A goldmine to be found in the science lab

By SIMON COLLINS

Dr Colin Green has made the kind of discovery every doctor dreams of - a healing gel that almost miraculously grows a new layer of skin over a gaping wound.

By a pure accident, the Auckland Medical School associate professor and his British former post-doctoral researcher Dr David Becker discovered that "knocking down" a protein which helps cells communicate with one another stopped the wound from spreading and helped it to heal.

"My hypothesis was the complete reverse - that these gap junctions [cell-to-cell communication channels] play a really important role, and that the more we close the channels, the less the wound would heal," Green says.

"When some of those lesions didn't spread at all, I nearly fell off my chair.

"When Dave sent me pictures showing that the gel could also improve damaged spinal cord, I just about cried. That's why you do research."

Green's work, so far only in animals, suggests knocking down the cell communication protein connexin 43 may dramatically speed healing not just of flesh wounds but of burns, bed sores, spinal injuries and even brain damage.

He is already testing it in laser eye surgery, which involves burning off the top layer of the eye. The gel helps the eye to re-form itself much faster than current technologies.

His breakthrough confirms a common refrain - that New Zealand does a lot of very smart science. But the refrain is usually coupled with a gloomier conclusion. We can do good science but we don't seem to know how to make money from it.

Biotechnology, which uses knowledge of living things at the level of individual molecules or genes, was named by the Government two years ago as one of three key sectors with the most potential to lift New Zealanders' living standards in the coming years.

In the past two months, three events have shaken that vision.

In May, the world's biggest medicine maker, Pfizer, cancelled a $40 million research contract with the Auckland Cancer Society Research Centre to punish New Zealand for refusing to pay market prices for some of Pfizer's drugs.

The state drug-buying agency Pharmac pays only the price of the cheapest generic alternative.

Second, the biggest purely biotech company listed on the local sharemarket, Genesis Research and Development, jettisoned its chairman and its chief executive last week in an attempt to appease shareholders who had seen the company's share price plunge from $7.55 in 2001 to just 67c.

CEO Dr Jim Watson will return to the lab as "founder scientist" when the company finds a new captain.

And third, the dairy co-operative that earns a fifth of all New Zealand's income, Fonterra, slashed its investment in its biotech subsidiary ViaLactia by 40 per cent, forcing it to lay off five scientists last Friday.

"It is a fundamental question whether we can build enough depth to allow people to move between companies," says AgResearch's chief executive, Dr Andy West.

Peter Sullivan, an Auckland director who chairs Virionyx, a company with an HIV/Aids drug in phase two trials in the US, says New Zealand still faces a "tyranny of distance" when it tries to raise money overseas for biotech ventures.

"We are 12,000 miles away from the big funding organisations, who have a preference for funding companies on their own doorstep," he says.

New Zealand has seeded successful companies in the past. Glaxo, founded to make dried milk powder in the Manawatu village of Bunnythorpe in 1906, migrated to London and has grown into one of the world's biggest medical companies, GlaxoSmithKline.

Auckland University Professor Garth Cooper, while studying in Britain in 1987, discovered a hormone called amylin which appeared to have a similar effect to insulin on blood sugar levels. He found an investor in San Diego, Ted Greene, and together they founded Amylin Pharmaceuticals, which is now valued on the Nasdaq sharemarket at US$2 billion ($3.2 billion).

Amylin's example has lessons for us. Dr Andrew Young, another New Zealander who joined Cooper as Amylin's sixth employee in 1989 and is now its research vice-president, says millions of investors' dollars were spent exploring three blind alleys before the company found a potential use for amylin.

Even then, investors were not convinced. The share price halved in 24 hours when the news came out that a trial had failed in 1995, and in 1998 it plunged to rock bottom after Johnson & Johnson pulled out of a collaboration on the one thing amylin did affect - the rate of moving food through the stomach.

Amylin was forced to cut its staff from 250 to 40. The remaining band carried on, and eventually had some successful trials. The share price recovered, and the company today employs 550 people.

It survived partly because, when it started rehiring again after that 1998 crisis, two-thirds of the people it hired were its own former workers. San Diego's biotech sector had been "deep" enough to keep them in town.

"Nobody missed a pay cheque. All found jobs at surrounding companies," Young says.

New Zealand does not have anything like that kind of depth. But, despite the negatives of the past few weeks, our biotech sector is much bigger than it was just a few years ago.

A "Biosphere" directory compiled by NZ Trade and Enterprise lists 430 companies, including 45 such as Genesis and ViaLactia in "core biotechnology".

In employment terms, the biggest players are the four biological crown research institutes AgResearch, HortResearch, Crop and Food and Forest Research, with around 2100 staff among them.

Each institute has now spun out at least one or two biotech companies, ranging from straight subsidiaries such as AgResearch's animal vaccines firm AgVax to "walkouts" like Biodiscovery, an Auckland firm whose founders quit HortResearch and set up business looking for "natural" pesticides.

Another group, now organised as the Waikato Ag-Biotech Cluster, has sprung out of the group of Waikato manufacturing companies that make technical equipment for farmers and milk processors. Hamilton's DEC International, which started making injection devices for cows, has branched into high-tech milk sensors and controlled drug-release systems and now owns a Waitakere biological testing company, ICP Bio.

