Healthtech banks on rising numbers

IT was a brief mention in a state government media announcement to highlight the potential value from the latest $643,000 round of Innovation Booster Grants.

“Previous recipient Soter Analytics used an innovation voucher in 2017 to develop its innovative wearable technology for industry safety projects,” read a joint announcement from Innovation and ICT Minister Stephen Dawson and State Development, Jobs and Trade Minister Roger Cook.

The point was well made as the state published another list of startups that could become success stories, plucked from obscurity to find commercial success, as Soter Analytics had done.

“Since then, Soter Analytics has raised approximately $18.5 million with multiple patents under way, expanded its market to the UK, US and Europe, and has increased its employee numbers from three to forty-five,” the announcement continued.

That is an amazing story.

A company founded by a mechanical engineer who recognised how monitoring the movement of mining machinery had reduced breakdowns and improved efficiency and thought the same logic could be applied to humans.

Soter Analytics has customers around the world and is one of three major companies competing globally in the space of using wearable technology to reduce work injuries.

It is the kind of anecdote that helps put flesh on the story that Western Australia is increasingly recognised as a place for discovery and commercialisation of smart technology that will power a new breed of food development, health management and pharmaceutical breakthroughs.

The statistics are also there. Australian biotechnology organisation AusBiotech, which held its major annual conference in Perth last week, highlighted WA as the fastest-growing jurisdiction in the country, doubling size in five years in terms of the number of companies, to 244; although it remains at only about one quarter of that in NSW or Victoria.

And there is a definite vibe from those in the field that increasing laboratory infrastructure, more open-minded universities, entrepreneurial training for researchers, significant state funding and a growing number of focused funders were all making the healthtech scene more viable than ever before.

The lines about Soter Analytics also help to build the narrative that state assistance is helping WA diversify from its dominant resources sector.

The trouble with this feelgood story is that it doesn’t take long to find that, improved as it may be, the sector still has big gaps to be filled.

For instance, Soter Analytics is no longer based here. Its development hub is in Estonia and the company is domiciled in London, where all that $18.5 million was raised.

While it is not unusual for a tech company’s biggest customers and potential markets to exist outside WA, Soter Analytics chief executive and co-founder Matthew Hart said Perth’s investment community was a major letdown when he decided to seek seed funding for his idea.

“We moved in 2018,” Mr Hart said regarding the shift to the UK, a year after receiving the state government innovation voucher.

“The reason was we could not find the funding we needed in Australia.

“Venture capital [funds], in my opinion were not very forward thinking.

“We expanded our solution and even had a lot of traction, but venture capital is incredibly risk averse.

“Then we tried to access angel funding.

“Then, and probably now, there was little appetite for angel investing.

“We had good traction, revenue, we were borderline profitable and there was no interest at all.

“[Except] one person wanted 50 per cent [of Soter] for $100,000.

“I did the same presentation a few weeks later in London and closed the round on the night.”

Mr Hart may be disappointed with Perth investors’ response to his project, but it has not held him back.

He has raised the rest of his millions in two rounds in London, allowing him to grow his business to serve some of Australia’s and the world’s household names, companies that use Soter Analytics-built units to monitor spine and neck movement in heavy labour jobs.

Soter Analytics is also exploring the office market, with a prototype designed to replace the need for ergonomic consultants.

“My criticism is there is plenty of money, but it all goes to the next junior miner who has overhyped their project,” Mr Hart said.

“If people had invested [in Soter Analytics] they would have 10 times on their investment.

“Those opportunities exist in the [Perth] market and no-one takes them seriously.”

Critical mass

The Soter Analytics story reflects a common and historical theme in life sciences and other tech sectors in WA: sectors about which investors have less knowledge of the fundamentals, leading many startups to seek funds (prematurely, according to some) on the stock market.

Nevertheless, Mr Hart’s experience is not universal and there is a growing number of players who believe the life sciences sector and its ability to commercialise within WA is at, or is reaching, a critical mass.

WA’s chief scientist, Peter Klinken, has been in the job for eight years and is an unabashed promoter of the possibilities for the state’s research capacity and efforts to get the market to pay more attention to it.

He highlights the AusBiotech statistics, which were announced at a tech conference in the US he attended with other local delegates recently.

There are plenty of other milestones, including Perth being named as a top-25 life sciences hub in 2017 by independent equities analysts NDF Research, and the recent joining of WA to US-based Massachusetts Institute of Technology’s Regional Entrepreneurship Acceleration Program.

“You get a feeling there is momentum building in this sector,” Professor Klinken said.

He said researchers were realising they were better off finding a commercial path for their research to have an impact with their science.

“You can have a really bright idea and push a paper out on it, and it will sit that way,” Professor Klinken said.

 “If you want to have impact on humanity in some way, you have to step out of academia.

“That is now much more acceptable, universities understand that [and] research institutes understand that.

“The finance sector has been resources focused and they understand the risk with resources, but they are uncomfortable with tech and medtech.

“We are starting to see them dip their toes in there a bit more.”

People business

Liz Dallimore is another who believes the local sector is getting the scale required in the commercial side.

