Though it represents the most prolific biotech industry in the Asia-Pacific region, Australia is a land of untapped early stage drug discoveries.

A haven for research and innovation led by more than 400 biotech firms, many of them spun out of local universities and research institutes, the country down under has faced challenges in attracting venture capital funding.

The opportunities in Australia are "sitting here largely unexploited at this point," said Peter Andrews, Queensland government chief scientist, adding that the "production of basic research in Australia is about the same per capita as the U.S., but the investment is much less per capita. So the result of that is a very large quantity of low-hanging fruit."

Part of that is due to the fact that the majority of R&D people in Australia work at the university level or in research organizations. In the U.S., about three-fourths of those employed in R&D in the U.S. are working in private industry.

The majority of Australian companies emerges from schools and research organizations, and begins the typical route of seeking angel funding before going to VCs for larger rounds. But "at each stage in that process, there’s rather less money available per company or per capita in Australia at present," Andrews said. "There’s just not enough money being invested on the business side."

During fiscal year 2003-2004, a total of 90 companies in the health and bioscience areas attracted VC funds totaling A$242.7 million (US$177.4 million), according to figures reported by AusBio, the biotechnology organization for Australia. As a comparison, in 2004, the U.S. life sciences sector - comprising biotechnology and medical device companies - brought in $5.6 billion in private financings.

Those numbers were reported in the 2004 MoneyTree Survey conducted by PriceWaterhouse Coopers, Thomson Venture Economics and the National Venture Capital Association.

For now, biotech in Australia largely is supported by government, which Andrews said has been "very supportive and generous" with federal grants and matching grants that provide companies with up to A$5 million, A$10 million or even A$15 million. For those start-up firms, that grant money often is the equivalent of a Series A round conducted by a U.S. company.

The scarcity of private investment forces companies to "go out to an IPO very early, compared to their U.S. counterparts," Andrews said. Often those firms end up filing an initial public offering long before they even have a product to tout, resulting in "relatively little money and relatively low valuations."

Incitive Goes To Market

Young drug discovery company Incitive Ltd. is a good example. That firm opened its IPO Wednesday, despite its first product being at least two years away from the clinic.

Founded in August, Perth, Australia-based Incitive intends to sell 15 million shares priced at A20 cents per share for gross proceeds of A$3 million (US$2.2 million). Those funds would be used to develop its lead products through the end of preclinical trials, at which time the company plans to out-license to a pharmaceutical firm in exchange for some early stage revenue.

The company also would gain a listing on the Australian Stock Exchange, expected in May.

Incitive’s lead programs include developing natural proteins isolated from bromelain, an extract from pineapple stems, to treat inflammatory bowel disease and arthritis, and the development of small-molecule inhibitors targeting the protein perforin for treating organ transplant rejection. Incitive anticipates that it will take anywhere from 24 months to 30 months to produce a product from one of those programs to license out for clinical testing.

Money raised in the initial offering, plus $800,000 in grants awarded by the Australian National and Medical Research Council and the U.S. National Institutes of Health, is expected to sustain operations for about two years.

Gateway Capital in Perth and Cygnet Capital in Melbourne are managing Incitive’s IPO.

A similar story was seen last year with Melbourne-based EvoGenix Ltd., which raised A$9 million by selling 36 million shares at A25 cents apiece. At the time of the filing, EvoGenix’s lead product, EGX-101, a modified growth factor treatment for bone loss, still was in preclinical development.

To help provide more early stage investment support to the sector, Andrews said, the country is working to generate greater worldwide recognition as a major player in biotech.

Government officials have demonstrated "a real drive to help build this industry," he said, offering as an example the fact that four of Australia’s six premieres and a top federal industry leader made a point of attending the annual Biotechnology Industry Organization conference in Philadelphia.

And on the business side, officials are trying to attract international investors through partnerships, with some success.

"What’s beginning to happen is that VCs [from the U.S. and Europe] are looking into Australia and finding partnerships with some of our local investment firms," he said. "What we need to do right now is make it as easy as possible for those people to invest."

Seeking Attention From Big Pharma

As with private equity investments, Australian companies have not had the same kind of success as U.S. and European firms when it comes to signing large-scale, multi-million-dollar partnering deals with big biotech and big pharma.

Only a handful of collaborations over the years have emerged from those early stage pipelines. The most recent of those, signed last month, involved G2 Therapies Ltd., a Sydney-based firm founded in 2002 as a spinout of the Garvan Institute of Medical Research. In that deal, Bagsvaerd, Denmark-based Novo Nordisk agreed to pay G2 up to $102 million for preclinical antibodies to treat inflammatory diseases.

The G2/Novo collaboration "is an example of the opportunities we have at the research end of the spectrum," Andrews said. "I think there’s a huge opportunity for the Novo Nordisks out there."

According to AusBio’s figures, for the fiscal year 2004-2005, biotech companies in Australia signed a total of 94 collaborations, nearly twice as many as the year before, and the biggest increase was in the biotech-pharma partnerships, which jumped from four to 18.

Another success story is CSL Ltd., of Melbourne, which in 1995 licensed rights to Whitehouse Station, N.J.-based Merck & Co. Inc. for a human papillomavirus vaccine. That product just finished Phase III testing in the prevention of cervical cancer and could become a "huge product worldwide," Andrews said.

The HPV vaccine in based on virus-like particle (VLP) technology developed at the University of Queensland.

It’s that kind of "innovation we need to bring to the attention of the major pharma companies," Andrews added. "There’s an industry here with high-quality science and a serious opportunity for investment."