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Australia Pharma report November 2008


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Kangaroo Dreaming, Wilfred Nelson, Boondi Art Gallery

AUSTRALIA:

Innovation Down Under

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ustralia, the “land down under” to many Westerners, is sometimes left at just that — out of sight, and out of mind. But investors who ignore Australia do so at their own peril. Because of its distance from the rest of the West, the country is often overlooked for opportunities, but it is nonetheless emerging as a center of excellence in clinical research, biotechnology, and niche manufacturing, offering a golden opportunity for savvy capitalists willing to take the plunge. Like other modern economies, Australia will be relying on innovation — and plenty of it — in order to turn a “tyranny of distance” into a wealth of opportunity.

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Australia Report millions in R&D in China At first glance, investors can be forgiven for overlookalone, spurred by the goving Australia, a mature economy with a population acernment’s increasing modcounting for just 0.3 percent of the world’s total spread ernization in areas such out across a giant landmass. As the seventh least-densely as regulatory compliance. populated country on Earth, it counts less than one third However, Australia must of Russia’s 8.6 inhabitants per square kilometre. Fortustand on its own if it wants nately, at that point things start to look up. Sixty percent to compete with those of Australia’s 21 million inhabitants are concentrated in countries’ domestic marstate capitals of Sydney, Melbourne, Brisbane, Perth, kets, in addition to closer and Adelaide — five large, modern cities with world neighbors Singapore, Thaiclass healthcare infrastructure and consumers. As for land, and South Korea, all the standby measure of GDP per capita — already at just of which are vying for a over $43,000 — Australia is projected to pass the US by piece of the action. the end of 2008, and overall GDP figures have nearly Senator Kim Carr, Minister for Innovation, Industry, Science and Fortunately, Australia doubled in the past five years alone. This prosperity is Research boasts world class medilargely due to the global commodities boom, providing a cal research capabilities windfall to the world’s largest coal and iron ore exporter. and infrastructure, strong However, Australia’s strength extends beyond the basics, and effective intellectual and in the pharmaceutical sector especially, Australia’s property laws, a streamoft-repeated claim of being a nation that “punches above lined approval system for its weight,” is borne out by the statistics. clinical trials, and a highly The Australian pharmaceuticals industry counts over skilled workforce — in$17 billion in annual revenue, of which pharmaceutical cluding six Nobel laureand medicinal products are worth almost $7 billion. But ates in medicine, with the far from being just a consumer market, the broader phar2005 prize going to Drs. maceutical industry employs over 30,000 people with Barry Marshall and Robin 14,200 in the manufacturing sector, representing $4 bilWarren for their discovery lion in annual exports, and attracting significant investof the bacteria responsible ments of over three quarters of a billion dollars in R&D. Nicola Roxon, Minister for Health for stomach ulcers. But A much-maligned “tyranny of distance” is blamed for and Aging this cleverness extends beimpacts as diverse as manufacturing disinvestment to bioyond just lab work. In fact, technology undercapitalization, but being thousands of Merck’s blockbuster Garmiles away from the West may tip the scales in Australia’s dasil, the cervical cancer favour as world markets shift towards the Asia Pacific revaccine, originated with gion. With the time zones of the East and the culture of the scientist Ian Frazer — the West, Australia’s position as the bridge between them simultaneously awarding will be increasingly appealing. him Australian of the Year In terms of raw numbers, Australia’s advantageous in 2006 for its discovery, positioning is clear. Its two most obvious jumping off and earning Merck Pharpoints — the world’s up-and-coming pharmaceutical maceutical Executive’s markets of India and China — are already major global Brand of the Year distincAPI suppliers, and are slowly inching up the value chain. tion. This basic research From 2008 until 2010, total pharma sales in China are excellence is a product of set to double, from $14 billion to $28 billion. Over the a country whose science same time period, Indian clinical trials market will ex- Ian Chambers, Chief Executive, Medicines Australia “punches above its weight” plode to $1 billion from current $150 million, and conin quantity and quality of tract manufacturing to $1 billion from $350 million. In previous decades, Asian markets were set back by a research output. This fundamental strength is supported lack of IP protection, infrastructure, and talent pool. But a in the facts that human use pharma R&D accounts for alrise in affluence, market liberalization, and foreign invest- most 5 percent of total business expenditure R&D in Ausments has meant the West is taking notice. Companies like tralia, as well as 14 percent of total manufacturing R&D. Pfizer, Novartis, and AstraZeneca are investing hundreds of Continuing to exports — at $4 billion, and increasing 10 NOVEMBER 2008 FOCUS REPORTS

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Australia Report percent annually — the country seems to be excelling in all measures. However, in this latter measure, concentrated activity among a few major players leaves some vulnerability, recently brought to the fore with a recent plant closure announcement from Merck Sharpe & Dohme. And industry insiders are quick to point out that the pharmaceutical sector is not all milk and honey. Medicines Australia is the national industry association for innovative pharmaceutical companies, and according to its Chief Executive Ian Chalmers, “the Australian pharmaceutical industry is at a crossroad. It is likely that the next few years will be critical in setting the future direction of the Australian industry for the next 20 years.” Indeed, this crossroad was recognized in the most recent federal elections, with top cabinet positions newly dedicated to addressing the most pressing issues. If the cornerstone of Australia’s future will rely on innovation, Australia’s new Labor government headed by PM Kevin Rudd is certainly taking steps in the right direction, with new ministerial appointments inaugurating at least bureaucratic support. Most evident in this regard is the Ministry for Innovation, Industry, Science, and Research, which was created in December 2007 upon Labor’s election. Senator Kim Carr succinctly outlines the Ministry’s raison d’être: “The whole point of the department is to refocus public debate and reestablish an agenda around the issues of innovation.” The Ministry’s goal is to push forward an integrated approach, having already created reviews to form public policy in areas as disparate as textiles, clothing, and footwear. The pharmaceutical sphere has seen the creation of the Pharmaceutical Industry Strategy Group (PISG), which according to Senator Carr is “concerned to ensure there is an effective response from industry working alongside government and the research sector to [address] the challenges currently confronting the pharmaceutical industry, which are similar to many other countries in the developed world.” These challenges are important to address, because as Senator Carr points out “the pharmaceutical sector is one of Australia’s most significant export industries, second only to the automotive industry in size of contribution,” and just ahead of wine, perhaps Australia’s most widely loved export. Proximity to some of the world’s biggest manufacturing countries, and tax havens such as Singapore, is putting pressure on Australia to step up its dwindling industry support programs. Since the heyday of the late 1980s created an influx of manufacturing and R&D activity, support has diminished, and there is no clear sign of a reverse trend. A key role in encouraging investment in the country is Pharmaceutical Benefits Scheme (PBS), whose recent reforms have meant significant change for the industry, not least of which was a 25 percent price reduction — effective August 1, 2008 — on many of the country’s best-selling

