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The man with the magic formula

Brian Bennett concocted a cream in his garage to help his wife's dermatitis. Now tests suggest it may stop hospital 'superbugs', and clear up acne and eczema, too. Clint Witchalls meets the pensioner set to make a fortune

22 June 2004



When Brian Bennett, a retired truck driver, began a series of amateur experiments in the garage of his Nuneaton home, he never imagined that the results could save thousands of lives. Nor did he consider that his dabblings might one day earn him a multimillion- pound fortune. But, armed with nothing more than a few reference books from his local library, Bennett succeeded in concocting a substance whose properties appear to be nothing short of miraculous - a wonder-cream that promises to eradicate the scourge of hospital "superbugs", and may also clear up psoriasis, eczema and acne into the bargain. Unsurprisingly, the pharmaceutical industry is now falling over itself to snap up the patent on a product with the sales potential to put even Viagra in the shade.


Bennett has found himself - reluctantly - at the centre of a media whirlwind, as reports of his invention have spread around the world. I caught up with him at a London hotel the evening before he was due to appear on ITV's This Morning show.


"I just wish it were all over," he says, in a broad Midlands accent. Bennett looks bushed. He slumps in the leather sofa, sipping his tonic water and smoking like a Coventry chimney stack.


The 65-year-old diabetic hardly looks like the saviour of the NHS - or anyone else for that matter - but he is. Hospital-acquired infections kill 5,000 people in England each year. Managing these infection outbreaks costs the NHS a staggering ÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’Æâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚£1bn annually. The best weapon that hospitals have for fighting this menace is compulsive hand-washing. But the problem with washing is that as soon as the tap is turned off, the person's hands are open to reinfection. Fortunately, Bennett's lotion remains active for an entire shift. It could save the NHS a lot of money. It could save people's lives. Bennett calls it the "invisible glove".


His motivation for creating this substance was a very personal one. Bennett's 42-year-old partner, Heather, had a persistent case of contact dermatitis from handling money at the local post office, where she worked. Barrier creams didn't work, and steroid creams only cleared up the condition temporarily. So, three years ago, he set about finding a cure for his wife's skin condition. But why did Bennett, a man who failed GCSE biology, think that he could do better than pharmaceutical companies, with their legions of PhDs and colossal budgets? "It's not a matter of thinking that I could outdo the pharmaceutical companies," he says. "It was just a case of desperation when I saw Heather's suffering."


Bennett doesn't believe in intractable problems. He has always been an inventor at heart - if the product that he needs doesn't exist, he just makes it. Driven by Heather's dermatitis, he purchased a barrel of barrier cream and started adding ingredients: aloe vera, evening primrose oil, triclosan (a powerful antibacterial agent), silicon, and so on. There was no industrial mixer to blend the ingredients, so Bennett called his "strapping" sons to help him roll the 200l barrel up and down the driveway until the cream was thoroughly mixed.


It took 40 rolls to reach the right consistency. "I took some of the mixture and gave it to my wife," says Bennett. "Within three days, there was a dramatic lessening of the dermatitis; within seven or eight days, it had cleared up almost completely."


Soon, Bennett was giving the lotion to any friend or relative who had a skin condition. They all reported positive results, whether it was for their eczema, acne or psoriasis. At first, Bennett didn't think of his wonder-lotion as a potential goldmine, he was just glad that his wife's dermatitis had finally cleared up, but then a friend contacted him to say that a South Korean company was interested in the lotion and wanted to buy 10,000 bottles. Bennett and his sons rushed down to Halfords, bought a cheap compressor, and set up a mini production plant in the garage. Over the next four and a half days, working day and night, they completed the order. "My son would fill the bottles and I'd put the cap on and the labels, and I'd pass it to my other son and he'd put it in the box," says Bennett.


But no sooner had they completed their first consignment than the dream of a lucrative export market collapsed. The head of the Korean company who ordered the lotion died in a car crash, and no more orders followed.


The budding enterprise might have ended there, but sitting at the traffic lights one day, Bennett noticed a company name on the back of a van: "Pet's Life International", it said. Before the lights could change, he scribbled down the name and the phone number of the company. "We're pet daft in our family," says Bennett. "My wife breeds and shows Siamese cats, and her mother has bred German shepherd dogs for 36 years. I knew through past experience that if any of the animals got a cut or a scratch, and I put my cream on them, within 24 hours it would clear up. So I knew it was good for animals, and I just thought I'd give the company a ring."


