Applauding Our Biotech Heroes

I was pleased to see the University of Queensland’s Professor Maree Smith named a Companion of the Order of Australia recently. This recognition is extremely well deserved given the impact that biotech start-up Spinifex Pharmaceuticals had on the Australian biotechnology industry.

Recently, the AusBiotech-affiliated news service BiotechDispatch broke the news of the discontinuation of the Spinifex phase 2 trials by Novartis in an article entitled “Disappointment for Australian Innovation” (https://biotechdispatch.com.au/news/disappointment-for-australian-innovation).

These events got me thinking about Spinifex and other pivotal Australian biotech deals with pharma that occurred around the same time (2014/15) – these being:

- Prof. Darren Kelly’s Fibrotech: US$500+ million Fibrotech deal with Shire plc in May 2014;

- Prof. Maree Smith’s Spinifex: US$700 million deal with Novartis in June 2015; and

- Prof. Vern Bowles Hatchtech: US$200 million deal with Dr Reddy’s Laboratories in September 2015.

Coinciding with these deals, the mood in the Australian innovation and investment sector changed for the better. The start-ups demonstrated that university-generated start-ups could deliver significant returns, and validated Australian research in this regard. The 3 deals were named “Best Early Stage Deal of the Year” by AVCAL in 2014, 2015 and 2016, and these exits were recognised as game changers by the prestigious journal Nature last year (V557, S28, 10 May 2018).

As a result, there was a groundswell of interest in university technology, innovation and entrepreneurship, and the mood of the Australian economy shifted positively. Entrepreneurship has now become fashionable, and some superannuation funds have returned to support venture capital. Numerous large superannuation-backed venture funds have been raised, with HostPlus Super being a major supporter (https://www.afr.com/technology/sam-sicilia-on-how-super-fund-hostplus-became-australias-biggest-tech-vc-backer-20180927-h15xjv).

On top of this, apart from Uniseed raising a new fund in late 2015, new research organisation-focussed funds have been set up in Australia, such as CSIRO’s Main Sequence Ventures back initially by the Federal Government and the IP Group Australia backed by UK investors. More recently, Monash University announced a $100 million deal with Chinese investors (https://www.afr.com/news/policy/health/monash-university-signs-100m-r-and-d-deal-with-china-20190415-p51edy).

The Government also introduced specific programs to support the innovation and investment sector. In December 2015, the National Innovation and Science Agenda (NISA) set a focus on science, research and innovation as long-term drivers of economic prosperity, jobs and growth, with $1.1 billion committed over four years to 24 measures. In December 2016, the Federal Government announced the $500 million Biomedical Translation Fund under NISA, with three fund managers subsequently appointed to support clinical stage medical drug and therapy development. I believe that the need for Uniseed investee Spinifex to raise US$45 million primarily from U.S. venture funds to support clinical development of its neuropathic pain drug was a significant influence on the implementation of these programs.

Research organisations have also shown a greater focus on innovation, not only through support of their research staff but also by putting in place incubators, accelerators and other schemes to support students, alumni and staff. The returns to UQ from Spinifex also helped support development of a fully integrated small molecule drug discovery capability based at that university - the Queensland Emory Drug Discovery Initiative (QEDDI; https://www.qeddi.com.au/).

Positive news from other start-ups continued to flow after these deals, further bolstering the innovation sector:

 - September 2015: ASX-listed Starpharma signed a licensing deal with AstraZeneca worth more than $650 million;

-  December 2015: Atlassian’s IPO on Nasdaq – the largest float from an Australian company on US markets;

-  August 2016: UQ’s Protagonist Therapeutics raised $118 million in a Nasdaq listing;

-  July 2017: WEHI sold a royalty stake in its anti-cancer treatment venetoclax to a subsidiary of the Canada Pension Plan Investment Board for up to $424 million;

-  February 2018: MSD paid around $502 million to acquire Viralytics — a spin-off from the University of Newcastle; and 

-  February 2018: Allergan plc acquired University of Sydney spin out Elastogen for US$95 million plus contingent milestone payments.

So, what has become of the 3 pivotal deals Fibrotech, Spinifex and Hatchtech? Obviously, the development of the Spinifex drug didn’t go to plan, and it wasn’t all smooth sailing for the others either.

Spinifex returned over US$250 million to shareholders from the up-front payment, milestone and other proceeds. As a result of the acquisition, Novartis committed to continue the clinical development of neuropathic pain drug EMA401 and two clinical trials were subsequently started. However, as reported by Biotech Dispatch and on ClinicalTrials.gov, the trials were unfortunately terminated in 2019 (https://clinicaltrials.gov/ct2/results?cond=&term=EMA-401&cntry=&state=&city=&dist=). This disappointing result could not have been predicted at the time the deal was done. We appreciate the hard work and dedication of the Novartis team and obviously agree with their approach of monitoring all emerging data to continue to ensure patient safety is everyone’s primary consideration.

Fibrotech returned US$75 million to shareholders from the up-front payment, and Shire committed to continuing clinical development of Fibrotech’s lead drug FT-011. However, in 2016, Shire advised that they were discontinuing the Fibrotech program following the US$32 Billion acquisition of Baxalta by Shire in June that year, as Shire committed to carry out more than $500 million in cost-cutting within the first 3 years after the deal closing, including optimizing the combined R&D portfolio (https://www.genengnews.com/news/shire-baxalta-complete-32b-merger/). It appears that the Fibrotech program was a casualty of this restructure. Fortunately, Shire sold back the Fibrotech drugs for an 18% stake in a new start-up (Certa Therapeutics) supported by Fibrotech investors Brandon Capital and Uniseed, with Darren Kelly returning as CEO. We are very grateful for Shire’s willingness to return the IP and be part of the new start-up Certa Therapeutics which was restarted in 2018, with $25 million raised to support Phase-2 studies (https://www.afr.com/news/biomedical-translation-fund-helps-keep-kidney-disease-pharma-in-australia-20180604-h10x9s). Ironically, much of the funding came via a Biomedical Translation Fund managed by Brandon, a program supported by the Federal Government and implemented to a significant extent on the back of the deals above.

The development of Hatchtech’s human head lice treatment Xeglyze Lotion has also not gone to plan, with FDA approval delayed due to deficient quality practices cited by the FDA during audits at Dr Reddy's manufacturing plants in India. Whilst none of the quality issues involved Hatchtech’s product, the agency will not approve any new products from the facilities in question until the remediation is complete. (https://www.fiercepharma.com/manufacturing/dr-reddy-s-solid-dose-plant-pinched-by-fda-for-missteps; https://www.bloombergquint.com/markets/all-you-need-to-know-about-dr-reddys-duvvada-plant; https://www.business-standard.com/article/companies/usfda-s-warning-letter-continues-to-haunt-dr-reddy-s-even-after-3-years-118110501073_1.html). 

Despite these setbacks which highlight the inherent risks of drug development, we should not forget the importance of these start-ups to the Australian biotech industry, resulting in a return of investment capital to the sector and increased Government support. We should not forget what it was like before these deals – the financial “drought” after the 2008 Global Financial Crisis which lasted for many years.

In my view, regardless of whether these drugs eventually make it to market (and we are confident that at least some of them will), scientists like Maree Smith, Darren Kelly and Vern Bowles and those involved with the other companies above are heroes of the biotech and innovation industries – serving as great role models for Australian scientists and opening doors for others.