drugs, including simvastatin, naproxen, and diazepam. Senator Carr is careful to delineate the scheme’s role in the marketplace: “The PBS is a critical part of the architecture of the Australian pharmaceutical industry. The scheme, however, has two functions. One is to provide medicines at the lowest possible cost to the Australian people, and to ensure that the Australian people get good value for money. The second function is to ensure that there are sustainable industry development processes operating, and although there may be tensions between these functions, the Australian government is highly mindful that there are two and not just one.” The first function is the more worrisome to the pharmaceutical industry, which contends that low cost and high access do not go hand-in-hand. Still, Senator Carr recognizes that he’s not playing a zero-sum game. “We need to find mechanisms that encourage activities that are uncertain and risky, realizing that potential drugs identified through early R&D may never make it through, while remembering that there are risks but also enormous rewards and it’s a highly profitable industry,” says Carr. Senator Carr also emphasizes that “Australia’s big strength is going to be in high-value, niche manufacturing,” as evidenced in companies like CSL, which partnered with Merck to deliver the HPV vaccine Gardasil; and IDT, which has flourished by being one of a handful of companies worldwide capable of handling the cytotoxic medicines used in chemotherapy. The country also boasts a specialization in Blow Fill Seal technology, which has recently become the FDA’s preferred aseptic processing standard. Present in AstraZeneca’s and GlaxoSmithKline’s manufacturing centers, the latter’s Boronia, Victoria, facility represents the company’s largest sterile facility worldwide. Nicola Roxon, Minister for Health and Aging, is equally aware of striking the right chord between access and sustainability. She notes, “The Rudd Government views expenditure on pharmaceuticals as an investment in health, not simply a cost. We know that more than two thirds of PBS expenditure already relates to prevention and management of chronic disease. So, while we believe it is very important to ensure that the cost of the PBS remains sustainable into the future, we are very aware that this needs to be balanced with the need for an environment that encourages research and development of new medicines.” Commenting on this balance, and the role she expects Australia’s future PBS to play, Minister Roxon says, “Recent reforms to the PBS are designed to put PBS expenditure onto a sustainable footing into the future. The Rudd Government will continue implementation of these reforms, and will closely monitor their impact to ensure that they do not have an adverse effect on consumers and/ or the generic medicines sector.” NOVEMBER 2008 FOCUS REPORTS

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No pain, no gain?

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ndeed, the generics sector is feeling the biggest hit from PBS reforms, whose multitude of changes aim to “recognise the importance of world class, life-enhancing drugs to patients,” according to the government. In doing so, effective August 1, 2007, the PBS was split into two formularies: F1, mainly for single brand medicines; and F2, mainly multiple-brand, generic medicines. Alphapharm’s Brisbane facilities John Montgomery, CEO, Alphafarm Within this latter category are two further divisions: F2T, with most competition, experiences a 25 percent products introduced to the market are protected from price one-off price drop effective August 1, 2008; while F2A decreases at a more modest 2 percent per year for three erosion over the length of patent life, which was formerly years. Will Delaat, Chair of the Pharmaceutical Industry not the case, when there were formerly price linkages to Council, the peak body of peak bodies Medicines Austra- out-of-patent products.” However, at the bottom line, he lia, Generic Medicines Industry of Australia (GMIA), and says, “We’ve taken some short term pain for long term gain AusBiotech, explains the asymmetrical impact of the PBS in the innovative sector. Generics companies don’t necesreforms. “With the delinking that occurred between the F1 sarily agree, but from innovative companies’ perspective and F2 formularies, this provides long term benefit as new it’s short term pain for long term gain.” Di Ford comes from the generics’ perspective. As Executive Director of the GMIA, an industry organization comprising the country’s biggest generic players Alphapharm, Apotex, Genepharm, Hospira, Sandoz, and Sigma, she is the voice of generic medicines, which account for approximately 30 percent of PBS in value terms. Ford says that, “unfortunately, unlike other comparable countries, there is no generic specific policy in Australia aimed at increasing usage of generic medicines.” Despite this lack of specificity, GMIA retains an ambitious goal: to increase generics’ market share from 30 percent to 50 percent. Without a clear government support policy, Ford will be relying on other mechanisms to achieve this objective. “As it has been shown in Europe in particular, one of the ways to increase generic usage is through public information campaigns. It is important that consumers understand that generics are safe, [high] quality, effective

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Australia Report medicines, and that they can save money if they choose a generic as well as supporting the PBS.” And support the PBS they shall, as the government estimates $3 billion in savings over the next 10 years. Over this time, GMIA will play a central role, as Ford says the association is “pleased to be involved in the development of the generic awareness campaign which the National Prescribing Service is managing on behalf of the Department of Health and Aging.” Alphapharm, Australia’s leading generics company — whose market share alone is twice as large as all its competitors combined — started in 1982, and now accounts for 20 percent of Australia’s prescriptions. John Montgomery, the company’s CEO, points to the PBS reform implementing a $1.50 pharmacist payout on each premium-free product dispensed as a step in the right direction. He says, “The good news is that pharmacists, for the first time, will have an incentive to dispense premium-free products, which for the most part are generics. We believe the 25 percent price cut is a very blunt instrument. But on the other hand, we now have the beginnings of a generics policy from government.” Montgomery, himself a past head of the GMIA, also brings up the advertising campaign Ford refers to, which he believes will make consumers more aware of generics “and also to address some lingering issues around quality and sameness of generics versus branded drugs.” However, commenting on the Rudd government’s decision to reduce the program size to a more modest $5 million from an initial $20 million promise, he notes that “the industry is disappointed that, quite honestly, the government has reneged on a very important part of its commitment.” Alphapharm has risen to pick up the slack in the form of its own commitment, a unique consumer strategy honed over the last seven years. “Alphapharm is the only company in the industry advertising our corporate name on TV radio and in print, and informing consumers about the benefits of generics,” Montgomery says. “Recently, we also started a major new campaign reinforcing the opportunity that now exists with the $1.50 pharmacy incentive to kick-start generic substitution.” This generic substitution has seen an influx of smaller companies, from Pharmacare to Genepharm, with the latter’s recent acquisition of Indian firm Strides’ Australasian operations allowing it to gain scale and move up the rankings, chipping away at Alphapharm’s previously overwhelming 80 percent-plus market share. Although the Atlas of the Australian generics industry may be taking a substantial burden on its sizable shoulders, Montgomery seems unconcerned at the prospect of competition making significant inroads. “Having two-thirds of the market, it may look as if Alphapharm is an easy target,” he begins. “However, in the context of a market

where there is a government policy on generics and an incentive to dispense generics, I would argue that it’s the smaller companies that are thinking about their reason for being. Alphapharm’s reason for being has always been to increase generic substitution, and now that the government realizes it has to do something from a financial incentive standpoint to increase generic substitution, we feel our long-held strategy is being validated by government policy. In this sense, the company certainly has a clear focus on increasing generic substitution, and is very much on the front foot.” “The big question is how, or to what level, can we drive generic substitution?” Montgomery muses, before digging into the numbers to elucidate the corporate strategy. He continues: “About 55 percent of all prescriptions on the PBS are substitutable, yet only 33 percent are substituted. Alphapharm has 22 percent, and other companies have 11 percent, with the other 22 percent not yet being substituted. Alphapharm could significantly increase its size if it can penetrate that unsubstituted 22 percent. And this 22 percent is what we are really excited about. We’re focused on the 22 percent we don’t yet have.”

