Australia biotech labs struggle to translate bustling research scene into entrepreneurial startup culture
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The facade and deck of the new-and-improved Peter Mac Cancer Center in Melbourne, Australia (Gedalyah Reback/Geektime)

A titan of lab research, Aussie scientists are struggling to transition to an entrepreneurial culture, reluctant to take investments despite hefty offers

In an effort to catch up with others in the race for a stronger ecosystem, the Australian government has been initiating a new innovation plan that they hope will give them the necessary boost to compete. With one billion Australian dollars in tow, the government is keen to make up for a gap in venture capital funding while simultaneously building a fully-fledged and independent network of startup ecosystems across the country. That strategy has also brought in state and city governments as each state tries to leverage its particular strengths to pivot local economies away from the distressed mining and resources industry.

There has been growth for tech hubs in Sydney, Melbourne, Brisbane, Adelaide, Perth and even the capital Canberra’s startup ecosystem. One thing holding back that development is venture capital, as Australia transitions from a conservative investment culture where small funds planted into the country’s natural resources could bring back major returns very quickly. Technology, conversely, has a longer endgame and is not as consistent in terms of profits.

Conservative investors in turn breed conservative prospective entrepreneurs. The innovators of today, who ought to be the business leaders of tomorrow, just aren’t psyched up yet to pursue major venture capital investments. We are not just talking innovation at the keyboard, but in the lab. Australia’s biotech scene is immense and intimidating. Its medical research facilities, in all fields, are proverbially second to none.

But something is holding them back, creating a disconnect between researchers who crave a spinout culture similar to what we might see in the medical schools around Boston but are reluctant to surrender equity for their projects. The answer might be something you don’t expect.

Breakthroughs hold out

Skyline of Brisbane at Kangaroo Point Cliffs (CC BY SA 3.0 Lachlan Fearnley via Wikimedia Commons)

In Brisbane, the country’s third largest city and the largest in the state of Queensland, the effort is circling around commercializing the extremely advanced medical research found at schools like the University of Queensland (UQ) and Queensland University of Technology (QUT), as well as institutes like the Translational Research Institute (TRI) and Queensland Immunology Medical Research (QIMR).

The state government of Queensland is promising over AU$400 million in funding to push researchers to go entrepreneurial, but in lieu of established venture capital, the worry is that risk aversion among investors and biotech researchers will drain national and state resources before they can get a startup and investment culture off the ground. Canberra launched a federal program for devices and drug discoveries, the AU$500 million Biomedical Translation Fund (BTF), in August that will be half-financed by public money and half by the private sector.

Jurgen Götz of UQ’s Queensland Brain Institute (QBI) is one of those researchers caught in the middle. Götz’s team has shown a promising new path to curing Alzheimer’s disease that would destroy the brain lesions most responsible for the disease: a plaque called amyloid-beta and a “neurofibrillary tangle” made of a protein called tau. Their approach is novel and has earned him a number of investment offers. But so far, Götz has rebuffed them.

“We have decided for the time being to wait, possibly until we got a prototype,” Götz told Geektime. “We are still at a preclinical stage and don’t have a prototype which would work in humans.”

Jurgen Götz

Jurgen Götz (Photo credit: QBI)

Götz has been in Australia for 11 years, spending much of his career hopping between academic centers in Germany, Switzerland and the US. He, like many others who weren’t born in the country, was attracted by the wealth of research centers and talent across Australia. “It is a major undertaking which needs to be carefully planned and executed” to move to the country, he suggests, but is certainly worth it.

“We are not under the pressure to meet the financial needs of VC but can explore what we think is necessary long-term.” Götz admits there is risk-aversion among his comrades when asked if it infects Australian biotech researchers’ pursuit of venture capital.

Translating research isn’t translating culture

It’s not a battle over ethics or integrity, but preparedness he claims. Götz believes the medical research community does need to bring in more private investors and to spin their research to market, but at the same time should avoid rushing into it. He worries that investors will take too much equity before the company even has a minimally viable product, much less something ready to bring to the market.

“I guess Australia is a very creative country and can easily compete. However, despite excellent research, there has not been a lot of translational.” And in that comment is the back-and-forth that the entire country is having. Australia wants to apply its research, but translating it to the market is not just a matter of turning it into a consumer product but embracing the business processes that will turn research teams into fully-fledged companies.

The caution Götz describes on investments is not unique.

Ian Frazer knows a thing or two about translation as the founder of the Translational Research Institute (TRI) just outside Brisbane. He has some experience with the normally slow process of bringing something to the selling point.

Translational Research Institute in Wooloongabba (CC BY SA 4.0 Jimmanybobmcfly via Wikimedia Commons)

He is one of the co-inventors of the HPV vaccine, something credited with reducing cervical cancer rates around the world since its introduction. But before it was finally ready for mass innoculation in the mid-2000s, it went through 15 years of rigorous testing and refinement. He has been named the Australian scientist of the year for his work.