When Bennett called the company and told them about his lotion, John Hancock, the proprietor of Pet's Life, invited him up to his production plant in Lincolnshire. He took some of Bennett's lotion and promised to put it out to a few vets to test. Three months later, Hancock invited Bennett to join the company. Pet's Life bought an exclusive on the cream, and they began to sell it as Vet Shield.


By now, Bennett had caught the entrepreneurial bug. He was constantly on the lookout for new markets. He realised that hairdressers suffer from contact dermatitis because of the shampoos and conditioners they handle, so he set up a label exclusively for hair salons called B4Hand.


But the lotion might have remained more snake oil than Lorenzo's Oil if it hadn't been for the MRSA outbreaks, about 16 months ago. Bennett knew that his product had strong antibacterial properties, and that it worked for extended periods of time, so he decided to approach the Queen Elizabeth Hospital in Birmingham to see whether they could use the lotion to stop cross-infections. After much persistence, Bennett was eventually granted a brief meeting with Professor Tom Elliott. "He really didn't have a clue what I had come to see him about," recalls Bennett. "I told him about the cream, and said I thought it would be very useful for nurses and porters and people like that. I gave him some samples and he put it in the lab."


For six weeks, two doctors put the lotion on their hands, and did their normal rounds. At night, they swabbed their hands. What they found was that there was still 70 per cent antibacterial activity on their skin. "Professor Elliot did a lot more tests in the lab and found that it was killing the bugs damn quick," says Bennett. "So he decided to write a protocol in the Journal for Hospital Infections. He recommended at the end of the letter that the cream needed to undergo a clinical trial."


Initial tests showed that the lotion killed MRSA, and other lethal bacteria, in a test tube. Based on these encouraging results, Professor Elliott set up a clinical trial to test the lotion's effectiveness as an antibacterial hand-ointment. A hundred and two staff at the hospital took part in the trial, which involved half the group applying the lotion to their hands, and the other half - the control group - using standard hygiene practices, ie, using alcohol washes to clean their hands. The results surprised the researchers. The lotion killed bacteria within seconds of being applied, and lasted for at least three hours after application. "The results are exciting in as much as we have found that the base to this treatment - silicon - retains the anti-microbial activity even if volunteers wash their hands with soap and water several times during a three -hour period," says Professor Elliott. "There are two areas in which it could be of value. One is everyday use in the clinical environment; the other is in pre-operative skin preparation for patients."


In the meantime, Bennett had the opportunity to put his money where his mouth is and try the lotion as a pre-op skin preparation. Prior to undergoing a knee-replacement operation, he asked the surgeons if he could administer the ointment to his leg. The hospital's ethical committee gave the green light. "I had no infection whatsoever," says Bennett, "and infections are a major problem with knee- replacement operations." Dr Tony Worthington, the clinical research scientist who conducted the clinical trial with Bennett's lotion, would like to perform further tests on renal dialysis patients, because of the high incidence of MRSA infection among this group of people.


Although there is anecdotal evidence to suggest that Bennett's lotion works for athlete's foot, eczema, and acne, no clinical trials have been conducted to prove the lotion's efficacy for these conditions, but a number of companies are offering to buy the patent and fund the trials. Bennett says that he can't discuss the sums they are talking about, "because it has gone over my head". The hospitals have told him that if the cream does what they believe it can do, then you can't put a figure on what it will be worth. "It could be the answer to a lot of problems," says Bennett. And then, with typical modesty, he adds: "It will save a lot of... well, I don't want to say lives." But "lives" is exactly right.


Multi-drug resistant bacteria, such as methicillin-resistant staphylococcus aureus (MRSA), are a growing problem in hospitals around the world. MRSA usually infects people with open wounds, or those who have recently had surgery, and it is commonly passed on through direct contact. Although hospitals do encourage their staff to wash their hands between patients, it doesn't appear to be enough. The rates of MRSA were 50 times higher in 2001 than they were in 1992.