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Australia Report sure the big players won’t focus there. Despite Alphapharm’s focus on the They won’t look at molecules with a up-and-coming piece of the pie, some market size of $5 million to $10 milare more than happy to sit back and lion per year, but rather at those with chip away at the giant. Pharmacor is larger sales. Pharmacor’s bread and the newest entrant in a market where butter will be in the small niche prodmany may be more timid to try, given ucts where it’s not worthwhile for the the shake-up and regulatory changes larger companies to focus.” thinning margins all around. ExplainSalama highlights an important ing the rationale behind acquiring change having a ripple effect on the Pharmacare’s generics business some way pharmacies and companies intertwo months prior to the August 1 price act. With product prices dropping bereductions, Jean-Pierre Salama, Pharlow the government-subsidized price, macor’s CEO, explains, “Pharmacare pharmacies are free to price products Laboratories established Pharmacor apas they wish; beforehand pharmaproximately one year ago, and decided Jean-Pierre Salama, CEO, Pharmacor cies were forced to maintain identical to divest the company two months ago, prices. Salama describes the impact as realizing that they preferred to stick to their core business of OTCs and nutritionals.” Salama, via his Pharmacor sees it: “Where there was no competition on the existing OTC specialist company Meditech, had for two years retail front, in terms of pricing, the retailers would discount been undergoing registrations and filings with the TGA, and generics and not follow the government-recommended pricas a result, Salama says, “acquiring Pharmacor represented es. This now means that everyone has to keep close attention an opportunity to gain a valuable customer base and distribu- to their bottom line, and go for the most competitive offer. tion network. It was perfect timing, and we sat down with the Previously, pharmacies and retailers were looking at the most convenient offer on the market, going with an Alphapharm people from Pharmacare to negotiate a deal.” Salama describes the company’s niche focus: “The strat- which has a complete range, and sticking to them. Now, all egy falls into two parts. Anyone looking to enter the Austra- pharmacies are being forced to play ball, and looking for lian market would need a niche portfolio. Of our 16 filings, more than just convenience. This will drive generics substitumost fall into this category and are of the type that bigger tion, and that’s where the growth is for generics companies. companies such as Sigma or Alphapharm would disregard. The fact that the boat’s rocking now is perfect timing, and Secondly, in the future Pharmacor’s niche of products en- things are coming together well with reforms.”

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Australian R&D and clinical trials: A viable hub in the Asian wheel?

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NHMRC Research Funding Investment from 1999-2010 800 700 600 500 400 300 200 100 0

19 99 -2 20 001 00 -2 20 001 01 -2 20 00 02 2 -2 20 00 03 3 20 200 04 4 -2 20 00 05 5 20 200 06 6 -2 20 007 07 20 200 08 8 -2 20 009 09 -2 01 0

lthough generics are an important part of any pharmaceutical market, for Australia, the more innovative concerns are fueling growth and investment, and central to these is the National Investment ($ millions) Health and Medical Research NHMRC is Australia’s peak body for supporting health and medical research; Council (NHMRC). Headed by for developing health advice for the Australian community, professionals, and government; and for providing advice on ethical behaviour in healthcare and Professor Warwick Anderson AM, in the conduct of health and medicine. the NHMRC is the Australian govSOURCE: DOHA Annual Reports: 1994-95, DHA PBD 2005-06, Forward Estimates—NHMRC MREA Model ernment’s principal funding body for health and medical research, investing over $600 million annually across a wide portfolio of funding vehicles. Professor Anderson says that since its establishment in 1936, “NHMRC has always been responsible for supporting the best peer-reviewed research applications. More recently, we have worked to ensure that NHMRC’s research support commitment does two things: fund the best research; and build the capacity to undertake health and medical research through some really innovative fellowship schemes.” These schemes, while admittedly not always with commercial interest at heart, or even in mind, contribute to Australian research capacity and create opportunities for spinoffs and eventual successes beyond initial predictions. In this regard, Professor Anderson notes, “For example, Professor Ian Frazer along with others in his team at the Queensland University are benefiting from NHMRC-funded support, including for some of his early groundbreaking work in the development of Gardasil, the cervical cancer vaccine.” Although Gardasil is the best known success story, there are numerous examples of excellence. Professor Anderson boasts, “Just speaking to health and medical research, there is no question that Australian researchers are outstanding. In bibliometric analyses of our sector, 2 percent of Australian papers are found in the top 1 percent of papers worldwide. One would expect it to be the case that Australia, being ‘out of sight, out of mind’ in a sense, would not be as present there, but the fact that it’s so highly represented at this level is a recognition by the NOVEMBER 2008 FOCUS REPORTS

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Australia Report rest of the research community that the research produced in Australia is of outstanding quality.” Getting further niched in the areas of expertise, Professor Anderson points to a particular strength in public health research, representing 3 percent of the top 1 percent of the world’s literature and other areas like immunology, cell biology, and cardiology. Less tangible than these hard numbers, however, are the tendencies underlying this output. Speculating on some of the less obvious success factors, Professor Anderson notes, “There is also something to be said for the Australian culture around collaboration.” Though this too is backed up by hard numbers: approximately 65 percent of published papers in Australia have an international component. This collaborative spirit has extended to the private sector as well. Although Australia represents Sanofi-aventis’ second largest sales contributor in the Asia Pacific region, the company is not content to rest on its laurels, instead taking advantage of an attractive environment. Managing Director Jez Moulding puts it quite clearly: “Australia, with its science base and extensive knowledge in scientific affairs, is really a hub of excellence for the Asia Pacific region in terms of clinical trial activity.” As recently as 2007, Sanofi-aventis shored up its $34 million annual R&D com-

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mitment to bring further clinical research investments, totalling over 1,000 active research sites and 15,000 patients currently involved in the company’s trials. From Big Pharma to Big Biotech, Australia is recognized across the board. Richard Davies, managing director of Amgen, says, “Looking at Australia’s history, as a country with 20 million people, research and development has punched above its weight statistically. Amgen reflects that [idea], with 10 percent of its clinical patients in total taken from Australia. That’s because Australian researchers have the skills to explore new chemical entities and biologics of the future. Amgen partners to help them invest in and understand new disease areas. Australia also has key positions in world thought leaders. In osteoporosis, for instance, there’s a disproportionate amount. There’s an imbalance between the country’s market potential and the potential to partner in other parts of the business.” On the homegrown side of things, local companies are taking advantage of the fertile ground as well. Arana Therapeutics, a global player in the antibody and protein therapeutics sector, and one of Australia’s largest biotechnology companies, recently opened new facilities in Sydney, which will be dedicated to creating products and platforms for the treatment of


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Professor Warwick Anderson AM, CEO, NHMRC

inflammatory diseases and cancer. The facilities were opened by none other than Senator Kim Carr, who heralded Arana as “a model the whole industry can learn from.” Created in May 2007 by the mergers of Peptech and EvoGenix, Arana represents what CEO Dr. John Chiplin calls, “A combined entity which is poised to be