“Governments obviously want a return on investment. Social capital is an ROI too; it’s not all about making money,” Frazer said at a roundtable for visiting journalists. “Australia is good at the basic science but bad about translating it into money. It’s 23rd of 23 in OECD countries in technology translation/transfer.”

Professor Ian Frazer at Princess Alexandra Hospital in 2005 in Brisbane (Photo by Jonathan Wood/Getty Images Israel)

Professor Ian Frazer at Princess Alexandra Hospital in 2005 in Brisbane (Photo by Jonathan Wood/Getty Images Israel)

Similar to Götz, he’s an outsider. Frazer came to Australia from Scotland in the 1980s, attracted by the country’s more advanced medical research facilities. In 2006, Frazer was named Australian of the Year for his work co-inventing the HPV vaccine.

Now he is channeling his influence and wealth as the leader of TRI, dedicated to transferring medical tech from the lab to the consumer market. However, the old business pipeline dominates at TRI.

Researchers get their IP, but then license out or sell their discoveries to Big Pharma or other health corporations. As a rule, the institute and its shareholders get a share of whatever gets spun out from the teams there.

With 50 research groups that all have at least one doctor from the attached hospital, the institute is trying to bring real-world experience into every discussion and maneuver by its resident teams.

Giving ideas about where research might be applicable is the key to creating something that is commercially viable, something not as clear as one might think to people running business in the lab.

“We like to incentivize not only research but also the commercialization of it.”

Australia's flag waves just outside the new Peter Mac cancer research center in Melbourne. Photo credit: Gedalyah Reback / Geektime

Australia’s flag waves just outside the new Peter Mac cancer research center in Melbourne. Photo credit: Gedalyah Reback / Geektime

Mirroring what Götz said, a fear of failure is weighing down on Australian researchers’ appetite to flip labcoats for suits and ties (or jeans and pleather shoes if we’re going for Silicon Valley garb).

“If it’s your idea you can be encouraged to take a risk. For us, it is important to have a culture where failure is okay: if you know you can fail and come back again and have another go at it; serial entrepreneurship,” Frazer prophesies, noting a new emphasis on industry-based funding rather than grants.

“The funding is more driven commercially now than it used to be. You want to encourage entrepreneurship, but as a country we’re more risk-averse and takes a while to taking more risk.”

Yet, his pro-entrepreneurship tenacity sometimes seemed at odds with Frazer’s other responses, expressing some of the very reservations he skewers.

This reporter noted that some teams in TRI were working in fields where startups are currently thriving, like bone scaffolding (enabling new bone to grow by implanting material around which new bone cells can grow). When asked if those teams holding out from incorporating constituted a missed opportunity, Frazer gave a mixed answer.

Novadip uses stem cells to create scaffolds that might grow out to fill in gaps in bone and skin. Above, examples of growing skin grafts (image, Novadip)

“In some ways yes, but maybe if there is a lot of competition, [it] might be better than commercializing it. If it’s really innovative then launch a startup. That’s fine if there’s a lot of competition in the field, [but] the prize goes to the person who does it best. That’s always a difficult decision to make.”

He goes even further.

“Somebody will always try to come up with a better product than you. Look at Uber which has disrupted monopolies. But, there’s no monopoly areas in drug creation. There’s always a chance someone might overtake you with a better product.”

Embedding entrepreneurial culture in Aussie biotech and medicine

Frazer reflects a blend of hesitation and enthusiasm you can see in Götz. In essence, Frazer explained to Geektime that commercializing one version of a product too early could be a futile effort, so it would be best to wait until it were as perfect as possible.

Professor Ricky Johnstone, who focuses on gene regulation at the Peter MacCallum Cancer Centre (Peter Mac) in Melbourne, told Geektime that while there were plenty of things worth commercializing in Australian research centers, the impulse to do it isn’t there. He compared it to what he had seen when he spent time at Harvard, where research teams were able to quickly speak with an the Office for Entrepreneurship and talk about a business track.

The inside of the new-and-improved Peter Mac Cancer Center in Melbourne, Australia (Gedalyah Reback/Geektime)

Harvard Medical School (HMS) and MIT, part of the biotech-dominant Boston startup ecosystem, both have programs to encourage entrepreneurship and commercialization. The HMS innovation and entrepreneurship services are additional to others offered at the Ivy League school, while MIT has its Medical Device Innovation Center (MDIC), its Hacking Medicine hackathon series, and teams going through its school-wide accelerator at the MIT Center for Entrepreneurship.