The Liberal Democrats say that the Government's Clean Hospital Campaign is "a sham". A report issued by the Liberal Democrats earlier this month accused the Government of "utter and extreme complacency" in handling hospital infections. The report, Now Wash Your Hands 2, finds damning evidence of "superbug" cases reaching record levels, and a system ill-equipped to deal with the situation, despite continued warnings. They say that there were just over 7,000 reported cases of MRSA last year, compared with under 1,000 in 1996. It is hardly surprising that more and more NHS doctors are choosing to have their operations done in private hospitals, where infection rates are much lower.


Since the hospital put out the press release about the clinical-trials results, Bennett has been inundated with calls and e-mails from people suffering from a variety of skin conditions. The calls come from as far afield as Japan and Colombia. Locally, people have tracked Bennett down through the electoral roll. Friends whom he hasn't seen for two years or more are suddenly turning up on his doorstep.


"I didn't expect all this attention," he says. "If this had come out of a laboratory, you probably wouldn't have heard anything about it other than 'a certain laboratory scientist has made a breakthrough', and that would have been it. But because I am an ex-truck driver, it has just gone crazy."


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Some good reading from Stuart Roberts of SCE






The Code of Best Practice for Reporting - one of Australian biotech's biggest steps forward yet


Ever wondered why the United States has such a wide and deep capital market? Sure, the 293 million people living there enjoy a per capita income of US$37,800 p.a., and more importantly The Land of the Free is home to the tenth most unshackled economy in the world, according to the Washington-based think tank the Heritage Foundation (www.heritage.org/research/features/index/countries.html). But so what? No investor in his or her right mind would buy a single share on any one of that country's exchanges if they didn't feel they could obtain adequate information as to the nature of the companies concerned. The real reason why America has such great capital markets is that it's so easy to get to know the companies funded by them. Just about every piece of information you care to ask for, concerning a company big or small, is buried in its 10Ks, 8Qs and other documents that, by law, have to be filed with the www.sec.gov>SEC. Which explains why the 1990s were such a buoyant time for the U.S. investor. Sure, the Republicans took back Congress in '94, and for a while late in the decade there was no federal budget deficit, but this analyst would maintain that what the guy in Des Moines or Phoenix really cared about was the fact that those 10Ks and 8Qs were so easy to get hold of via his internet connection. Which brings us back to this analyst's area of expertise - Australian biotechnology stocks. During this past week he took a call from a valued reader of Buzz inquiring as to what Southern Cross Equities' biotechnology team thought of the Australian Stock Exchange's (www.asx.com.au/pdf/asx_ausbiotech.pdf) Code of Best Practice for Reporting by Biotechnology, Medical Device and other Life Science Companies. Given what we've just said about the value of accurate information for promoting the quality of a capital market, the answer is we think it's great. The Code of Best Practice for Reporting is an ASX initiative to encourage better information disclosure by listed Australian biotech companies. This analyst, when first encountering the Working Draft of the Code (click on the link above to get a hold of it), read it with a great sense of excitement, in the realisation that once the ASX is ready to 'go live' with the Code, Southern Cross Equities' work in the biotechnology area will become all that much easier.


The Code of Best Practice for Reporting has been referred to as '<http://www.jorc.org/main.php?action=1>JORC for Biotech'. JORC stands for the Joint Ore Reserve Committee, and refers to a working group which the <http://www.ausimm.com.au>Australasian Institute of Mining and Metallurgy, a professional body associated with the mining industry, first set up in the early 1970s to develop standards for reporting of ore reserves by mining companies. The reason why the JORC Code came into being was to help stamp out the kind of 'less than best practice' reporting of ore reserves that had been a commonplace of the wild boom in mining stocks which Australia had experienced in 1969-70. The JORC Code evolved through the 1970s and 1980s as a set of voluntary guidelines, before the ASX finally incorporated the Code into its Listing Rules in 1989 and started to enforce it. As a result of JORC and its development, it's fair to say that Australia has been greatly helped to remain a resources capital market of choice during what has been some tough years for that industry. More importantly, it remains a curious feature of life in our market that most players know something about mining, and feel comfortable with the sector, even if they have never trained as geologists or metallurgists. ASX now wonders if the time is ripe to build on the success of JORC by creating a code to apply to biotech, which it's fair to say is another area where reporting during periods of speculative excess can sometimes be lax in the absence of standards. What Eddie Grieve, ASX's Business Development Manager, Listings, and his colleagues hope to do with the Biotech Code of Best Practice for Reporting is identify those areas where reporting abuses have occurred in the past and accordingly strengthen reporting standards via the provision of a guideline for companies, 'to be read in conjunction with the listing rules on Continuous Disclosure', albeit not as a part of the Listing Rules at this stage. We at Southern Cross Equities think that the team at ASX and their outside consultants have done a pretty good job. Let's take five examples:


