FORTUNE FAVOURS THE BOLD

Biotechnology is one of the quiet achievers of New Zealand industry; very much under the radar for many people, but rapidly becoming a significant performer on the global stage.

Between 2004 and 2007, the number of companies involved in core biotechnology activity in this country grew from 30 to 90; the Biotechnology Industry Organisation (NZBIO) currently has a membership of more than 270.

Perhaps more telling is the fact that export revenue over the same three year period nearly doubled; from $53 million in 2004 to $104 million in 2007.

The biotechnology or life sciences sector has a huge potential market, and, unlike many of our traditional exports, the product is weightless. “High-value intellectual property rather than a physical product,” says Bronwyn Dilley, CEO of NZBIO.

In layman’s terms, biotechnology involves manipulating living organisms to solve problems and improve our way of life – to provide newer and better solutions.

(The discoveries of penicillin and the structure of DNA both come under the biotech umbrella.)

“The innovation or cleverness is not only in how we go about doing this, but also in the newer and better ways the products work,” says Dr Kannan Subramaniam, managing director of life sciences advisory firm Kangela.

In New Zealand the biotechnology industry is punching above its weight in the health area, says Dr Subramaniam; “Creating drugs and nutritional products for use in illness and wellness for animals and humans.”

He cites the work being done by Photonz Corporation in extracting Omega 3 from algae as an example. “The cleverness is in breeding the algae and the extraction of the Omega 3 in a purer form than currently available.” (More about the work of Photonz later in the story.)

Access to capital

Biotechnology is not new. Mankind has been using it for thousands of years. By keeping the seeds of only the best plants to sow the following season, early man was using rudimentary biotechnology. He learned how to make bread and wine and cheese through altering living materials – and gave his diet a huge boost in the process.

The perpetual challenge for the biotechnology industry is access to capital, says Bronwyn Dilley.

“In New Zealand we have the additional challenge of being a relatively new sector with a limited capital market.” The global financial crisis has impacted on the sector in other countries, but we’re yet to see the full effect here, she says.

“As an industry with a continually growing market, with growing and ageing populations in the developed and developing world driving demand for therapies and medicines, and with world class capabilities in research and development in the biosciences, we believe that building a stronger, more vibrant life sciences sector will be a key determinant of New Zealand’s future economic performance.”

But discovering it here, making it here and selling it from here isn’t always the best option, according to Maxine Simmons, managing director of BioCatalyst, a specialist biotech consultancy company.

“It makes sense to be able to use our biological science base here, develop these products and have people manufacture them elsewhere. The challenge is to ensure we capture as much of the value as we can here.”

Simmons is also CEO of Cure Kids Ventures, the investment fund created by Cure Kids. “Cure Kids is the face of the Child Health Research Foundation and has been funding medical research for over 30 years. A windfall, from the A2 milk patent, enabled the Foundation to invest with NZ Venture Investment Fund and create a seed investment fund specialising in early stage health care ventures.”

A lot of work in this area never really saw it through to a commercial end product, says Simmons.

In June last year, Cure Kids Ventures announced their first investment – in Auckland based Photonz Corporation, the biotech company founded by Karl Geiringer and, in typical Kiwi can-do style, originally based in the garage at his home.

Photonz Corporation is developing an industrial process for producing EPA (the active ingredient in Omega 3) by fermentation. Results at pilot scale have been very promising says CEO Gregory Moss-Smith. “But it is a major exercise to bring this kind of process to industrial scale.”

(EPA is used to treat cardiovascular diseases overseas and it may also be an effective option for the treatment of behavioural problems among children.)

As ‘lead investor’, carrying out the essential due diligence process, and thereby smoothing the path for other investors, Cure Kids Ventures has been vital in securing the company’s biggest investor to date, says Moss-Smith.

“They’re not our biggest investor but their contribution went well beyond the dollars invested.”

Photonz Corporation was a natural fit for Cure Kids Ventures, believes Maxine Simmons. “The whole nutriceutical and pharmaceutical area is converging. Where it was once ‘this might be healthy, might be good for you’, we’re now getting to the bottom of why these things are good, and making them more effective, delivering an appropriate concentration to actually have a therapeutic effect.”

The road to market

So how does a ‘discovery’ in the biotech field find its way out of the garage and on to the market? The short answer is not easily. To get investors to back a project, Moss-Smith says you need to have a convincing business case to show that if the technology works out customers will buy the product and it will be profitable.

“Investors start paying from the beginning; customers come in at the end,” he says.

“The fact is you are frequently creating new markets or massively transforming old ones and there is always a leap of faith involved at some level. I know of one product, making multi-billion dollar sales now, that was almost killed off three times during development, one of them only two years from market launch. On each occasion it came down to different individuals staking their career and pushing it through.”

And, even with a sufficiently respectable business case to attract investment, it’s rarely a straight dash to market launch, says Moss-Smith. “There is almost always a succession of ‘proofs-of-concept’ through the technological, manufacturing, marketing and legal aspects of the product that culminate in it being sold, but occur as a series of milestones, each representing a significant increase in the value of the project as risks are eliminated.”

These milestones enable a company to raise further investment, he says.

“In the biopharmaceutical sector that process frequently takes ten or 12 years. In the Photonz case we are doing something a bit different and expect to make our first sales within three years.”

The Photonz process is a breakthrough because for the first time there is a commercial supply of high purity EPA that is not extracted from fragile fish stocks, says Moss-Smith.

“All the existing supply of EPA is extracted from fish, but every major fishery in the world has collapsed, or is in danger of so doing.”

With a growing number of pharmaceuticals based on EPA the last thing any company making hundreds of millions in sales wants, is to run the risk of not being able to source their active ingredient, he says.

Moss-Smith says Photonz does not intend doing any clinical trial work.

“We will sell our product to other biopharmaceutical companies who are developing EPA-based drugs and generic versions of those already approved. This hugely reduces our development risk, the required investment and, due to some transformational events in that market, time to market.”

The biotechnology industry really needs to shout to be heard, says Dr Kannan Subramaniam. “We have the scientists, the technologists and the ideas. But we don’t have the money.” Having the money will enable the industry to do world-class things here, says Maxine Simmons. “We have to be bold and brave.”

Patricia Moore is an Auckland-based freelance writer. Email [email protected]