A Manawatu cluster includes New Zealand Pharmaceuticals, formed by meat companies in 1971 to extract valuable products from the meat industry. Today it extracts pharmaceuticals from many animals and plants and exports 95 per cent of its output.

In Dunedin, the late entrepreneur Howard Paterson helped to finance another cluster of mainly ag-biotech companies such as Zenith Technology and its spinoffs Botry-Zen and PharmaZen, which produce a cure for botrytis in grapes and colostrum supplements for cows.

In Auckland, there are now at least 11 medical biotech companies, most either spun out of Auckland University or staffed by current or past academics.

The two biggest, both listed on the Nasdaq, are now largely US-based. One, the US$1 billion-plus Medicines Company, was founded there but one of the founders, Dr John Villiger, returned to Auckland for family reasons and now runs some of the company's clinical trials from here with a small team.

The other, Tercica Inc, was founded in Auckland in 2000 by endocrinologist Professor Ross Clark and former Kiwi Dairy Group executive Howard Moore, two old rugby-playing mates from Taranaki.

Clark had worked for 10 years on a genetically engineered version of insulin-like growth factor 1 (IGF-1) at Genentech in San Francisco until the company dropped the work in 1997, and he and Moore eventually bought the rights to take over the project.

They raised the money for the deal from US venture capitalists and investors in New Zealand and Europe, and listed on the Nasdaq three months ago with a current market value of US$224 million. Clark and his family are still based in Auckland, but the company's 50 staff are in San Francisco where Clark spends three weeks in every month.

On the local sharemarket, Genesis still dominates, although its staffing has shrunk from 150 to 120 in the past year or so. It abandoned its drug for the skin disease psoriasis in December after an unsuccessful trial, but expects results from a phase two trial for a drug for dermatitis by the end of the year.

A new company, AgriGenesis, is being spun out with new capital being raised by ABN-Amro. It is working on botrytis control and on projects to use plants for energy.

Watson says his return to the lab does not mean the company is in trouble, but simply that after 11 years it is time for a change at the top. "I want to go back to science, and I intend to work the rest of my life in Genesis as a scientist," he says.

The next biggest company is Garth Cooper's Protemix, which has 30 staff and 40 post-graduate students working on potential drugs for diabetes at the university and 12 development staff in IAG House in Queen St, where Birnie Capital Partners brought together a $20 million funding package last year.

Other players include diabetes company Diatranz, Virionyx working on antibodies, and Neuronz and Endocrinz, merged a fortnight ago to form Neuren.

Aki von Roy, a former European president of Bristol-Squibb-Myers who "retired" to Auckland with his Kiwi wife, is providing the business input to CoDa Therapeutics, the company set up by Green and Becker (named after the first two letters of their first names).

There are now so many companies around that Watson believes the local biotech industry can survive the ups and downs of individual businesses.

Moore, who has returned from San Francisco to help set up a $100 million Life Science Ventures biotech investment fund for AgResearch and Auckland-based Direct Capital, says the biotech scene has been transformed by the new companies and government support, including the $100 million Venture Investment Fund.

"When Ross and I started, there wasn't any sort of funding available to us," he says. "Having been here, gone away and come back, I see positive things going on that were not going on before."

But to compete against the likes of San Francisco and San Diego, industry leaders say it needs to rationalise, develop deeper capital markets, strengthen links between science and industry, and make the climate attractive to pharmaceutical companies.

John Palmer, who chairs Genesis' biggest shareholder Wrightsons, says: "If you are going to get into this game, you have to have the scale and capability that says you give yourself the best possible chance of success."

Fonterra's decision to stop funding ViaLactia's ryegrass genetics work may be the catalyst for a rationalisation in a field where the state-owned AgResearch has been doing its own research with Victorian institutions, effectively competing with Fonterra.

"We are talking to Fonterra right now," says AgResearch's West.

Sullivan from Virionyx suggests the Government could help by underwriting part of the cost of clinical trials.

"If companies pass a minimum threshold, such as submitting an independent new drug application for trial with a major international institution, the Government should be prepared to underwrite 'x' per cent of that cost to allow you to get a funding package together," he says.

In San Diego, this problem is overcome partly by an organisation called "Connect", founded by the local university to help its scientists prepare business plans. It holds annual forums at which carefully selected local companies pitch for funding to venture capitalists from the rest of the US and beyond.

In Auckland, Watson heads an industry committee which will report back on Monday on proposals to formalise an Auckland biotech network as a branch of the national body NZ Bio.

Neuren chief executive David Clarke says New Zealand must watch what Australia does. "If you are sitting in New York and looking down here, where are you going to put your dough?" he asks.

"We have to be able to compete with the Australians."

This will not be easy. New Zealand's biotech industry is still a minnow. But at least it now has a respectable base to grow from - and, as Cooper observes, every successful biotech hub started small.

New Zealand, as Moore says, starts with one big advantage. "When you go to the agricultural communities in the US, they all recognise New Zealand as being world-class."

In medicine, too, people like Green and Cooper are making world-class discoveries.

In the past, from Glaxo to Tercica, we let too many of those scientific breakthroughs drift overseas to be commercialised.

The present crop of biotech companies point the way towards a new, home-based but internationally connected biotech industry - if we can just get over the attack of hiccups of the past few weeks.

www.biospherenz.com