Bayer: A latecomer here to stay

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lthough many of these companies’ investments can trace their Australian roots back to encouragement from the Factor (f) industry stimulus package, some very large companies are rather new to the local investment game. Bayer, with €32 billion in sales from its three groups of CropScience, Material Science and Healthcare, is big enough to invest €1 billion in its Global Climate Change program alone. CEO Hans-Dieter Hausner explains the company’s recent foray beyond the consumer in the local market: “Only two years ago, Australia was not on the global map for clinical trials at Bayer Schering Pharma. Today, we run global trials with around 900 patients, 230 invesHans-Dieter Hausner, CEO, Bayer tigators, and are spending in excess of $10 million with partners on local R&D in Australia. Bayer in Australia is now clearly part of a global framework, thus bringing accelerated global trials to a country where investigators are known to be of an extremely high quality.” But for a country with a long history of such quality, the question naturally arises: why didn’t the company take advantage of it sooner? “It’s important to recognise that for a company like Bayer Australia, as part of a global R&D network, we somehow also compete internally with other countries for R&D resources. However, we are proud to say that we have established over the last 18 months a professional Medical and Clinical Development team, which can cater to these R&D requirements,” Hausner says.

a major player on the worldwide antibody stage,” and a company that has “genuinely built critical mass in this Australian merger to compete aggressively in the fastest growing sector of the international human therapeutic market.” And the examples abound, from small to large. With three major Jez Moulding, Managing Director, sites in the country, Pfizsanofi-aventis er calls Australia home to one of only two Pfizer Biometrics centers around the world, making Sydney a global focus for clinical trial work. This centre’s $14 million investment, on top of the company’s $50 million-plus in annual commitments, provides services for clinical research undertaken by Pfizer in Australia, Asia, Africa and the Middle East. The feather in Australia’s cap was that the country location was chosen over Singapore and India — a small but notable contribution to reversing the offshoring of Australian researchers.

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Australia Report Eli Lilly invests $40 million annually, following the establishment of InterContinental Information Sciences (ICIS) unit for R&D in the region, one of the largest commercial trial management operations in the pharmaceutical industry. Novartis is yet another major contributor, with $30 million earmarked per year; and last but not least comes AstraZeneca, Australia’s largest private sector investor in medical R&D, with over a quarter of a billion dollars invested in the last decade alone.

CROs: Oil in the R&D engine

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lthough Big Pharma and its biotechnology counterparts may be known for driving R&D and innovation, oftentimes critical parts of the research value chain are outsourced. Contract Research Organizations (CROs) play an important and growing role in offering capacity to drug developers, with revenues of the nearly 1,100 providers in a fragmented global market estimated to grow from $14 billion in 2006 to $24 billion in 2010. As sales growth outstrips research capacity, CROs have become an integral part of the R&D process, having evolved from basic preclinical services in data management or monitoring, to advanced packages covering the full spectrum of trials through commercialization and beyond, amazingly accounting for half the overall corporate R&D work force. And in biotechnology, a comparative lack of infrastructure to the Big Pharma brethren has accounted for an ever-growing drive to CROs, and along

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with it the positive side-effect of lower times-to-market. As Australia’s oldest CRO, Datapharm has seen this trend develop over the past 21 years. Managing Director Helen Allars says it’s the company’s local knowledge of sites and expertise that is “attractive for overseas companies wanting to do or to extend their clinical trials in Australia. Where an Dr. John Chiplin, CEO, Arana American company wants to Therapeutics do a melanoma study in Australia, they’re better off using a local CRO like Datapharm, which knows a lot of the sites and the best way to go about doing trials. This local connection becomes an advantage in completing the work successfully.” Pretium confirms the importance of a local advantage, especially in the company’s specialty of health economics. Munro Neville, Pretium’s director of Medical & Operations, and Joyce Lloyd, Pretium’s managing director, explain that “undoubtedly, successfully listing drugs on the PBS in Australia is becoming more difficult. The burden of proof and the height of the hurdles are becoming more challenging. The amount of data collection and work involved in preparing and presenting a convincing case to government is significantly more than it was even three years ago, and more so than in other countries, requiring a lot of customization of global approaches to funding.” Neville and Lloyd note the disadvantage of the cookie-


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Australia Report cutter method employed by MNCs operating in Australia. “Most companies use what are called ‘global value dossiers,’ as part of an overall approach to seeking funding, but these are often of limited use in Australia. Much customization is necessary to satisfy the requirements of the PBAC Emeritus Professor Lloyd (Pharmaceutical Benefits Sansom AO, Chair, PBAC Advisory Committee), in addition to work by the local affiliates in educating the global headquarters about why they must deviate from accepted pathways.” The bottom line? Neville and Lloyd say, “This results in quite a complicated and involved process that can often be frustrating for the local affiliates, but provides an interesting opportunity for Pretium. For example, many global health

economics models are not sufficiently robust to pass the highly in-depth and complicated evaluation process that the PBAC employs in its assessment of product value.” Emeritus Professor Lloyd Sansom AO, the man behind this in-depth and complicated process, is the chair of the Pharmaceutical Benefits Advisory Committee (PBAC). He describes the organization as “a statutory committee of the Australian government which was first established in the 1940s, and which makes recommendations to the Minister of Health and Aging regarding medicines which should be considered for funding on the Pharmaceutical Benefit Scheme (PBS).” Recognized as a global opinion leader in health technology assessment and cost-effectiveness, they represent two complementary tools for evaluating government healthcare expenditures. Trying to bolster acceptance abroad, Sansom speaks of the importance of domestic buy-in. “There is a clear acceptance in the country that cost-effectiveness is the appropriate way to value medicines expenditure. It is my strong personal belief that the cost-effectiveness paradigm for subsidy consideration will become common in both developed and developing

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Australia Report countries throughout in the world. Increasing demand, coupled with increasing cost, will direct and demand that governments and third party payers will look at value for money — they have to.” Professor Sansom looks outside Australia for an eye-opening comparison: “Simply examining the percentage of GDP spent on health in the USA, at almost 17 percent which compares to an Australian expenditure of approximately 9.8percent (and most European countries which vary from 8.5 percent to 10 to 11 percent), and comparing health outcomes and health access equity between countries strongly suggests that it is not necessarily how much you spend but the effectiveness of that expenditure.” It is this understanding that, in Australia, seems to favor the local players. In terms of being a local expert, Nucleus Network represents a newer breed of homegrown success story. As CEO Andrew Giddy explains, Nucleus Network “is an early-phase clinical research business, and is somewhat unique, as it is a not for profit organization, being wholly-owned by the Baker IDI Heart and Diabetes research institute. Originally, Nucleus Network was set up with a grant from the Victorian government, but since then, it has established a commercially based business doing early phase clinical trials.” Despite its status as NFP, the commercial orientation seems logical, considering that an estimated 80–90 percent of the organization’s work is for big pharma, counting eight of the top 10 pharma, and three of the top five biotechs, as clients. “We work hard to chase down leads, and our business development staff will be in North America between two and four times per year, and we have a full-time marketing manager based in San Francisco covering the Bay area,” Giddy notes. As to the secrets of the organization’s success in securing business from top players so soon after its founding in 2002, Giddy says: “The key with large pharmas and biotechs is that they do have large volumes of studies, so it’s all about track record. If you can get them through the door and get a first study under the belt and do it well, then you get the second, third, fourth, etc. Nucleus Network finds it builds up momentum with each of them, and this keeps things busy.” Of course, as Australian CROs are dependent on international business to fill capacity and grow, they thus become dependent on exchange rates, which heavily influence the country’s attractiveness. Andrew Giddy notes that for Nucleus Network, “one of the issues for the organization during this year has been the fluctuation in the Australian dollar, which at the beginning of 2008 was at $0.82 USD, before reaching heights of $0.98 USD and falling back down to $0.83 USD. Certainly, Australia was price-competitive relative to the US and Europe. It lost some of that price competitiveness during part of this year, but since the AUD has