1. Clinical trial reporting: Probably the ASX team's best contribution in crafting the Code was in the area of clinical trials. In this analyst's view data from trials is invariably reported to investors in a scanty fashion by Australian biotechs, in some cases allowing that company to get away with a marked accentuation of the positive and a virtual elimination of the negative. Should the draft Code of Best Practice for Reporting become the real thing, that won't be acceptable any more. For a sense of how the ASX wants to change things, consider point 13 of the working draft, which stipulates among other things that the company reporting a trial outcome must disclose 'the number of trial subjects who dropped out in each dose group' and asserts that 'a statement such as "the drug was safe and generally well tolerated" is insufficient' Information on adverse events in each dose group (including placebo) must be provided, showing adverse events broken down into standard categories reported in clinical trials'. Wow, that's tough!


2. Reporting of deals: The same kind of noticeable raising of the bar is evident in the area of reporting of licensing, collaborations and partnerships. Take point 6 of the draft code, where it is suggested that companies reporting a deal ought to be required to disclose 'the range of royalty rates, or the minimum and maximum that the licensee will pay for the rights conveyed by the license, and the event(s) that will trigger payments (fee upon signing, annual fee, % of net sales etc).' This analyst wishes point 6 was being enforced when he was covering Peptech two years ago. Or how about point 8, which suggests that 'companies should avoid giving undue prominence to potential revenue (so called "Biodollars" from these arrangements. Where a maximum total figure for potential revenue is provided, key assumptions underlying the figure should be provided as well as a break-down to identify the key components of the program'. In other words, a company can't say 'we've done a A$70m deal with a U.S. company', and leave it at that. That company will be strongly encouraged to say 'we've done a deal with a U.S. company that pays us $10m as soon as the deal is signed, earns $10m at the completion of Phase I, $20m at the completion of Phase II, and $30m at the completion of Phase III'.


3. Hiring and firing news: Then there's key staff appointments and separations. Too often biotech companies have lost or sacked key senior staff and just not told the market. On one occasion this analyst discovered that a Chief Operating Officer had been sacked when he called up the company's office and was told that Dr So and So no longer worked there. At a different company another Chief Operating Officer's name was no longer appearing on company press releases. This analyst called a board member of that company and asked where the Chief Operating Officer had gone. The reply was 'oh, he had a nervous breakdown several months into the job, and we had to let him go'. Of these two developments the market was, alas, never informed, in spite of their apparent materiality. Under point 14 of the code such practices will be less of an option, in that the hiring and firing of people hierarchically below the Chief Operating Officer - such as the Chief Scientific Officer, Business Development Manager and Clinical Affairs Manager - will be subject to disclosure.


4. Patents: The area of patents has often been an annoyance to this analyst in terms of the poor quality of disclosure. One Melbourne-based company which this analyst recently reviewed has never disclosed to the market exactly what patents they have licensed from a certain academic institution. This analyst had to guess what those patents were from reading the company's market releases and the abstracts of what seemed like relevant patents. Grieve et. al. have this sorry situation in their sites, suggesting at Point 3 that 'it is expected that on an annual basis companies will provide a list of granted patents in their Annual Report'.


5. Reporting for Dummies: Then there's the area of terminology. Under point 16 of the Code Australian biotechs will no longer be able to rely on Harry Truman's dictum that 'if you can't convince 'em, confuse 'em'. The companies have been told that 'it is important... that announcements are expressed in terms that, as much as possible, facilitate evaluation by investors of the investment significance of the information being reported'. In this the formulators of the Code recognise that it will probably take another generation of investors coming into the market before things like antibodies, recombinant DNA and viral vectors become the everyday language of your typical investor the way terms like RAB drilling, CIP plant and open pit are explicable to the current generation.


