biotechnology seminar 8 april 2003 - prac€¦ · research contracts joint ventures strategic...

Come and hear advisors to the biotech industry from the US, Asia,

Europe and Australia discuss access to international biotech markets

This seminar will address key issues

for NZ biotech companies wishing to take their technologies offshore,

including: ��which markets should NZ biotech

focus on, and why? ��which countries offer incentives to

biotechs? ��what are the comparative

regulatory constraints in different countries?

��how do NZ biotech companies access capital in offshore markets?

��what types of deals can NZ biotech companies expect to do offshore and what are the benefits/pitfalls of these?

�� research contracts �� joint ventures �� strategic alliances �� licence agreements

��how do NZ biotechs access the right advisers in offshore markets?

Who shWho shWho shWho should attend?ould attend?ould attend?ould attend? Biotech companies and advisers/

investors interested in exporting NZ biotechnology or expanding into the US, EU, Asian or Australian markets.

BIOTECHNOLOGY SEMINAR 8 APRIL 2003

Taking New Zealand Biotechnology to the World Market

- a global perspective

half day programme

8.30am Registration / Coffee

9.00am Welcome

9.05am Henry Wixon - Washington

9.35am Peter Shaw - Sydney

10.05am Morning Tea

10.30am Benoît Strowel - Brussels

11.00am Sivi Sivanesan - Singapore

11.30am Panel discussion

12.00pm Finish

Register for FREE Now! Please turn the page for more information . . .

This seminar has been organised by Simpson Grierson's specialist technology practice group, x-tech, to coincide with the Pacific Rim Advisory

Council’s April 2003 conference. Simpson Grierson is the New Zealand member of the Pacific Rim Advisory Council – an association of leading

law firms dealing with clients with business interests in the Pacific Rim. Member firms have

access to top lawyers in leading law firms around the Pacific Rim and further afield, including the

EU.

seminar details are: where

Heritage Hotel—The Grand Tearoom Hobson Street, Auckland

Complete and send to: Debbie Brookes - Private Bag 92518, Wellesley St, Auckland OR Fax: (09) 307 0331

Registration Form

YES! I would like to register for the Simpson Grierson Biotechnology Seminar

Name: _____________________________________

Position: ___________________________________ Organisation: _______________________________

Ph: _______________________________________ Fax: ______________________________________

�

Sivi Sivanesan - Singapore Sivi is the senior partner of Rodyk & Davidson’s Finance & Corporate Department. His main areas of practice include venture capital and investment funds, mergers & acquisitions, restructurings, establishment of businesses and regional operations, joint ventures, corporate finance and technology investments. Sivi has a number of biotechnology clients including the commercialisation arm of Singapore’s Agency for Science, Technology and Research, A�STAR. Our speakers work with a wide variety of biotech clients including PerkinElmer, Biogen, Boston Scientific, Millennium Pharmaceuticals, Syngenta, Lynk Biotechnologies, ToolGen Inc, Exploit Technologies and A�STAR. The Panelists Include: Michael Sage Michael is a partner in Simpson Grierson’s x-tech group. He specialises in providing advice to users and suppliers in the technology sector particularly in relation to the commercialisation of technology. Dr Anna Jellie Anna is an associate in the x-tech group at Simpson Grierson. She has a PhD in Biochemistry and worked as a research fellow at the University of Otago. Anna advises on the commercialisation and the regulatory aspects of biotechnology.

The Speakers Include: Henry Wixon - USA Henry Wixon is a senior partner at Hale & Dorr’s Washington DC office and one of the top biotech lawyers in the US. Henry has an MS in neuropharmacology and counsels start-up and small-to-medium-size biotechnology companies on intellectual property and technology transfer issues. A registered patent attorney, Henry works with pharmaceutical and biotechnology companies to procure and enforce patent protection for key corporate technology assets. Peter Shaw - Australia Peter is a partner in the Sydney corporate group of Clayton Utz. Peter has a degree in physiology and is a member of the Australian Venture Capital Association, and of the Australian Institution of Company Directors. He has broad experience in the technology sector and has assisted companies in the medical sciences and biotechnology sector in relation to structured capital funding, venture capital and other later stage capital raising initiatives including listing on the Australian Stock Exchange. Benoît Strowel Benoît Strowel is a partner at NautaDutilh´s Brussels office. He specialises in both the intellectual property and regulatory aspects of biotechnology and pharmaceutical law. Driven by a particular interest in the biotech industry and the dramatic growth in that part of his practice, he embarked upon and successfully completed a post-graduate degree in general biochemistry and molecular biology at the School of Health and Life Sciences of King´s College, London.

when Tuesday, 8 April 2003

8.30am—12.00pm

This Simpson Grierson Biotechnology Seminar is FREE to attend—simply fill in the form below and return as soon as

possible to secure your place

1

1

BIOTECHNOLOGY SEMINAR8 APRIL 2003

Taking New Zealand Biotechnology

to the World Market


Henry WixonSenior Partner

Hale and Dorr [email protected]

3

Noted on the Newswires in RecentDays

Deltagen Secures Commitment for $10 Million in Equity

$5 Million Initially Funded Through Bridge Loan

REDWOOD CITY, Calif., April 4 /PRNewswire-FirstCall/Deltagen, Inc. (Nasdaq: DGEN) today announced that it hassecured a minimum commitment for $10 million in equity capitalfrom existing institutional investors to purchase preferred stockin a private placement. The purpose of the offering is to enableDeltagen to expand its product offerings and initiate newmarketing and sales initiatives. These initiatives will focus onaccelerating growth from Deltagen's portfolio of products thatinclude biological models, drug interaction and metabolismtechnologies and validated small molecule targets. . . . .