Harvard Medical School (SBAmin CC BY SA 2.0 via Wikimedia)

“We mostly work with MD students and the post-doc community. The MD students have formed a group called the ‘makerspace’ in which they work on various ideas throughout the year,” Paola Abello, director of innovation at HMS, told Geektime. Her office is responsible for encouraging new ideas in healthcare and providing resources to their inventors or proprietors. There is work underway to create a full-fledged entrepreneur’s track at HMS, but for now many students work through Harvard iLab.

“For the medical students, the majority have an interest in learning about entrepreneurship and applying those skills to their careers but they are mostly focused on becoming doctors,” conveys Abello, but there is a spirit that guides some straight to the entrepreneurial track. “Having said that, there is a small % of them that do focus on launching a company while in medical school and some take time off to accomplish this, along with a team. I suspect that in the coming years, the idea of being a ‘clinician innovator’ or ‘physician entrepreneur’ will become more popular. With all of the issues plaguing healthcare, it is important for our doctors to also be the change agents!”

Similar programs seem to be in short supply down under. These programs don’t appear much at all at Australian universities, much less particular to medical schools. Not emphasizing that transition between

Frazer understands that an emphasis on pure academia would continue to hold Australia’s biotech startup scene back. Chief Scientist of Queensland, Geoff Garrett, agrees. His office supports rating institutions not just by traditional academic parameters like papers written but also patents filed and building relationships with professionals and businesspeople on the applied sciences and corporate ends of the industry.

“When we changed the rules that we needed 50% residency embedded in the industry, some of the traditional academics said no one would apply for this. We got a 35% increase in applications. I think the resistance is from the old guard,” Garrett told Geektime recently, indicating he thinks there are influential members of the community who don’t understand the importance of speed to market and a willingness to fail.

CEO of CSIRO aand Chief Scientist of Queensland Geoff Garrett in his Canberra office, 25 February 2005. (AFR Picture by PENNY BRADFIELD (Photo by Fairfax Media via Getty Images Israel)

CEO of CSIRO aand Chief Scientist of Queensland Geoff Garrett in his Canberra office, 25 February 2005. (AFR Picture by PENNY BRADFIELD (Photo by Fairfax Media via Getty Images Israel)

They have begun to predicate fellowship funding on time in the field, hours spent interning in a way with corporate sponsors that give budding innovators a business acumen as well as research savvy.

“Part of it is the challenge of getting the research community to talk to the business community. Most days I go out and say, ‘Wow, I didn’t know we were doing that stuff!’” Garrett told Geektime. “There’s an old saying that ‘what gets measured gets done.’”

But talking innovation is a cultural issue, not something easily injected into everyday conversation in Aussie universities.

“I was there at Harvard when funding ceased to be what is used to be,” Frazer noted. “Innovation became the buzzword and translation was something they were forced to do. During that time they completely restructured.”

Frazer says that has allowed Harvard to keep its accounts well in the black, asserting they might cry fowl about losing private funding, “But when peer-reviewed funding dropped off, they totally restructured to go forward and built new buildings. Now that the peer-review funding is coming back they’re in a position to go forward.

Venture capital means losing traditional funding sources

But that old guard might have a position that is far more rational than people living in the startup world might realize.

“I would not describe the reluctance to spin out as risk aversion,” says Vaxxas CEO David Hoey, whose company is building a vaccine-delivery technology and recently raised $20 million Series B investment round. He also advises Healthcare Ventures LLC, splitting his time between biotech-heavy Boston and equally apt Brisbane. His company got its start as a spinout from Queensland University way back in 2011.

The Vaxxas Nanopatch (Vaxxas)

“Generally, there is no risk to the research, only potential upside. However, I have seen hesitation to spin out technology because of the potential loss of grant funding to the researcher – that is, for researchers who have had a secure and lengthy funding source that also provides academic prestige, if the technology is out-licensed, the grants might dry-up.

The company has since opened an office in Cambridge, Massachusetts, right in the Harvard-MIT neck of the woods and in the heart of the bustling Boston healthcare industry.

“As an aside, because the venture capital community in Australia is so small, ‘selling’ technology to VC’s here is fundamentally different from US markets.  Some of the perceived reluctance may just be weariness.”

The facade of the new-and-improved Peter Mac Cancer Center in Melbourne, Australia (Gedalyah Reback/Geektime)

When asked about researchers actually turning down viable offers, he related it back to the potential downside of losing a familiar stream of funding where a variety of public programs exist. But he recommends that people in academia break out of the mentality that the entire pathway to commercialization should be or can easily be done with government money alone.

“It’s possible that when a researcher gets close enough to product,” Hoey suggests, “they’d rather try to finish it off with government money thinking that this will eliminate the need for commercial funding.”

And that’s the idea Australia’s formidable biotechnology research ecosystem will have to change. They can’t rely on grants forever.

“This is, of course, a fallacy – it takes huge amounts of capital to make ‘finished’ products successful.”

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