All up, this analyst regards the working draft Code of Best Practice for Reporting as a great achievement, and would like to congratulate all the people involved in its formulation. That said, we at Southern Cross Equities don't think that the Code is necessarily complete. ASX is encouraging people involved in the industry to take a look at the the Code and make suggestions and comments during the document's year-long 'exposure period', which runs until around April next year. This analyst strongly believes that we in the biotech community should take them up on the offer. There are two issues on which we at Southern Cross will likely make a submission.


Firstly, the working draft as it applies to patents seems to be intended for granted patents only. In this analyst's experience patents that are still working their way through the patent system, particularly those applications that have been published on the PCT platform, but not yet granted, represent potentially huge amounts of shareholder value. The Code of Best Practice for Reporting as a consequence ought to contain some provisions for disclosure of what's in these patent applications even though grant is still pending. Ideally companies would have to disclose details of a published patent to the ASX within two weeks of the patent first appearing on the <http://www.wipo.int>WIPO web site.


Secondly, we think it important that the Code deal with the question of trial disclosure when a company is attempting to publish the results in a peer-reviewed journal. Often companies will conduct a trial for proof-of-concept purposes, and then send minimal data to the ASX because they want to publish first. Some standard ought to be worked out here to prevent companies using journals as way of avoiding Continuous Disclosure requirements. Possibly the Code could oblige companies to disclose whenever a paper in which they have had some involvement has been accepted for publication, with the disclosure to include a forecast date of publication wherever possible.


Whatever defects the Code may have - and overall they are minor blemishes - let's get a debate going so that we end up with the best possible Code if and when ASX starts to include it in its Listing Rules. The working draft as its stands is not heavy reading - its 19 points are elaborated in less than six pages of copy - and given that we in biotech are likely to have to live and die by Code of Best Practice for Reporting or something like it sometime in the future, it's worth having a say while the Code is still in the embryonic stage. Clearly, a strong Code will mean better standards of reporting by biotechs if properly enforced, which will ultimately mean more investor confidence in the sector, and more willingness on the part of institutions - whose information requirements are naturally higher than the average investor - to put their customer's money into the better companies in the sector. The more input Eddie Grieve and his colleagues have, the better will be the final version of the code when it goes live, probably next year. At the very least, every listed company should at least look at the working draft and make a submission, although it is to be hoped that their submissions are not designed to persuade the ASX to reduce reporting requirements vis-a-vis what is to be found in the working draft. One last thing. The fact that we in Australian biotech are working on this draft suggests that our biotech sector remains one on which to be bullish for the long haul. No one at the ASX ever thought to work on a Code of Best Practice for Reporting of Developments in Dot.Com companies. Check out the Biotech Code of Best Practice for Reporting at <http://www.asx.com.au/pdf/asx_ausbiotech.pdf>www.asx.com.au/pdf/asx_ausbiotech.pdf.

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It would be good to see the cr*p companies removed from the ASX or a second board brought back for them. These companies clog up the lists and waste time in searching through for good companies. Will it happen? No.
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Related News Item:


Abbott to launch e-health pilot

Karen Dearne

July 6, 2004



'HEALTH Minister Tony Abbott will unveil in Kalgoorlie today a broadband virtual private network e-health pilot that foreshadows an early introduction of high bandwidth capabilities to support HealthConnect.


The trial takes advantage of new Health Insurance Commission "real-time" online billing systems to promote broadband use in regional areas.


If successful, the platform may prove a useful template for HealthConnect connectivity nationwide.


Mr Abbott, who has been pushing the pace of health reform, will launch the Eastern Goldfields Division of General Practice "regional reference test site" today.


The division serves a vast area of Western Australia, from Wiluna in the north to Esperance in the south.


GPs, specialists, hospitals, remote medical services, pathologists and radiologists throughout the region will use the high-speed connection for video consultations, online delivery of test results and internet telephony as well as access to HIC Online. ... '


Link to full article in The Australian:




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After MBP's spike, I think the biotechs are going to run again


MDM, IMU, VCR, NAL, CIR, PBO were all up again, interest is coming back again...



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Investors need patience and understanding

Jul 15

Feedback Harry Karelis


Plenty of commentators have theorised about the sustainability of the rapidly growing Australian biotechnology sector and have questioned whether our small speculative enterprises become public companies too early.


Accessing capital through the ASX can be a sensible path for young companies and there is a role for the ASX and venture capitalists to work in tandem to support these ventures and encourage wide-spread, long-term investment.


