In global terms, the biotechnology sector is on the move. Reports suggest the industry is growing at 25% per annum and estimates of sales in the new millennium are expected to reach between US$75 and US$100 billion per annum.
This translates into huge possibilities for the New Zealand biotechnology industry, which has the potential to capitalise on its national strengths in agriculture, primary industry production, and research as well as the high productivity and reputation of its internationally renowned scientists.
The Current Status of the Industry
The majority of biotechnology related research in New Zealand is concentrated in the universities and CRI's ("Crown Research Institutes"). However, there are a growing group of private companies dealing in various areas, from genomics to environmental biotechnology.
The most recent estimate of the number of organisations involved in biotechnology in New Zealand is approximately 120, including private sector firms, producer boards, research organisations and universities. A study conducted by Tradenz in 1994 estimated the total turnover to be around NZ$330 million with foreign exchange receipts of around NZ$137 million. These figures excluded areas such as dairy and other food production. It has been estimated that if traditional food applications and natural health products are added, the industry could have a turnover of between NZ$7 and NZ$11 billion by the year 2010.
The Great Funding Gap
The majority of funding for public sector biotechnology comes via the Government, which currently spends NZ$619 million annually on science and technology related research. Private sector funding comes via the capital markets (including venture capital), company R&D, personal financing and angel investors.
Venture capital companies are the most likely source of external funding for biotechnology companies in the later stages of development. This is certainly the case in the United States where an estimated US$20.2 billion is currently invested or planned for investment in biotechnology and related fields.
However, of the 43 or so venture capital companies operating in New Zealand, it seems only a small proportion are prepared to risk investment in the early stages of commercialisation. The risk/return requirements of most venture capital funds involve minimum profitability requirements, short - to - medium term investment time horizons and known exit strategies - which start up biotech companies are generally unable to deliver.
The very nature of biotechnology means investors are faced with a longer
"time to market" and far greater risks, especially in the area of therapeutics, where drugs can take up to 10 years to make it through phase 3 clinical trials. As a result, venture capitalists are more likely to invest in a biotech company that is already established, and is growing or expanding and requiring capital for plant expansion, marketing or further development.
A recent survey produced by the biotechnology industry in New Zealand cites two further reasons for the reluctance of venture capitalists to support biotechnology in the start-up phase.
The first relates to the fact intellectual property is tied up with the primary science providers and a lack of awareness of what intellectual property is available for commercialisation. The second relates to the lack of skilled individuals inside the venture capital and legal communities with the necessary background to evaluate technologies available for commercialisation.
Where to from here?
Access to Capital
The Government's recent announcement of a NZ$100 million Venture Investment Fund to support early-stage development of technology in New Zealand is a big step in the right direction. It is recognised that most OECD countries have gaps at this end of their venture capital markets and, although a variety of mechanisms have been introduced by countries to plug the gap, it is clear many countries, for instance Israel and Singapore, consider that direct government investment is worthwhile.
It is envisaged the new Venture Investment Fund will promote the biotechnology industry in New Zealand by:
- increasing the number of venture capital firms prepared to invest in seed stage ventures.
- encouraging the development of a larger pool of people with investment skills and expertise at the seed end of New Zealand's venture capital market.
- aiding the commercialisation of innovations from Crown Research Institutes, universities and the private sector.
- making New Zealand increasingly attractive to international venture capitalists.
Call for first round applications for management of the Venture Investment Fund ("VIF") will be issued at the end of September 2001. Recommendations go to the VIF Board on 20 November. Applicants will be advised if they have made it to the second round. The second round application period will start late November through to February 2002. It is expected that the first licence/certificate will be issued in April 2002.
Access to IP
As the industry survey suggests, a significant hindrance to the commercialisation of biotechnology in New Zealand relates to the "ownership" of intellectual property ("IP") and the fact that a significant amount of biotechnology IP is "locked up" in the universities.
The creativity of young scientists together with the academic freedom promoted by the universities mean university research laboratories are the most prolific producers of intellectual property in the country. It is well recognised that, although it is difficult to run any research project to deliver specific IP outputs, systems should be created to identify IP originating in the universities at an early stage. Once identified, valuable intellectual property can, with the co-operation of scientists, be manoeuvred effectively and efficiently through the various stages of commercialisation and out into the marketplace.
The industry survey suggests that the best approach to ensuring "the transfer of IP along the "value chain" is as effective and efficient as possible" is to review the legislation in other countries with active biotechnology industries. The United States and France stand out as countries where legislation has been enacted to "encourage entrepreneurship associated with new technologies".
Human Resources
The huge population of New Zealand-born scientists who are currently working in the biotechnology sector overseas can potentially make the greatest contribution to New Zealand's biotechnology sector. These people not only have the high level scientific skills to succeed, but also skills relevant to the commercialisation of biotechnology.
Access to human capital is clearly not an issue. The real challenge is to create a biotechnology environment that is sufficiently buoyant to attract experienced scientists back to New Zealand. The Venture Investment Fund will certainly provide some with an incentive. However, commentators suggest the key may be to create an environment which will attract multinational biotechnology/pharmaceutical companies to set up operations in New Zealand. The industry survey suggests that this will help retain postgraduate scientists and facilitate the entry of a highly skilled scientific workforce into New Zealand.
Not to be overlooked, are the growing numbers of individuals in New Zealand with both the legal and commercial skills who are equipped to participate in the growth of biotechnology industry. Growing access to these multidisciplinary skills within New Zealand means this country is already well positioned to make substantial gains from an industry that is clearly gathering significant momentum in the international market-place.
This is a general summary only and should not be taken as a substitute for specific advice.
x-tech group Simpson Grierson Web site:
x-tech group Simpson Grierson Contacts
Earl Gray, Partner, earl.gray@simpsongrierson.com
Michael Sage, Partner, michael.sage@simpsongrierson.com
Jan Kelly, Partner, jan.kelly@simpsongrierson.com
Alan Potter, Senior Associate, alan.potter@simpsongrierson.com
Anna Jellie, Solicitor, anna.jellie@simpsongriers.com
October 2001