Biotech sector haunted by 'valley of death'

28/11/2013 - 11:52


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FEATURE: The state’s biotechnology sector is heating up as investors look for the next wave of investment opportunities amid waning resources investment.

Biotech sector haunted by 'valley of death'
THERAPY: Sue Fletcher and Steve Wilton are progressing development of a drug to treat boys with duchenne muscular dystrophy. Photo: Attila Csaszar

The state’s biotechnology sector is heating up as investors look for the next wave of investment opportunities amid waning resources investment.

It’s not the first time the sector has been ‘on trend’, however, given the significant amount of medical research undertaken in the state and investment poured into the sector to facilitate research.

Just this week two new medical research centres, which cost state and federal governments and the University of Western Australia a combined $200 million , were opened at the Harry Perkins Institute (formerly the WA Institute of Medical Research).

But the challenge is the next step, which requires researchers to prove their discoveries.

Avita Medical’s eventful annual general meeting last week, during which chairman Dalton Gooding agreed to step down, provides a timely insight into the challenges biotechnology companies face – even those with mature technology.

While the biotechnology sector appreciates the increased attention it’s receiving, there’s a common complaint that the level of investment is not sufficient to enable early-stage discoveries to bridge what’s called the ‘valley of death’ and reach clinical trial status.

Furthermore, leading researchers say there’s a level of ignorance about the commitment required, with early-stage discoveries needing to be funded for about a decade before return on investment becomes a reality.

Long haul

Perth-based Avita Medical is the result of a 2008 merger of two biotechnology firms – Clinical Cell Culture, which was developing ‘spray on skin’ developed by Fiona Wood, and Visiomed Group.

Before the merger, Clinical Cell Culture, which was chaired by Dalton Gooding, was pursuing regulatory approval for the ReCell product from the US Food and Drug Administration.

Progress was slow, with delays blamed on low enrolment rates for its clinical trials.

Seven years on, Avita Medical has still failed to secure FDA approval (despite passing regulation in other jurisdictions) and the company’s explanation has remained the same – Mr Gooding told last week’s AGM the study on burns patients was being thwarted by slower-than-anticipated enrolment due to complex protocols and strict inclusion criteria.

“I share the frustration of our shareholders at the amount of time this is taking, however the length of the FDA registration process is not something we can control,” Mr Gooding told the AGM.

But his reasoning didn’t satisfy shareholders.

Meanwhile, Professor Wood was comfortably re-elected to the board about 14 years after she began developing the technology.

Avita’s stagnation at clinical trial status in the US is a telling example and shows that lengthy timeframes are a reality in the biotechnology field.

Nine years ago, researchers Liddy McCall and James Williams discovered that by building on a University of Western Australia invention they could develop a new nonsteroidal anti-inflammatory drug.

Last month, the US FDA approved the drug for consumer use.

However Ms McCall remembers significant scepticism about the likelihood of success when trying to drum up early-stage funding.

“We could see that the technology would get a product in the market within 10 years – which it has clearly done – but the mentality was that if it’s still at the university-stage that’s not achievable,” Ms McCall said.

The pair consequently left Australian shores to embark on a fundraising campaign in the US, successfully raising about $1 million from angel investors.

That opened the door to a partnership with US company Iroko Pharmaceuticals, which later bought the rights to the invention and took over the push towards commercialisation.

The result is that those more open-minded investors and shareholders in the US pharmaceuticals company are set to reap the rewards from a discovery made at UWA.

Another local pairing – Steve Wilton and Sue Fletcher – are renowned in the biotechnology sector for discovering a new way of treating boys with duchenne muscular dystrophy.

The genetic treatment was licensed to US company Sarepta Therapeutics earlier this year.

Sarepta is currently using the technology in Phase II clinical trials; if it gets FDA approval, commercial success will result in professors Wilton and Fletcher sharing a type of royalty with UWA.

More for WA

Also hoping to develop its discovery in such a way that it will bring greater benefits for the state is MiReven, a company established to commercialise the discovery of a therapy to fight cancer.

Discovered by Peter Leedman and Keith Giles, the therapy is being progressed through to pre-clinical studies thanks to about $1 million in funding from a specifically established biotechnology investment fund – the east coast-based Medical Research Commercialisation Fund (MRCF).

“Our project would not be where it is without that funding, it’s as simple as that,” Professor Leedman said.

Professor Leedman is a director of the Harry Perkins Institute and is chairman of Linear Clinical Research, which he said put MiReven in a good position to carry out clinical trials in WA.