The ability to access capital through the initial public offer route has resulted in a rush of early-stage biotechnology firms joining the bourse over the last 18 months. Healthy listings have been followed, on the whole, by flat after-market support, raising inevitable questions: Do Australian biotech companies list too early? Where is the patient capital needed to sustain these very-early-stage companies whose technologies are often years from generating revenue? Do Australian investors understand the lengthy and often complex road to commercialisation, or do they just want short-term gains?


The problem is not so much listing too early, but that the amount of funds biotechs ask for is insufficient to achieve the milestones investors will understand, and unrealistic for sustaining the business through the inevitable downturns in market sentiment. But efforts to raise larger sums can be seriously damaged when market valuations placed on emerging technologies far exceed reality, further disappointing investors and frustrating the efforts of others working to build the credibility of the sector.


Raising capital through an IPO early in a company's life is far from a textbook approach, but the ASX has a long history of connecting early-stage ventures with risk capital. The ASX has always acted as a quasi-venture-capital market, particularly in the resources sector, but also for other small to medium enterprises, including the technology sector. In other countries these early-stage firms would tend to remain private, long before accessing public markets.


So what is the problem with the biotech sector being accused of too many listings too early? We have a capital market that is very receptive to early, high-risk ventures and companies taking advantage of this in the mining and technology sectors.


I believe the most pressing issue lies in the fact that biotechnology is an extremely difficult sector for investors to understand. Realistically valuing a biotechnology company requires a technical understanding of the science, as well as an understanding of the regulatory hurdles of developing a drug, medical device, or process; understanding patents and intellectual property rights, licensing deals and royalties, clinical trials and their process, not to mention an understanding of the competition and their stage of development.


This is where I believe venture capitalists come in and can play a pivotal role for both biotech companies accessing "smart money" and for investors with a high-risk profile. Sector specialists can conduct rigorous due diligence to sort the good from the bad and identify any weaknesses that can be dealt with before funding.


Venture capitalists can be involved right from inception of small technology companies, and have an opportunity to guide and advise. Identifying and installing the best management team is a critical early step for developing cutting edge technologies and quite often the difference between success and failure.


My proposition is that there is an opportunity for all stakeholders to work together and that the ability to use the venture-capital community as a "filter" should not be under-estimated in ensuring long-term sector credibility and investment returns.


We need to align company objectives and reporting with the needs of investors to better understand the risk and reward profile. The reality of high failure rates needs to be reinforced, but equally there are few other sectors that provide the opportunity for substantial wealth creation and our successes should be celebrated.


The ASX initiative of formalising the reporting guidelines for the listed biotechnology sector is a very positive step forward, particularly as these guidelines recognise the need for continuing investor education about the long-term nature of biotechnology investment.


A company's value will increase as it achieves a series of milestones along the road to getting a product to market. Different investors will be attracted at different stages in this development cycle and we need to remove the shroud of mystery that surrounds the biotech sector to explain what companies are setting out to achieve, what their milestones will be, how their success can be evaluated and how that translates into value.


Australia has a growing list of success stories and is well placed to leverage this track record. By working together we will all be better placed to turn our excellent national scientific reputation into successful companies, products, jobs and wealth.


# Harry Karelis is managing director of Biotech Capital Ltd




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Spread your bets on new technology

Jul 15

Feedback Eli Greenblat


One high-profile biotech chief executive describes the industry as a horse race; investors are punters who back a mix of winners and losers and cheer for their champion from the sidelines.


The CEO, who shall remain nameless, says investors that throw all their money at one stock are like hapless punters plunging all their money on a long shot, hoping, against all odds, that if the nag actually wins, they'll walk away millionaires.


"These investors are really like punters at the track. They think they can win big by just backing one company, one horse, but what they should be doing is collecting a basket of biotechs with different ideas and technologies and spread their money evenly among them," he says.


"Remember, it's a very speculative part of the sharemarket."


There's the nub. While Australians are among the most aggressive investors in new technologies, hence supporting new ideas, they could also be some of the biggest losers.


Companies realise this and have taken advantage of the positive investor sentiment to float their businesses on the Australian Stock Exchange in quick succession. Ten new biotechnology firms listed on the ASX in the 12 months to March 2004, bringing the total listed to 54. Compound annual growth in the number of biotechnology companies in Australia over the past four years is 16 per cent.