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fallen back down again, it is now again very attractive to the USA, which is good.” Nucleus Network is not alone in expanding its reach abroad. Datapharm, too, has joined the fold. “Datapharm currently markets at overseas conferences, and for the past few years, has attracted work from overseas companies to Australia” according to Helen Allars, and may be soon conducting trials for an innovative surgical device in India, America, and Poland. Novotech is another Australian CRO that has grown from humble beginnings, starting as a regulatory affairs department in 1996 to offer a broad range of services catering to biotech and mid-size pharma in the present day. Counting 80 percent of the company’s business as international, it’s not surprising that Alek Safarian, Novotech’s CEO, is planning on expanding the company’s global footprint. “If you are not in Asia already, you should take a very close look at this market, because in terms of what the region has to offer, it compares to what Eastern Europe had to offer 10 years ago. In the mid 1990s, the region began to open up Andrew Giddy, CEO, Nucleus and there were a lot Network of the same questions hanging over them as there are now about Asia,” he says. Safarian also states that in the next three years, the company’s focus will be on making inroads into Asia; although the company already has an office in San Diego to cater to American clients, $8 million in venture financJoyce Lloyd and Munro Neville, Managing is propelling ing Director and Director, Medical & growth into Asia Operations, Pretium with a Shanghai office. “Even though it’s growing from a much lower base, the potential for Asian countries to become a real powerhouse for a source of clinical trial data is huge. Novotech’s first expansion to the region occurred last year, but will be emphasized much more going forward,” and Safar-


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Australia Report ian also talks about the expected edge of an Australian CRO in the Asian space. “In terms of locally based CROs, in many Asian countries there are not very many, and a lot of campuses supporting clinical research are made available to CRO services through global organizations. As Novotech enters George Varkanis, Managing further into Asia Pacific, Director, Celgene we mainly expect to have the same advantages as in Australia, with lower costs as a local CRO, but with an office in Shanghai facilitating decision-making, which is expected to make the whole process considerably easier.”

(Too many) Men at work: Overemployment down under

was quite a high employee turnover. One might say we made the wrong recruitment, but at that stage it was a problem to find good people when there were simply not many around. Another issue was that we probably underestimated the cost of good people.” Costs notwithstanding, Torheiden says the company decided six years ago to invest heavily in the CCB market, and alongside it a concurrent increase in salespeople. However, things had swung too far the other way, as Torheiden recalls, “with that investment Solvay employed, in principle, far too many salespeople for its turnover at that time, but we had to be competitive in that elephant market. Solvay learned a lot over that time, and the company within 18 to 24 months developed a really good and effective sales force team, adapting more toward quality than quantity.” Managing Director of Celgene, George Varkanis, knows plenty about quality, which is part of the company’s success in being of the top 10 performing stocks on the NASDAQ over the last decade, and spearheading major expansions to into Europe, Asia Pacific, and Japan from the biotech’s New Jersey headquarters. Explaining the growth in human resources since start-

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t’s perhaps unsurprising that niche providers in the CRO space would be lacking for talent, but this tightness in the labor market extends beyond the specificities of high-level statisticians and experts in Australian regulatory policy. Australia’s booming economy offers a robust consumer market at all levels of healthcare expenditure. At the same time, those consumers are at unprecedented employment levels — not necessarily a bad thing, unless you want to hire one. The pain is especially acute in the pharmaceutical sector, whose unrelenting demand for highly skilled, specialized labor creates an added challenge to growing companies. With levels at 30-year lows, Australia’s unemployment rate of 4.3 percent is expected to rise as the economy cools down from an easing global commodities boom and consumer spending, with record production levels from companies like Rio Tinto and BHP countered by significant cutbacks at Qantas and Starbucks. Although many companies may be desperate for people, it will be the more creative firms that attract and retain the necessary human capital. Dieter Torheiden, Solvay’s Managing Director, has experienced this labor crunch firsthand. In his first years in Australia, Torheiden recounts the path he took towards filling the ranks: “In the early stage, the policy was to focus on headcount, believing frequency would be better than quality. This had some negative effects in 2002 and 2003, where there NOVEMBER 2008 FOCUS REPORTS

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Australia Report ing Australian operations in 2006, Varkanis notes, “Starting greenfield, you can do what you want. You’ve got nowhere to hide and nobody to blame, and that’s the fun part in building an organization. Hopefully, you don’t make too many mistakes, while fostering a culture of taking calculated risks, empowering and encouragWillem Dekker, Regional Direcing people, and developing tor, Nycomed teams. Many people at Celgene here and internationally have worked in different positions in Big Pharma, and can apply many of the good things they’ve learned in terms of processes, procedures, and best practices when building the business here. The people joining Celgene like building things and have an entrepreneurial spirit that’s related to risk-taking.” Given the relative youth of the company’s Australian operations, how does Varkanis see Celgene as being differentiated in the employment market? “To the industry as a whole, Celgene represents another interesting company, and represents a fresh option for career development, as an attractive alternative offering a new environment, new products, and a new perspective,” he says. Although not quite as fresh as Celgene’s operations, Nycomed too tries to stand out culturally to attract the best and brightest. Willem Dekker, Nycomed’s regional director, says, “When I came to Australia in September 2002, one of Nycomed’s goal was to create a new and unique business culture

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that would create a distinction in the market and provide to staff an identity that would resonate with them as well as our customers. It became a ‘pioneering’ culture.” Beyond the buzzword, Dekker explains what it really means from day to day: “A culture that was low in complexity and high in innovation, both in terms of business as well as R&D, where people are open and willing to multitask and are performance-driven. All this is easier said than done. With hard work by everybody in the organization, a ‘step wisely’ approach and clear goal-setting for each year since incorporation, ‘pioneering’ has helped us to get to our current position of strength. ‘Pioneering’ is not a stage of development in the early life of the company, but a continuum. So Nycomed in Australia wants to be ‘pioneering’ now and into the future.” But maintaining a continuum for the better part of a decade is a difficult challenge, as Dekker acknowledges. “To retain the momentum it is essential that we attract, via a careful selection process, a certain type of person and manager that fit in the environment of a mid-size organisation. The business culture develops into a business concept, and it becomes a managerial strength. We believe that this is not the average management style, and it’s one of the reasons people find Nycomed attractive as an employer and like to join such a work environment. If you would ask around in the market, this is an image Nycomed has created for itself, and an image that we are all proud of and promote in the market.” Radek Sali, CEO of Swisse, explains how the natural medicines company differs from some of its pharmaceutical counterparts. “I came to Swisse with a background in a large public company, and they always try to inspire, and the values will be written on the wall, but there was never real synergy between


