s what will undo you.”

Biotech Buzz

Biopharmaceuticals

Medical products created using living organisms rather than chemical processes. Clinuvel is a Melbourne-based company attracting global attention for its drug Scenesse, which started out as a treatment for erythropoietic protoporphyria, a rare, genetic metabolic disorder that causes extreme sensitivity to sunlight. It has since expanded its research program to new molecules with therapeutic potential for other genetic, skin and systemic disorders.

Neuromodulation

The use of medical devices to boost/suppress nervous system activity to treat disease — for example, through deep brain stimulation to treat tremors.

Saluda Medical, which has its headquarters in Sydney, has developed Evoke, a closed-loop spinal cord stimulation (SCS) system that treats chronic pain by stimulating the spinal cord and changing the transmission of pain signals to the brain.

Artificial intelligence

The use of AI techniques such as screening, scraping and deep learning allows biotech companies to automate processes and scale up quickly.

Adelaide’s LBT Innovations seeks to improve efficiencies in laboratory testing by automating culture plate reading. CEO Brent Barnes says clinical trials demonstrate “the technology is not only equivalent, but slightly better and more accurate” than manual reading.

Bioelectronics

The merging of biology and electronics for diverse applications, including biosensors to collect personal health data, and plant-based devices to replace those powered by conventional energy sources. Scientists at Northwestern University in Illinois have developed a flying microchip the size of a grain of sand, which disperses in wind over a wide area. Its ultra- miniaturised sensors and wireless communication allow it to monitor environmental pollution and airborne diseases.

Immunotherapy

Cancer treatments such as chemotherapy seek to kill cancer cells, whereas immunotherapy harnesses the body’s immune system instead. Sydney-based Imugene has developed a range of products to treat cancers in combination with standard of care drugs. In August, Imugene announced a partnership to combine its onCARlytics CD19 oncolytic virus with Celularity’s allogeneic CAR T-cell therapy, which “may fundamentally change the way solid tumours are treated”.

Gene editing

CRISPR technology — “molecular scissors” — allows scientists to change DNA sequences and modify gene functions. It can correct genetic defects and treat other conditions.

In September, US-based Colossal announced an unusual application of this technology — to bring back extinct species like the woolly mammoth.

CSIRO uses gene editing in microbial, plant and animal sciences to manage invasive plant and animal species.

Opportunities knock

Michael Cunningham GAICD, GrantThornton national head of life sciences and Victorian Medtech committee member of industry advocacy body AusBiotech, argues that despite some challenges, the sector will be stronger as a consequence of the pandemic. “Looking at the government’s plans to promote manufacturing and bring jobs onshore, we feel that the sector is well placed to grow over the next 10–20 years,” he says. “There’s certainly more of an appetite to look at onshore manufacturing.”

The Modern Manufacturing Initiative announced in the 2020–21 Budget will see $1.3b strategically invested in projects that help manufacturers scale up and create jobs. Cunningham says while a number of large pharmaceutical companies have pulled out of Australia, this opens up facilities for local companies that might be looking to bring manufacturing in-house.

Shareholder perspective

For shareholders, patience can be crucial. Panaccio notes that the value inflection points in the company’s journey may not be first-dollar revenue, but the conclusion of a clinical trial, or the securing of TGA approval, or attracting a partner to drive development and approvals. “There will be various milestones that show the company is making progress, that may not necessarily show dollar returns,” he says.

Intellectual property (IP) strategy is an important consideration, but one that early-stage companies tend not to invest in sufficiently, says Cunningham. “IP should be a focus for the board and having the people with a good experience around that. Companies starting out may need to bring in experienced board members or management who have been there, done that and know the pitfalls. If you don’t protect your IP, it could be superseded, and then your company is worth nothing. You obviously also need to make sure you’re protecting your IP in the markets you want to operate in.

Cunningham also emphasises that board and management need to evolve over time as the company’s size and its needs both change.

On into the future

Dr Jackie Fairley GAICD, CEO of Starpharma, former chair of the Industry Advisory Board of Invest Victoria and a director of Mirrabooka Investments, notes that few biotech companies today are developing products from bench to market. “It requires time, a focus on development strategy and funding, so there are a lot of competing priorities that need to be managed,” she says. “For companies that successfully manage to navigate the development and commercialisation process, it takes a blend of deep understanding of the product, a knowledge of the regulatory requirements, strategic thinking about funding and commercialisation strategies in terms of what extent you do things yourself versus licensing them to third parties.”

Starpharma’s DEP technology, which delivers drugs through dendrimers (polymeric molecules), is licensed to a range of other companies, including AstraZeneca and Merck. This means these companies gain the benefits of the technology, but also carry the financial risk of developing the drugs, while Starpharma is eligible to receive fees, milestone payments and royalties.

The commercial arrangements surrounding these products and their sales and marketing are complex business relationships, says Fairley. “Typically, a licensing contract would comprise more than 100 pages, with sophisticated contractual elements including IP provisions.”

She adds biotech companies need, from the very beginning of a product’s development, to be thinking about the commercial arrangement that might go along with it. “Successful companies in Australia have had to be quite strategic in their approach and to ensure they have adequate capital available to get to important milestones. Sometimes, that requires a degree of flexibility and an ability to be responsive to opportunities.”

By the numbers

243,406 people employed in the Australian life sciences sector (2019)

$1.1b invested in Australian clinical trials in 2015

51% of biotech industry workforce are women (2019)

$170b total market capitalisation of ASX- listed life sciences companies (2019)

86% of life sciences industry made up of SMEs

4% of biotech ideas attract commercial investment

17% corporate tax rate on income derived from patents (from July 2022)

Sources: Austrade Clinical Trials Capability report, AusBiotech, Medical Research Commercialisation Fund, Federal Budget 2021–22, MinterEllison