Peak industry group AusBiotech estimates there are just over 500biotech-focused companies in Australia, with Victoria leading other states, being home to more than 130 firms. It is closely followed by NSW, which is believed to have 100 companies, and Queensland with about 80 businesses.


The combined value of listed biotech and broader health-care companies on the Australian Stock Exchange is roughly $20 billion, although that includes junior biotechs with market caps of less than $15 million through to market heavyweight CSL (market cap $4.3billion) and hospital companies like Ramsay Health Care and Mayne.


The focus of the overwhelming majority of pure Australian biotechs is in the field of human therapeutics. These companies are searching for cures or treatments for such diseases as cancer, multiple sclerosis, Alzheimer's, HIV/Aids and cystic fibrosis. They make up 62per cent of the nation's biotechs, AusBiotech estimates.


Companies perfecting new diagnostic devices account for 9 per cent, bioinformatics (the use of technology to improve biotech research and discoveries) 8 per cent and agricultural biotech 7 per cent.


Australia is developing a agricultural arm for its biotech weaponry, commonly called agbiotech.


The best-known agbiotech company is Chemeq, which makes and markets antimicrobial products (which kill germs) and is used in the livestock industry. Such is the excitement about Chemeq's technologies that its stock for a time was one of the best-performing biotech shares on the market.


Chemeq shares shot up from 40ÃÆâ€â„¢ÃƒÆ’ƒâ€Â ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒ¢Ã¢â‚¬Å¾Ã‚¢ÃƒÆ’ƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’‚¡ÃƒÆ’Æâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ in 2001 to more than $8 last year, giving the biotech a huge market capitalisation of more than $600million. Since the beginning of 2004, Chemeq's share price has come back down to earth, but it has attracted new investment and businesses to the field. A second livestock drug company, Imugene, is also doing well.


AusBiotech estimates animal health is one of the most popular endeavours for agbiotechs, making up roughly 25 per cent of the total agbiotech sector. Plant genomics is also strong (25 per cent) and plant productivity (14 per cent).


All this activity underlines Australia's reputation as a regional biotech player. Indeed, it has a reputation in the global market as a centre of excellence despite its small population and distance from key capital markets such as Europe and the United States.


Keith Hardy, partner at Ernst & Young in charge of health and life-sciences, says Australia's expertise was evident by the warm reaction of foreign investors to Aussie ideas and exhibits at the recent global biotech conference in San Francisco.


"The stands were quite amazing, of high quality, and the people that were there just weren't kicking tyres," he says.


He says it was particularly interesting to see the work and presence of a number of Australian universities at the biotech conference; our local universities have a tremendous reputation worldwide as innovators and creators of leading technologies.


"At the conference, there were institutions like Monash University, Melbourne University, University of Queensland and UniQuest, and I think they attracted a lot of interest from people visiting the event."


A recent report issued by the Federal Department of Industry, Tourism and Resources, Australian Biotechnology 2004, revealed that universities were playing a key role in shaping the nation's biotech industry.


"Australia is in the top five countries (with population of 20million or more) in terms of availability of R&D personnel; and is ranked seventh for scientists and engineers in R&D, higher than Germany, Canada and the UK," the report says.


The relationship between scientists, public institutions (for example, universities) and business was also important.


"Australia has a strong co-operative research centre program that combines the research efforts of the public and private sectors in over 70 CRCs operating in a wide range of industry sectors."


Hardy says a priority for the biotech sector is attracting new investment dollars from venture-capital funds.


"We really need to see a sharpening of our venture-capital taxation laws. At the moment there is no difference, in terms of taxation, between a VC firm investing in America or Australia - but what we need is a positive taxation system here that actually attracts the funds out of the US," Hardy says.


Australia has recently changed its tax treatment for non-residents investing in Australia, opening up opportunities for portfolio diversification within an internationally competitive framework.


The reforms centre on the tax treatment of two types of limited partnerships: venture-capital limited partnerships and Australian venture-capital fund of funds.


And there has been a slight improvement in funds flowing from overseas into Australia, especially at the early stage of a company.


The federal government report on biotechnology says that in 2002-03, 49 per cent of the venture capital invested in biotechnology was aimed at seed stage, with 24 per cent in start-up, and 19 per cent for early expansion.