About 80 per cent of the clinical trials undertaken by Linear Clinical Research are for US companies.

Professor Leedman said it was feasible for MiReven’s trials to be carried out here but it would require investment in the order of “millions of dollars”.

“Obviously it would be very nice to have a West Australian investor wholly invested in the project in Australia and realise as much value and investment as we can from the state … it would be a pretty spectacular outcome if that were able to be achieved,” he said.

If investment cannot be secured, MiReven will seek to license the therapy to a global pharma company. Either way, it hopes to have clinical trials under way in about two years, six years after the first provisional patent was obtained.

Building confidence

But Ms McCall said getting to that stage was a struggle for most companies without the benefit of funding from a specific fund such as the MRCF.

“It doesn’t make sense for these companies (global pharmas) to enter into a biotechnology company that’s going to disappear in 12 months because it doesn’t have funding,” Ms McCall told Business News.

“They want to see you come back over a couple of years to know that you really are going to be able to drive these things and that it’s worthwhile collaborating with you.”

The problem is the dearth of early-stage funding to ensure fledgling biotech companies can mature and capture the confidence of global players.

That prompted Ms McCall and research partner Dr Williams to launch the venture capital fund Yuuwa.

The pair was managing another biotech company, Dimerix, and struggling to progress its discovery due to funding constraints.

“We were frustrated that the technology that we liked and wanted to support were not necessarily supportable in the minds of the venture industry that existed,” Dr Williams said.

“So with all that time spent trying to raise money and getting frustrated we decided that the best way to back a company that we liked was to establish a fund ourselves.”

They were successful in securing a grant from the federal government for an Industry Innovation Fund, and have funded about 10 companies since 2009.

They now say that an early-stage biotech team needs to engage with them early enough to ensure the intellectual property is secured and patents are viable.

“But that’s an issue,” Ms McCall said.

“Many of these companies come out of academic research where the imperative is to publish; and they’re forced to publish early and they might not have the finances to support a good patent application.”

She said the fact that Yuuwa’s investment in only 10 biotechs from a pool of just under 400 applications clearly demonstrated the need for additional funding – and explained why there’s only a handful of successful biotechs emerging from WA.

Loser v winners

Professor Wilton describes the roughly 90 per cent failure rate of early-stage discoveries as the ‘valley of death’, and said he and Professor Fletcher were lucky to have struck a relationship with Sarepta before the discovery succumbed to the same fate as many others.

“We call it the valley of death; you’ve got something, you try and bring it to the market and it can take a long time to do it,” Professor Wilton said.

“You come up with an idea like we have, you then try and get it made and get it tested and validated and the valley of death is between coming up with the concept and doing a small scale trial then getting it commercialised.”

Simon Handford is in charge of commercialising research emanating from UWA and said he and researchers did whatever they could to find the funds to give the technologies a chance.

“In some ways it’s easier with licensing (to a global pharmaceuticals company) because you’re talking to companies that are already in the biotechnology space and should already understand the value that the technology offers them,” Mr Handford said.

But even those global pharma companies are at the mercy of uncertain investors; Sarepta Therapeutics had about 60 per cent knocked off its share price last month when the FDA announced it wasn’t completely satisfied with its clinical trials.

The company is also yet to make a profit due to the extremely expensive research.

Mr Handford said some of that was just the nature of biotechnology in that it could be a try-and-try-again process.

“(The Sarepta trials) have progressed quite well but it’s not clear sailing for that technology either … we’re all hoping that it’s a matter of time and more trials with the value increasing back into Sarepta and the drug will end up being approved in time,” he said.

Mr Handford said uncertainty in the market provided motivation for researchers to seek investors that were biotech savvy.

“The trick is not to try and persuade investors that don’t understand the industry, so you’re always looking for people with a track record in biotechnology investment or commercialisation,” he said.

In WA, those investors are few and far between.

Professor Leedman said the sector would continue to struggle until more committed early-stage investors were found.

At the moment, he said, investors typically waited until developments reached the later-stage before they felt confident to put their money in, when it was the dearth of funding at the early-stage that led to discoveries falling into the ‘valley of death’.

“And universities don’t have those sorts of funds either once you get towards patent costs,” Professor Leedman said.

“It would be brilliant if governments – both state and federal – were able to see that this early stage is critical to the commercialisation of inventions.

“They have to have a mentality that says it’s OK that 90 per cent will probably not have success.”

 “They have to take risks, if they don’t take risks you don’t get benefits. If you look at the US for instance they take more risks but they have much more financial gain.”


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