By Duncan Bridgeman
Friday 24th September 2004 |
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Unfortunately for the New Zealand industry, greater emphasis is usually placed on the first part.
The painful result is the resource-rich local biotech sector has been starved of venture capital, as investors unwilling to follow the Las Vegas-style approach of their US counterparts don't want a bar of it.
Go to any biotech briefing and you'll be instantly reminded that this lack of funding is the single biggest hurdle facing the industry. According to Genesis Research & Development founder Jim Watson, the long-term health of the whole industry is in grave danger.
But there are increasing signs that money is starting to flow, albeit a trickle rather than a torrent.
While the government is playing its part recently announcing a $10 million grant for a new biotech institute at the University of Auckland it is the private sector that is really breaking the shackles.
The catalyst has come in the form of a proposed $100 million Life Science Ventures (LSV) Fund, which aims to invest in agricultural science startups and established food industry players.
Set up by Celentis the commercial arm of Crown research institute AgResearch and private equity specialist Direct Capital, the fund plans to invest in agricultural enterprises that demonstrate solid growth prospects.
LSV, which is seeking money from New Zealand and Australian investors as well as offshore interests, already has commitments approaching $50 million, according to executive director Howard Moore.
It is hoping to close its first tranche by the end of this month and immediately start investing while building up its next batch of capital.
A big attraction in this case is a $15 million cornerstone investment from the government's New Zealand Venture Investment Fund programme. LSV has sweetened the opportunity so investors can take out a five-year option to buy the government's stake if the fund does well.
A pioneer of the biotech industry in New Zealand, Mr Moore successfully took pharmaceutical company Tercica to a Nasdaq listing earlier this year. The company has since raised $44 million in a second round of venture capital funding.
LSV is not strictly a biotechnology fund, he says, but rather a food and agribusiness fund covering both horticulture and agriculture developments.
Hence, the criteria for investment could range from late-stage multinational companies to early-stage startup companies that might be 18 months away from revenue.
"We've got this huge agricultural industry in New Zealand and Australia with world-class science in food technology but both countries are not terribly good at commercialisation," he says. "The great thing is that it gives us a pretty big universe of companies to look at."
Overseas companies are also eyeing up the local scene.
Greg Lucier, head of Nasdaq-listed Invitrogen, one of the world's largest biotech companies, was in New Zealand last month scouring the country for investments.
Invitrogen is in the early stages of setting up a venture investment fund of $US50-100 million to invest in biotechnology startups in New Zealand and Australia.
Lucier says global drug companies in the US, such as Novartis, Merck and Glaxo SmithKline, are now using animal agents sourced from mad cow disease-free countries and New Zealand is rated as being the number one safe zone.
Invitrogen, which harvests cells from New Zealand cattle herds to use in drug research and production, exports 99% of its bio-products to international drug companies. Those companies then use the products as a growth medium for the development of new vaccines and drug products.
The company has invested millions of dollars in New Zealand already, with bio-production facilities in Penrose, Auckland, and in Christchurch.
Lucier has some simple advice for Kiwi biotech and agritech firms looking to secure funding: "If you can't find the money locally, go global."
He believes the industry is more robust than people think. Biotechnology is more business-savvy than in the past with better business plans, more management experience and fewer mistakes being made, he says.
The problem in New Zealand is more the small size of the market and the country's stance on genetic modification.
New Zealand is losing an advantage it shouldn't have to lose because of its stance on genetically modified organisms, he says.
"Because of the long-term timeframes, if you are sitting in a cocoon and not thinking about what other markets are doing, then you will spend a lot of time and money making products that no one wants to buy."
He says the anti-GM sentiment is largely spread by misinformation and will stifle investment in the industry.
Lucier is not alone in his views.
California consultant Ken Moonie, who visited New Zealand last month as part of the World Class New Zealanders programme to advise local businesses, says the GM backlash is the biggest challenge facing the industry here.
"The world seems to be a little bit crazy right now over the controversy around GMO technology and people have gone away from the reality of it."
There is a notion that it has to be all or nothing the GM way or bust. But that isn't the case, he says.
There is room for more companies to join the race to discover genes for traits that can be transferred to crops, for example, but the anti-biotech protests are making it difficult for additional startups to enter the field.
As a strong agricultural country New Zealand has to be at the leading edge of technologies or it will follow Europe's demise in this area.
Once a leader in plant research, Europe is becoming a non-player largely because of the strong anti-GM feeling there, he says.
Moonie considers the LSV fund an exciting opportunity for New Zealand.
"[Investors] will look at it from a purely financial perspective what will give them the best return on their investment so the incentive for companies to make sure they go after the right products is greater."
Such an injection of capital could not come at a better time for the country's agri-tech and biotech industries, he says.
The respective sectors have been hit hard in recent months, with research and development funding being slashed and redundancies at several key companies.
Genesis Research and Fonterra subsidiary ViaLactia have both made layoffs amid funding shortages while multinational pharmaceutical giant Pfizer withdrew from a $60 million contract with Auckland University.
Fonterra, which holds massive sway in the primary sector, is now seeking changes to the way certain research is funded and is in talks with the government on how to do this.
The dairy company is looking to avoid the duplication of R&D in the farming sector as it can justify spending money only in areas that return direct benefits to its farmer shareholders.
Chief executive Andrew Ferrier says he is looking for a more efficient model that "makes sense" for all parties involved.
For example, ViaLactia carries out research into ryegrass genetics that benefits all farmers. Yet other entities are doing research into pasture quality for "industry good" purposes, such as levy-funded Dairy Insight.
Other R&D organisations included AgResearch and Dexcel, Crop & Food Research, various universities and Livestock Improvement Corporation.
"What we are saying to the government is that we want the research to be done but we want it done in a more efficient way."
Genesis Research's Jim Watson, who is stepping down as chief executive later in the year, blames the local capital markets for the funding problems.
"It's the institutions that really determine the investment from the private sector and they are out of sync with the industry and that's the big concern."
Genesis, which reported a half-year loss of $7.1 million, now has $16.5 million of cash in the bank, compared with $28.6 million a year earlier.
It is desperately continuing discussions with what it describes as interested parties to acquire licences to some of its programmes. The resulting revenues would shore up the cash security of the business.
In what was a big blow for the scientific community, Genesis recently axed 29 staff most from its wholly owned subsidiary AgriGenesis, which subsequently halved its size.
"We would like to remain exactly as we are as a listed company, answerable to our shareholders, but the problem that we have compared to the northern hemisphere is that most of our companies don't have products in the market."
Like most other local biotech companies, Genesis is probably three to four years away from producing revenue from product sales.
Watson, known as one of the few industry stalwarts in New Zealand, dismisses any notion that the government could come to the rescue by setting up a public private partnership with Genesis.
"We've not even talked to government about government intervention and on principle I would not do that."
Investors who think yesterday was history and tomorrow is the distant future will never understand that companies based on the results of basic scientific research take years to realise their potential.
It will take more than the LSV fund to change that philosophy but at least the industry is showing signs of gaining momentum.
The continual optimism often sprinkled through reports of the few listed companies in this sector, usually on an "about to turn the corner" basis, just might just turn out to be deserved.
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