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Australia Report those values and what really happens. This harmony is what really appeals to me in working at Swisse,” Sali says. Regardless of the differences, Sali notes that the industry’s people-first maxim still apRalf Dahmen, Managing Director of Galderma plies: “When I go through the company’s 4Ps (people, principles, passion before profits), people are just so important to ensuring the quality of the product. You need to have the best marketing people and the best product, and then comes passion. You must be passionate about your career, as you will be doing it for the majority of your life. It’s like your second marriage in life, and you need to be happy in that marriage in order to be successful. So if you are not passionate, you are certainly in the wrong industry. At Swisse, we really make sure that every person is really passionate about what they do.” Of course, in marriage as in work, even a philosophy as uplifting as the company’s CLED — Celebrate Life Every Day — must be looked at realistically. Sali says “in

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order to make this feasible, there needs to be a very inclusive approach involving all the elements in our strategy. Swisse needs to be open to feedback, and maintain regular communication to ensure alignment and that we are very much focused on our teams. If you have good, passionate people, they are going to be excited about working and delivering results.” Yet transfer of capital is not limited to the human side. Intellectual capital as well, this time in the form of global marketing standards, can be illustrated in two key case studies in Australia’s OTC sector.

Bringing international marketing standards to an international market

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lthough Australia may be the source of influence in the world’s health technology assessment and cost-effectiveness approaches, it has recently relied on international expertise to revitalize some former laggards in the marketing department. Take the case study from Ralf Dahmen, managing director of Galderma, a joint venture between L’Oreal and Nestle competing in Australia’s $376 million dermatology category. Dahmen points to Loceryl, a lacquer used to treat fungal nail infection. “The work on this campaign began with consumer research to test some assumptions about who suffers from this condition and how they treated it. In the case of Loceryl, the question was whether


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Australia Report we were targeting consumers with the right message and communicating with relevance.” As it turned out, Galderma wasn’t, but fortunately, says Dahmen, “the research also highlighted an underestimation of Loceryl’s potential, and on that basis we expanded the campaign to include our first ever television commercial. The campaign educates to help identify the problem and presents a solution to address it, with information about how to find out more (i.e., ask your pharmacist or visit the website. It’s a no-nonsense format to communicate a medicinal message. “As a marketer, at some point you have to talk with the patient and stop assuming you know how they feel — no Allergan’s new Sydney offices matter how straight forward the condition might be,” continues Dahmen. “This demonstrates a fundamental differ- Australia coming a long way to helping get to where it needs ence between assumption- and evidence-based marketing.” to go.” Australia has since grown 26 percent, and is one of While Dahmen’s approach may be a more nuanced as- Stiefel’s main growth contributors in the area, to make the sessment of a situation in need of change, Stiefel’s Managing company ranked the 11th fastest growing pharma company Director Troy Guthrie needed a more extreme approach. Not- in the country. ing a sea change around the shuffling of upper management, Despite this apparent can-do attitude, and a market reGuthrie remarks, “Before April 2006, Stiefel ran each individ- plete with companies content to help themselves, the Austraual country separately with a different management structure lian government is giving a hand up as well. and product focus; basically, everything was independent.” Since that time, when global CEO Charlie Stiefel took the company’s reigns, Stiefel “is globalizing and standardizing, to be the Global pharmaceutical player that it is, putting things into practice and harmonizing across the range of procedures, policies, processes, practices, and products,” says ustralia has a long history of helping out the pharmaceuGuthrie, who notes that when he became managing director tical industry; the first pharmaceutical industry-specific in 2006, Stiefel looked a lot different than today. “We had a incentive program was the $1 billion Factor (f) introduced in field force of 13 people, with no customer database, no IMS 1988. During a period of disinvestment and losses in manufacdata, no established territories, and no sales targets. There turing capacity, it successfully created a cumulative production was a sales-driven mentality with little scope for marketing increase of $4 billion, incremental R&D expenditure of $600 activities and little direction, with mediocre achievement.” million, and more than 1,000 jobs, transforming the sector into Guthrie explains his action plan thus: “Basically, my first a key economic contributor. In turn, Factor (f) was replaced task was to organize the field force. There was a new product with the Pharmaceuticals Industry Investment Program (PIIP), on board called Duac, which is pricontinuing its predecessor’s initiative to marily a prescription product. Of the a lesser degree, offering $300 million in 13 representatives I mentioned, some funding from 1999 to 2004, at which were looking after dermatologists, point the Pharmaceuticals Partnership GPs, and pharmacies, while some Program (P3) took over through the were just looking after GPs, so first present day, and will end in 2009. This they had to be realigned into an ethilatter program provided half the levels cal and OTC field force, and increase of support, in absolute dollars, as PIIP, the numbers in the team to effectively leading many in the industry to quescover both.” After implementing doction the government’s long term comtor and pharmacist databases, using mitment. IMS data for sales tracking, call rates, Will Delaat, whose PIC is hopMagellan databases to qualify docing for government to step up, says tors, and other management systems, that “by 2009, there needs to be a Guthrie’s more quantitative approach successor program, hopefully with had effectively transformed the orgamore funds and that encourages nization. “This has resulted in Stiefel Patrick Tete, CEO, Servier partnerships between big pharma

Giving a hand up—and out

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Australia Report and biotechnology. With big pharma undergoing global rationalization, it’s important for Australia to retain its manufacturing presence, and to at least hang on to what the country has currently got. If there were a government scheme to at least reward the current levels of manufacturing, parent companies would notice the government’s commitment, even if not in the form of incremental investment,” concludes Delaat. This comes on the heels of a recent facility closure at Merck Sharpe & Dohme, which will retain its packaging operations but lose medical production capacity. Few see the future of Australia manufacturing in packaging. Delaat, former head of MSD, explains the challenge involved in taking the next step: “It has been difficult to come up with a scheme to meet all the stakeholder requirements: Big Pharma, local companies like CSL and IDT, biotechs, and generics all have their individual issues. Proposals were made to Ministers Macfarlane and Abbott in the previous government, and they required a very strong business case.” Unfortunately, said case did not materialize, and “along with the change of government, the proposals got lost in the shuffle. Now,

however, they are being revisited with Minister Carr looking to boost manufacturing, innovation, and R&D.” Fabian Dwyer, General Manager of IMS Health, agrees. “Australian people hear the messages of ‘innovation’ and ‘clever country.’ However, I don’t foresee large MNCs continuing vast manufacturing facilities here, when Brazil, Ireland, Singapore, etc. have significant tax concessions for startup or investment that Australia does not appear committed to matching,” he says. Ian Chalmers seconds this opinion, saying “If we’re going to seek significant investment in onshore manufacturing operations, we must find and exploit niche opportunities rather than large-scale, lower value–added small molecule manufacturing, for which there is already very significant global competition.” He also offers a way out: “In my view, an obvious opportunity for significant upscaling here lies in R&D and clinical trials, particularly early stage trials.” Such niche opportunities were the focus of the Commercial Ready program, a competitive merit-based grants scheme providing funding between $250,000 – $5 million to smaller companies commercializing new technologies. Paradoxically,