Having climbed the ranks in the consulting sector to become KPMG’s national director, research engagement and commercialisation, Dr Dallimore is now managing director of Argenica Therapeutics, a listed company about to launch a phase one clinical trial for a drug to reduce the impact of stroke.

“WA has always done well as a thriving life sciences community,” Dr Dallimore told Business News.

“What we have not been able to do is translate that into patient impact which is commercialisable. “That is what is changing.

“There are a lot more of those sorts of people.”

From a listed company point of view, Dr Dallimore said the local broking houses were coming up to speed, pointing to Euroz Hartleys where research analyst Seth Lizee specialises in the sector.

“We’re seeing a lot of exciting opportunities in the WA biotech space,” Mr Lizee said.

“There are a number of companies doing some cutting-edge work here in Perth with the potential to change a lot of lives.

“More broadly, we think there’s some great talent here and that the state has a lot to offer.”

At around $62 million in market capitalisation (mid October), Emyria, which listed in 2020, is already one of the biggest WA-based firms in terms of market capitalisation.

Emyria received a notable early investment from the Forrest family’s commercial wing, Tattarang, which has used the $5 million stake to seed the portfolio of a new $250 million healthtech venture capital fund called Tenmile.

Emyria chief executive Michael Winlo is one who believes there is scale developing in the local sector, both in terms of the money backing it as well as the opportunities for those who work in the sector.

“There is now a legitimate career choice in biotech here,” Dr Winlo told Business News.

“Five years ago, you felt it was a huge career risk.

“Then there were a couple of biotechs around; now you can transition [from one to another].

“We are getting closer to having a critical mass; it is exciting.”

“I am pleased to say more institutional money is coming into Australian biotech.”

“We need that patient capital.

“Small companies can get caught at the retail end of the market [where] there is pressure to simplify your science, so you become a caricature of what you really are.”

Listed plays

At a glance, the WA contingent of the nation’s listed biotechnology sector, which includes Emyria and Argenica Therapeutics, has a healthy glow about it.

When observed from the narrowest view, being those particularly focused on pharmaceutical and medical technology development, there are a dozen or so companies worth about $750 million collectively on mid-September trading highs.

The biggest among them is PYC Therapeutics, formerly Phylogica, which has spent more than a decade and a half on the ASX as it seeks to develop what it claims is a revolutionary new class of drugs that can be delivered more directly into cells.

Numerically, however, the list is dominated by companies that have listed since 2014, including diagnostic development Proteomics International Laboratories, the second biggest by market capitalisation.

Taking a wider look – to include listed digital health and agricultural technology firms – there are likely more players in the game.

It is also worth noting that the register of ASX companies in this space is skewed to the present and there are many companies that were listed in WA that no longer exist or are not based here anymore.

ResApp Health – which was Perth founded although its technology development was undertaken in Queensland – would have most likely been one of the biggest players on that list had it not been taken over earlier this year in a $180 million deal by global pharmaceutical giant Pfizer.

Like many of its peers, ResApp made its way to the ASX in 2015 via a reverse takeover of another firm, Narhex Life Sciences, which was focused on HIV drugs.

Imugene is another example.

For most of the first decade of this century, after emerging as a listed business from the shell of cooking technology firm Vostech, it was a WA-based company focused on vaccines for poultry and pigs.

However, a failed international licensing agreement prompted it to pivot towards human health in 2012 and it was rehomed on the east coast.

It is now worth around $1.3 billion.

Also focused on animal health, Chemeq was a major company that failed, while pSivida was regarded as a significant success.

In between were firms such as Clinical Cell Culture, VRI Biomedical and Bone Medical (from which Botanix Pharmaceuticals emerged in 2016 after a reverse takeover), all of which helped push the commercialisation of research in WA.

Veteran technology player David McAuliffe has mixed feelings about whether WA has reached a critical mass.

Mr McAuliffe, who is a non-executive director of Invex Therapeutics, which is focused on treatments for neurological conditions, said WA investors would take risks when they saw a genuine opportunity in this space and there had been many significant successes over the years.

But he felt our market’s size limited the number of opportunities that were ever going to reach an investment grade worthy of significant backing.

Mr McAuliffe noted that many WA companies could not raise funds beyond the usual family and friends first round and, therefore, ended up listing as small caps.

Mr McAuliffe contrasted that to the US where a business might do four or more rounds of fundraising, amassing perhaps $US200 million before it considered a stock market listing.

“Here they list too early,” he said.

“But there is nowhere else to go.

“The venture capital community is not very robust.

“However, the Forrests’ Tenmile [fund] shows that there is an appetite.”

“It shows he [Andrew Forrest] thinks it is important.”

Funding boost

Tattarang subsidiary Tenmile’s recent public launch of its plans for a $250 million healthtech venture capital fund was certainly seen as a significant development in the sector, even though it will not be exclusively WA-focused it is, at least, based in Perth.

Tenmile is headed by executive chair Steve Burnell, who was recruited from Roche in the US and has been with the Forrests’ charitable organisation, Minderoo Foundation, for three years.