Many within the biotech scene view their industry's growth and success in the same light as the early days of the Australian wine industry.


At first Australian wines were too small to take seriously; they were unknown and untested. But soon they became so popular and dominant that they knocked off the world leader, France, to make Australia the most influential wine-producing nation in the world.


As the Federal Minister for Industry, Tourism and Resources, Ian Macfarlane, said recently: "Australia's biotechnology industry is maturing like a fine Australian wine, fed by our world-class discovery base and clinical research, with the support of innovative government programs.


"We continue to attract the attention of the global biotechnology investment community through our rich source of innovation and commercial successes in areas as diverse as agribiotech, biomedicines, biopharmaceuticals, stem-cell sciences, medical devices, bioprospecting and bioinformatics."




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Volatile market that runs from juniors to major groups

Jul 15

Feedback Eli Greenblat


When promising Melbourne biotechnology company Amrad announced last month its $US16 million ($23million) deal with Swiss pharmaceutical giant Ares Serono had been terminated, it wasn't just Amrad shareholders who were distraught. Anguish was felt throughout Australian biotechs.


Bad vibes in the industry spread further when, only a few days later, the much celebrated $430million merger between Peptech and Agenix collapsed. The corporate marriage was viewed within the industry as the maiden step in a much needed journey of industry consolidation.


Peptech and Amrad inhabit opposite ends of the biotech market. Peptech is one of the biggest biotechnology companies on the ASX with a market capitalisation of $230 million. Amrad is a junior, its market cap is only $70 million.


Amrad had become something of a flag-bearer for the junior end of the Australian biotech sector. It had won a lucrative $US11 million licence deal with global pharmaceutical Merck, and was viewed as the kind of biotech Australia should be producing; a nimble business that had an assembly line of compounds and agents that would be picked up by foreign pharmas desperate to fill their own pipelines with new drugs.


But confidence in the sector was shaken when, without notice, Ares-Serono decided to walk away from Amrad and its infertility compound, emfilermin. Ares-Serono didn't even call its Amrad "partner" in Australia to tell it the bad news, rather leaving the announcement to a fax sent in the middle of the night.


This demonstrates where the balance of power lies in the Australian biotech industry; biotechs live and die by the whims of the large pharmaceutical companies.


Amrad will live to fight another day, it has more than $60 million in cash reserves, no debt and some other promising drugs, but what is the future of Australia's junior biotechs?


"They really are at the beck and call of the large pharmaceuticals," says Andrew Tyndale, partner of Babcock & Brown Investment Bank.


"These big overseas pharmaceutical businesses make decisions in the boardroom that reverberate all through the world and Australian biotechs, so no matter what you do, sometimes the decisions are taken out of your hands."


Tyndale has first-hand experience of this. He sits on the board of Biota, which is suing giant GlaxoSmithKline for walking away from the development of Biota's once champion flu drug Relenza.


"What I think biotechs here are lacking is a greater understanding of where the global scene is at, and that is to some extent a symptom of Australia being far away from the rest of the world, but our biotechs really don't have a good grasp of what the competition is doing.


"There is a long lead time in developing drugs and many Aussie biotechs might find by the time they discover something of worth it has already been claimed by another company and global competition has taken them over, or another way of addressing the disease might have been developed."


But Tyndale says he is still a big fan of the local biotech sector.


"I think the advances made by Australian scientists and research institutions has been fantastic, world class, and well funded."


He believes the junior end of the Australian biotech industry must consolidate to safeguard cash flows, protect intellectual property and gain negotiating power with the large pharmaceuticals.


"I'm of the firm belief that at least half of the biotechs currently listed on the Australian Stock Exchange shouldn't be listed; they are just too small," he says.


Just how diminutive some of the recent biotech capital raisings has been was borne out in a recent report from KPMG. Its study of the nation's capital markets in 2003-04 revealed that eight biotech companies raised funds via a public float last financial year, raising a total of $80.14 million - or an average of only $10.02 million each.


And there are plenty more biotechs on the ASX with a market capitalisation of under $10 million.


Antony Cohen from KPMG's Corporate Finance business says biotechs are definitely for patient investors who are not easily spooked by risk. "It is for the very patient - it is a tough sector because there is a high capital investment and high risk, but there are also high rewards," Cohen says.




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