Australian biotechnology sector

16.8 There are four types of companies or organisations within the Australian biotechnology sector:

  • core biotechnology companies;[9]

  • pharmaceutical companies;

  • genomic companies; and

  • public research institutions.[10]

16.9 The sector comprises a mix of small and medium sized enterprises (SMEs) together with larger companies, including subsidiaries of multinationals. Most major international pharmaceutical companies have Australian subsidiaries. In 2003, there were more than 300 core biotechnology companies, with an industry growth rate of over 50% in the previous two years.[11] There were also around 450 ‘diversified’ biotechnology companies. The sector employs about 6,400 full-time equivalent employees.[12]

16.10 Total revenue generated by the core biotechnology companies is estimated to be almost $1 billion annually.[13] The biggest contributors to revenue growth have been royalties, licensing and milestone fees.[14] The Australian Biotechnology Report 2001 suggested that ‘one of the challenges for most Australian biotechnology companies is generating sufficient funds to achieve their product development objectives’.[15] It described the sector as growing, but small in global terms.[16]

16.11 Internationally, Australia compares favourably with the United States in terms of the number of biotechnology companies relative to the size of the labour force, and is well ahead of the European Union. Australia now ranks sixth in the world for the number of biotechnology companies, behind the United States, Canada, the United Kingdom, Germany and France.[17] Australia’s revenue as a proportion of the labour force is well below the United States, but ahead of the European Union.[18]

16.12 The Australian Biotechnology Report 2001 described the Australian biotechnology sector as being numerically ‘dominated by small to medium players’, lacking geographic proximity to a large market, and therefore also lacking the ‘wealth of information’ provided through conferences, workshops, networking and industry associations.[19] Larger companies are frequently involved with the smaller ones through strategic alliances, in particular licence agreements.[20] The Report noted that alliances are the main means by which Australian biotechnology companies gain access to international markets:

The best Australian companies are now able to joint venture with, or even acquire entities overseas … Low and slow commercialisation successes are still, however, an ongoing issue for many Australian companies.[21]

16.13 In a 2002 survey, Kelvin Hopper and Lyndal Thorburn reported that 50% of Australian core biotechnology companies aim to develop new therapeutic or diagnostic products directed at human diseases.[22] The survey also found that human health and therapeutics dominated among the new companies, with a significant increase in the number of companies established to supply to the sector in areas such as protein and gene sequencing.[23]

16.14 The Australian Biotechnology Report 2001 found that most core biotechnology companies in the field of human health intend to develop their intellectual property, technology or products to the pre-clinical stage (and less frequently to a clinical stage) before licensing to an offshore multinational company.[24] This is particularly likely to be the case for drug discovery companies. Interview data from a recent study of the Australian medical biotechnology sector by Dr Dianne Nicol and Jane Nielsen suggests that this could be attributed to a lack of infrastructure and resources to exploit patents within Australian.[25]

16.15 Companies that produce other downstream products (such as tests, therapies or devices), or intermediate products (such as reagents, formulations and bioinformatics tools) may not necessarily seek to license offshore.

16.16 Spin-off companies are the preferred approach to commercial development of biotechnology innovations in the Australian industry. This approach may be preferred in part because most Australian scientific research that results in new technologies occurs in the public sector. It may also be due to the support for new companies available through the Biotechnology Innovation Fund.[26] Government grants are the largest source of capital for the new companies, followed by funds from parent organisations and venture capital.[27] It has been suggested that the Australian industry is overpopulated with small companies relying on a single idea to be successful.[28]

16.17 The Australian Biotechnology Report 2001 described funding for research and development (R&D) as ‘an ongoing challenge’ for SMEs.[29] It suggested that a problem for the sector is the capacity to generate sufficient funds to achieve its objectives, whether in licensing or manufacturing.[30] In submissions, the Department of Industry, Tourism and Resources (DITR) identified the ‘extremely high levels of financial risk’ in the sector as the primary reason for the difficulty involved in attracting venture capital. The result has been to make the ‘pace of commercialisation of Australian biotechnology innovations … less than optimum’. DITR also suggested that ‘low levels of capital inflow’ is one of the major impediments to the growth of the sector.[31]

16.18 R&D expenditure by Australian companies is well below that in the United States and the European Union.[32] Publicly listed core biotechnology companies invest about $3.2 million a year each in R&D, whereas unlisted and private core biotechnology companies invest an average of $1 million each.[33]

[9] The term ‘core’ has been used to describe companies whose business depends on ‘exploiting intellectual property embedded in molecular, cellular and tissue biology’: Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 4.

[10] D Nicol and J Nielsen, ‘The Australian Medical Biotechnology Industry and Access to Intellectual Property: Issues for Patent Law Development’ (2001) 23 Sydney Law Review 347, 353.

[11] Invest Australia, Australian Biotechnology (2003), 1.

[12] Invest Australia, A Snapshot of Biotech and Pharma in Australia, <www.investaustralia.gov.au> at 16 June 2004.

[13] Ibid.

[14] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 20. ‘Milestone fees’ are lump sum payments made by a licensee upon reaching specified stages in the development or commercialisation of a product.

[15] Ibid.

[16] Ibid, 8.

[17] Invest Australia, Australian Biotechnology (2003), 5; Ernst & Young, Beyond Borders: The Global Biotechnology Report 2002 (2002), 6.

[18] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 22.

[19] Ibid, 8.

[20] This is also a feature of the industry in the United States and, increasingly, the European Union: Department of Industry Science and Resources Business Competitiveness Division, Invisible Value: The Case for Measuring and Reporting Intellectual Capital (2001), 354.

[21] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 46.

[22] K Hopper and L Thorburn, 2002 Bioindustry Review: Australia & New Zealand (2002), 29.

[23] Ibid, 11.

[24] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 46.

[25] D Nicol and J Nielsen, Patents and Medical Biotechnology: An Empirical Analysis of Issues Facing the Australian Industry (2003) Centre for Law and Genetics Occasional Paper No 6, 103.

[26] In one recent study of 24 biotechnology companies listed on the Australian Stock Exchange between 1998 and 2002, all but two were developing technology originating from academic institutions, medical research institutes or the Commonwealth Scientific and Industrial Research Organisation: D Sparling and M Vitale, Australian Biotechnology: Do Perceptions and Reality Meet? (2003) Australian Graduate School of Management, 5.

[27] K Hopper and L Thorburn, 2002 Bioindustry Review: Australia & New Zealand (2002), 3.

[28] D Crowe, ‘Testing Time for Biotech’, Financial Review (Sydney), 7 October 2003, 61.

[29] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 11.

[30] Ibid, 20.

[31] Department of Industry Tourism and Resources, Submission P97, 19 April 2004.

[32] Biotechnology Australia, Freehills and Ernst & Young, Australian Biotechnology Report (2001), 22.

[33] Ibid, 10.