Speaking to Business News at the time of the fund’s launch, Dr Burnell said Australia was well behind the more sophisticated markets of Europe, the US and even Israel when it came to funding in the life sciences field, and there was a lack of competitive capital and experienced investors in this space.

Dr Burnell said many founders and startups got a start but could not find the capital to bridge the funding gap he referred to as the “valley of death”, especially in the life sciences sector which was poorly understood by investors.

And while Tenmile is significant, it is not the only new entrant in this field, with Business News aware of several new or potential players in the funding scene.

The most public of these is Perth-based Merchant Group, which launched its Merchant Biotech Fund late last year aiming for an initial target of $100 million.

Its early performance has been affected by the sector’s rout in recent months, but this is largely viewed as collateral damage from a broader technology slump led by global consumer giants.

A less-progressed player is FundWA, led by Glenn Butcher, who has returned to Perth after a long career in some major global businesses such as Atlassian and Amazon, as well being a partner in venture capital firm CP Ventures.

It is early days for FundWA, which will not be exclusive to life sciences.

It states that its mission is to support the “creation of more early-stage companies [to] seed new jobs, spin-off technologies, and establish a path for talented and ambitious people to stay involved in, and be attracted to, WA.”

Another significant player in the scene has been Yuuwa Capital, whose key players are considering their next step as the venture capital fund winds down, as per the terms of its original federal funding mandate, a $20 million Innovation Investment Fund grant won in 2008 that it matched dollar for dollar from the private sector.

Yuuwa founder Liddy McCall said she and her fellow co-founder and investment director, James Williams, were looking at a very different model that was in its formative stages.

“We want to set up something with greater longevity than a 10-year fund,” Ms McCall told Business News.

Aside from establishing an open-ended investment fund, Ms McCall said she, Mr Williams and others were seeking to bring the universities and research institutes together to form a business that was unifying.

She said the entity could be considered somewhat philanthropic, in the sense it could receive donations and that management fees would be channelled back into the fund structure.

There has also been considerably more state funding to the sector since the WA Future fund was repurposed as the Future Health Research and Innovation Fund, chaired by John Van Der Wielen.

It has allocated $63.6 million to this field in the past two years, mainly in grants provided to academics or researchers.

However, more than $8 million went to WA medical and health technology startups via a new innovation seed fund in the latter stages of the past financial year.

Privately, various not-for-profit institutes have also had more influence on research funding due to their own successes.

The Perron Institute, for example, is in an even better position to back new ideas after US pharmaceutical company Sarepta Therapeutics started paying millions in royalties on the basis of a licence agreement signed in 2013.

There has also been an increase in initiatives in the entrepreneurial education space, a field that was largely founded in WA by Charlie Bass and his Centre for Entrepreneurial Research and Innovation, which has had a big focus on the life sciences and helping researchers and academics in that field to learn how to commercialise their work.

More recently has been the launch of the Australian Clinical Entrepreneur Program in Perth.

Going to market

Of course, not every startup on the tech scene fits the model of academic research being fashioned into a commercial model and taken to the world by scientists.

Nor do they all have a funding gap due to a lack of backing from local investors.

A good example is supply-chain provenance business Source Certain International, which is well into a $5 million fundraising effort ahead of an expected ASX listing this year.

Due to its proven technology, the fact that it already earns revenue and is run by experts like managing director Cameron Scadding, a forensic and analytical chemist who has been commercially generating consulting fees from his knowledge for years, Source Certain does not appear to be viewed as having gone to market prematurely.

Perhaps underlying that is the business’s enterprise value of around $17.5 million if the IPO goes to plan.

Notably, Source Certain chose NSW-based outfit Peloton Capital as its lead broker to get national exposure for the business, which has a global marketplace, although it has raised its capital to date from the local market, including at least one high-profile family office.

While not exclusively a life sciences company, Source Certain’s provenance technology has a big crossover with the sector.

Its main operation is the chemical testing of substances, whether biological or mineral, to determine their origins, be it the location where diamonds were mined or if a wheat cargo came from Ukraine.

The company’s proprietary technology, called TSW Trace, was first applied commercially to link stolen or smuggled gold back to its mine of origin.

This solution was often referred to as ‘gold fingerprinting’ and it or its precursors have been used to assess forensic evidence in criminal investigations into salting and heists since the early 1990s.

Since then, the company has broadened the technology beyond use in mining-related fields to verify or determine provenance of materials across sectors such as agriculture, seafood, cannabis, textiles and pharmaceuticals to support or contest claims that relate to the source of origin.

Unlike more drug-focused peers, Source Certain has gone to the listing phase with proven technology and revenue-generating contracts stretching back several years.

Source Certain executive director Anthony Shields got involved with the business as an investor via his Cottesloe fund manager Asymmetric Investment Management.

Mr Shields said the firm had been well supported by local investors.

“WA investors have funded the business a couple of times during recent years and will probably represent 40 to 50 per cent of the funds we raise this time,” he said.

The prospectus shows that, other than interests associated with Mr Shields and Asymmetric, local fund manager family office Wyllie Group is also a substantial shareholder.

Based on its existing stake, it will end up with about 9 per cent of the company if the float is successful and Source Certain is listed on the stock exchange.