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Australia Report the program was scrapped in late 2007, with the government citing savings of $700 million over four years. However, at a one-to-one matching of private to public investment, some critics suggest the government would be wiser to look at both sides of the equation. Especially after June 2008, when the federal government offered a $72 million subsidy for Toyota’s new Prius manufacturing facility — after the location decision had already been made. To paraphrase Elle MacPherson, some executives simply stated that for Big Pharma executives, it’s not even worth getting out of bed for $10 million over five years. Other companies, on the other hand, are not so dismissive. Servier is an example of one company who benefited from P3, receiving $7 million from the government — although CEO Patrick Tete doesn’t credit much impact in his company’s case, perhaps an understandably small amount for a business turning over in excess of $100 million annually in Australia alone. “P3 was not one of the main reasons why Servier has invested more in Australia of late.  What drives Servier’s headquarters to conduct more research in Australia is a long term strategy that addresses low prices in the market, as well as the impact of the PBS reforms and the delinking of the F1 & F2 formularies. The Australian context gives Servier more visibility in the long term and pushes the company to invest more in this country.  Of course, the P3 helped, but it was not a driving decision for our French headquarters to invest here.” Indeed, such decisions can be traced back over 20 years, creating what Tete calls a virtuous cycle, feeding the company’s advanced clinical facility investment and research capacities upon itself. As a privately owned organization — by the legendary Jacques Servier, who grew the company from a pharmacy of nine to an MNC of over 20,000 — Servier is free to invest more than its peers. Tete notes, “We invest around 15 to 20 percent of our turnover and we have 200 people working in Australia, of which 30 are wholly dedicated to our R&D activities. In fact we invest three times more of what big pharma invests here.” Arana Therapeutics received $6.6 million from P3 as well, adding to a $180 million war chest accumulated mainly from divesting its share of UK’s Domantis to GSK. It will use that money to accelerate the development of its four lead drug programs, for treatment of diseases including rheumatoid arthritis, psoriasis, osteoporosis, and cancer. With some worried that scrapping initiatives like this risks Australia losing its reputation as “the clever country,” others maintain that a clever country must be backed up by clever spending, especially when it is “at the crossroads.” Some critics believe that the more apt road comparison would be to a roundabout. Nonetheless, they will be looking to specific initiatives like the PISG to galvanize the industry going forward

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A roadmap toward innovation

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an Brown, managing director of Genzyme Australasia, and member of the PISG, speaks of the overall positive industry perception of the group. “Senator Carr’s initiative to establish the PISG, and the cross-sectional membership therein, really speaks to what the industry will look like 10 to 20 years down the road. The broadly defined pharmaceutical industry is the second largest exporter in Australia, but the question of sustainability in the global context must be assessed.” In creating this sustainability, Brown assesses the role he expects the group to play. He continues: “The PISG will help define what is important to the future, and from a biotechnology and personalized medicine standpoint, the future lies in targeted therapies that require research, biotech startup incubation, clinical trials, and aligned tertiary education. The future of pharmaceuticals will be more about the outcomes of targeted therapies employing a broader personalized medicine array of genetic screening, diagnostic testing, both small & large molecule therapies, and cellular and genetic therapies.” George Varkanis, managing director of Celgene, speaks from the point of view of a new-to-Australia global biotechnology firm. While Varkanis believes the group qualified and looks forward to their findings, he says, “I hope the government ultimately acts on these findings, and takes them into consideration when investigating investment into manufacturing and R&D. I’d like to think that the government won’t shy away from the real reasons why companies invest in certain countries, and this has to do particularly with financial incentives. Why is there a big pharmaceutical industry in Ireland, Singapore, or Puerto Rico? It’s quite a consistent common theme, so let’s not ignore it if we’re going to be serious about putting an investigative group together.” Senator Carr addresses that theme thus: “I was recently in the US, and was advised that a plant that had been scheduled to come to Australia had gone to Singapore on the basis of a complete, total, and permanent tax-free holiday. I don’t know if that’s a sustainable strategy for any government to follow, and I can assure you it’s not a sustainable strategy I would recommend for the Australian government.” Mark Glover, VP and Managing Director of Allergan, addresses that sustainability: “Allergan is an R&D focused innovative company, and wants to have product sustainability within the pricing structure. The availability of low-price generics does play an important part in the sustainability of the PBS,” Glover says, adding as a caveat, “As long as there is timely access to R&D-based products at reasonable prices to continue to support innovative product development by R&D


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Australia Report focused companies. I would hope that this is what should come through the PISG forum.” Allergan, a world leader in medical aesthetics (BOTOX®, Juvéderm and breast implants) is in a unique situation. While the majority of the company’s neuroscience business Andrew Carter, CEO, Commercial Eyes is funded by PBS, around 50 percent of its eye-care lines, but only 5 percent of the obesity management product LAP-BAND® are funded. Glover hopes the PISG can balance the push and pull strategies inherent in trying to attract investment while dealing with the difficulties present in PBS reform. “Once a therapeutic is approved and funded, Australia has one of the highest penetration rates around the world. The barrier to entry is twofold. It

is a complex health outcomes–related process that takes a long time to achieve success and final approval has a tendency to be at a lower price than is sustained in either the US or Europe. The PBS therefore has some attractiveness, as well as some absolute challenges of getting drugs approved through the review mechanism. There is always a trade-off,” he concludes.

Private equity and venture capital: Too far to go?

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his innovation system, while robust in its scope and production, has not been utilized to its full potential. Fabian Dwyer puts it simply: “The difficulty lies in the fact that there’s not the venture capital money like in the West Coast US, ready to pour millions of dollars into a startup to commercialize such products.” Looking to the world’s most liquid market is perhaps an unfair yardstick, but when stateside VC firms invest over $3 billion per quarter in private companies, it’s an understand-

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Australia Report last year’s AusBio, where Genzyme’s ably enviable target. Australian Pricorporate development staff convate Equity, on the other hand, seems ducted over 30 assessment meetings also underutilized, representing just with various Australian biopharma20 percent of total M&A activity — ceutical and diagnostics companies half the levels in the US and UK. to supplement the 200 M&A reviews Although the obvious source of Genzyme performs annually as a financing is overseas, some opportuglobal corporate development effort. nities are originating much closer to Brown notes that “there are differhome. One example is specialist bioent ways to feed into the program, tech Genzyme, which, as Dan Brown but anything local requires a local relates, in 2005 undertook an “acchampion.” quisition of Verigen, a cell therapy Of course, it’s always easier to find company with a key facility in Perth, a local champion when your idea has WA, specializing in autologous human commercial substance. That’s where cartilage cell therapy. This innovative Commercial Eyes comes in. As CEO technology has been strongly support- Dr. Anna Lavelle, CEO, Ausbiotech Andrew Carter puts it: “At Comed by Senator Carr as well as Premier mercial Eyes, we start with the end Carpenter in WA. The broader human cellular & tissue therapies (HCT) area is an area with (i.e. the market) in mind and work backwards. We don’t evolving regulation today. It’s interesting, because there’s a do drug discovery or clinical trials, which means that unconvergence where health [people] are asking, ‘How do we like service providers that operate in a similar space, our regulate this?’ and innovation and industry [people] are ask- entire business is commercialization. We assist in the development of commercialization strategy, provide market ing, ‘How do we encourage this?’” Brown continues his assessment of the landscape. “It’s and product feasibility analysis, prepare regulatory and interesting, because there are over 400 startup biotechnol- PBS submissions and medical information and pharmaogy companies in Australia. All of them have good ideas covigilance, assist with product launches, marketing and — some sustainable, some not — but a lot of them run out lifecycle management, right through to dealing with the of money because they have to commercialize too early. challenges of post-patent expiry competition.” Commercial Eyes’ offer has been sufficiently broad to Given the innovation environment being nurtured by Senator Carr and the PISG, which brings biotechnology play- the large variety of companies requiring their services. ers to the table alongside a broader array of stakeholders, “We’ve been able to offer a range of capabilities that supit brings Genzyme closer to the opportunities and to see port emerging companies that don’t have the full range what is out there.” One such opportunity was seized at of resources in house, while providing larger, established

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Australia Report companies with the opportunity to outsource some of their functions to us once they have considered the efficiency and economics of doing so,” says Carter, who has plans to replicate the company’s business model in Singapore next year to tap into Southeast Asian markets. Jez Moulding, General Manager of sanofi-aventis, says that one of the business’ strategic drivers is taking advantage of local business opportunities. “Sanofi-aventis has recently signed a binding agreement to acquire Symbion Consumer Health, which [closed] on August 31. This acquisition allows sanofi-aventis to widen its portfolio and position the company as a truly holistic and horizontally integrated healthcare provider, from complementary through to patented medicines, generics, OTCs, and vaccines.” Providing access to a leadership position in Australia’s largest OTC segment, sanofiaventis will also gain portfolio diversification, increased pharmacy access, and further growth opportunities into the fast-growing Asia Pacific markets. At the company’s helm since January 2008, Moulding recounts how he found the acquisition particularly rewarding. “To be able to do a feasibility study on a segment and take that back to the group, do a positioning paper under-

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standing that neutraceuticals is a leading segment in Australia, and realize the strong potential for growth in Asia Pacific and other markets in the group, and then build a case and get support from the group in Paris and work with the Australian team in this process was enlightening for me. As a General Manager you focus your time on your current brands and your future pipeline, whether new products or line extensions. But to have the support from the group to build a local business development team, and undertake local business strategic acquisitions that have global significance is very exciting,” Moulding concludes. This type of scouting for Australian talent is just the type of talk that the biotechnology sector is eager to hear.

Biotech: A ready source of innovation?

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f Queensland is the “smart state,” then Victoria could perhaps be the “ambitious state.” In 2005, Premier John Brumby called for massive investments undertaken to thrust Victoria into the world’s top five bioclusters by 2010. While the jury is still out on whether this will be achieved, and questions as to what this diaphanous measure means aside, there is no doubt as to biotechnology’s key role in driving the country’s innovation agenda. Anna Lavelle, CEO of AusBiotech, the association representing Australian biotechnology interests, lays out the refrain of stakeholders throughout the country: “Biotech CEOs are focussed on North America, without looking more broadly where there is a wealth of opportunity. It is in these oft-neglected markets that Australia has, and will have a very powerful role to play. As a ‘Western’ country in Asia, Australia is strongly recognized as having reliable infrastructure, including highly regarded regulations and world class scientists, resulting in very positive outcomes when clinical trials, research components, or partnerships are undertaken in the country.” This last category is the one that will be key to driving the sector’s future success, and fortunately, Lavelle asserts, “Australians tend to be very collaborative because they are relatively geographically isolated from the rest of the world, which causes a natural collaborative spirit looking externally for partners, somewhat out of necessity; this is not a lesson Australians have to learn.” To aid this process, AusBiotech will be holding a groundbreaking conference in 2009, intending to bring together potential partners to prime the pump for innovation, aiming at the top tiers of biotech players from around the world to showcase the association’s strengths.


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Australia Report One of those Big Pharmas likely to be present at the conference is Amgen. As managing director of the Australian arm of the world’s largest biotech, Richard Davies says, “Having worked in 20 markets around the world, I can personally say that being in Australia in a biotechnology company is an immensely rewarding experience, and one thing that drives that is the openness and the willingness of government and the bureaucracy that supports it to engage in meaningful conversations. You can take those as relatively trite words, but I completely believe it.” Continuing his commentary on the country’s operating environment, Davies offers measured praise, in noting that “while we don’t always agree, I take a huge amount of value as an executive from the discussions with the government and the bureaucracy because as a group they are trying to manage the healthcare of a whole nation through taxation. That’s not a task to be taken lightly or easily by anyone.” However, recognizing that Australia may not be the company’s prime location target for the types of multibillion dollar, one-off plants, Davies offers some encouragement for the local environment. “As a strategy, different subsectors have different drivers, whether large or small bio, of which the latter needs to be nurtured, whether through hubs in Victoria or Queensland,” says Davies. “BioInvest Australia has been creating an incredibly fertile partnership ground, and in the last few years Amgen has signed more than 10 deals, most recently with La Trobe and CRC Biomarket Translation.” These types of partnerships have resulted in Amgen performing first in human studies in Australia, an uncommon occurrence for American firms going abroad. According to Davies, “This really demonstrates a high level of trust between scientists and physicians. Amgen sees this as a huge plus for the business and it’s a significant part of the local research arm.” Amgen is not the only biotech MNC flourishing in the Australian market, with Genzyme for one expecting to see greater than 30 percent revenue growth locally this year, comparing favourably to global growth figures. And not all local companies are necessarily undercapitalized, either. Arana’s strong cash

position is backed up by equally strong partnerships with GSK, J&J, and Abbott, making it one of many outwardlyfocused companies, whose new American office belies that country’s accounting for 80 percent of business. And with global markets forecasting for new and existing antibody products to represent over 50 percent of all drug sales growth in the next five years, the future looks bright indeed. However, among the over 400 startups that are fairly small and undercapitalized, lack of funding is understandable, given the dismal stock market returns year-to-date. The national stock exchange’s ASX’s biotech index is down 80 percent from its all-time highs, which is painful for old investors, but a tempting opportunity for new ones. Lavelle sends a clear message to all those interested in capitalizing on the chance: “If they want to meet companies and potential business partners in a cost-effective and efficient way, the 2009 conference will represent the crème de la crème of Australian/ Asian biotechnology.” The hope is that they heed her advice, and that the conference will shine a much overdue light on the biotechnology sector. If that’s the case, it will be about time Australian industry had its place in the sun.

NOVEMBER 2008 FOCUS REPORTS

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Pharmaceuticals Australia report 2008