2

4


Northeastern Ohio Universities College of Medicine and CEL-SCI Share $1.1 Million U.S. Government Grant forDevelopment Of CEL-1000 Against Viral Encephalitis

VIENNA, Va., April 4 /PRNewswire-FirstCall / --NORTHEASTERN OHIO UNIVERSITIES COLLEGE OFMEDICINE (NEOUCOM) has been awarded a $1.1 milliongrant for collaborative studies with CEL-SCICORPORATION (Amex: CVM) to support the research ofKen S. Rosenthal, Ph.D. and colleagues on thedevelopment of CEL-SCI's new compound, CEL-1000, as apossible treatment for viral encephalitis. . . . .

5


Nexia receives a $3.94 Million Award from the US Army todevelop Protexia(TM) to prevent toxic effects from nerveagents

-- PROTEXIA(TM), a bioscavenger, to be produced by Nexiain the milk of transgenic goats --

MONTREAL, April 4 /PRNewswire-FirstCall/ - NexiaBiotechnologies Inc. (TSX:NXB) today announced that itwas awarded a CND $3.94 million (US $2.67 million)research contract from the US Army Medical ResearchMateriel Command (USAMRMC) to develop, Protexia(TM)(formerly NEX-91), a recombinant form ofbutyrylcholinesterase (BChE). The contract is sponsored bythe US Army Medical Research Institute of ChemicalDefense (USAMRICD) under the Broad AgencyAnnouncement 02-1 (BAA 02-1). . . . .

6


Johnson & Johnson and Scios Inc. Announce EarlyTermination Of Hart-Scott-Rodino Waiting Period

NEW BRUNSWICK, N.J., and SUNNYVALE, Calif., April 3/PRNewswire-FirstCall/

-- Johnson & Johnson (NYSE: JNJ) and Scios Inc. (Nasdaq:SCIO) today announced that the U.S. Federal TradeCommission has granted early termination of the waitingperiod under Hart-Scott-Rodino Antitrust Improvements Actof 1976, as amended.

The two companies had signed on February 10, 2003, adefinitive agreement under which Johnson & Johnson willacquire Scios in a cash for stock exchange. . . . .

3

7

Taking New Zealand Technology tothe States

• A Glance at the US Biotechnology Industry

• Regulation of Biotechnology

• The US Capital Markets in 2002• Venture Capital-Backed Financings

• Initial Public Offerings by VC-Backed Companies

• Enhanced Corporate Responsibility and Reporting UnderSarbanes-Oxley Act

• Importance of Intellectual Property Due Diligence in a DifficultMarket

• Other Funding Sources – Federal and State

• Key Issues in Structuring Agreements, JVs and Alliances,including Termination

8

The US Biotechnology Industry

A Snapshot

9

New US Biotech Drug and VaccineApprovals/New Indication Approvals by Year

Source - BIO

4

10

Revenues of Selected Companies,1980-2001Source: Annual reports for Genentech (1980-2001), Amgen (1981-2001) Biogen (1983-2001), Chiron (1985-

2001), Genzyme (1985-2001)

11

US Biotech Revenues, 1992-2001

Source: Ernst & Young

12

Capital Raised by Public Biotech CompaniesSource: Burrill and Co., SG Cowen Securities*2002 Annualized from $6,013 as of 5/31/02

5

13

U.S. Biotech Employment, 1992-2001

Source: Ernst & Young

14

Number of US Biotech Companies1992-2001Source: Ernst & Young

15

U.S. Biotech IPOsSources: News coverage researched through Nexis ; Jennifer Van Brunt (Recombinant Capital/Signals).

6

16

REGULATION OF BIOTECHNOLOGY INTHE US

• Food and Drug Administration (FDA)

• Environmental Protection Agency (EPA)

• Department of Agriculture (USDA)

• State Laws

17

REGULATION OF BIOTECHNOLOGY INTHE US

• “. . . Senator Brownback's patent amendment to S.2600, the Terrorism Risk Insurance Act of 2002, nowunder consideration by the U.S. Senate . . . . wouldpreclude the U.S. Patent and Trademark Office(PTO) from granting patents on products andprocesses derived from somatic cell nuclear transfer(SCNT). . . . “ Letter from Carl Feldbaum, Presidentof BIO, to Senator Thomas Daschle.

• Senator Brownback has also introduced a bill thatwould criminalize any act of stem cell research. Ithas 26 sponsors in the Senate.

18

US Capital Markets in 2002

ü Venture Capital-Backed Financings


• Sources:

• The 2002/Venture Capital Report and

• The 2002/IPO Report

are available on the Internet at <www.ipoleader.com>

7

19

US Life Sciences Financing RemainedRelatively Steady; IT Down

20

Counsel to Eastern U.S. Companies withVC-Backed Capital Financing in 2002

21

Counsel to Eastern U.S. Companies atYear-End 2002

8

22

Liquidity Events for VC-BackedCompanies Down Drastically

23

Acquisition Activity For All VC-BackedCompanies Remained High

24

But Company Valuations Were Down

9

25

VC Financings – Eastern RegionalTrends Reflected National Numbers

26


27


10

28


29


30


11

31

US Capital Markets in 2002

• Venture Capital-Backed Financings

ü Initial Public Offerings by VC-Backed Companies

• Sources:

• The 2002/Venture Capital Report and

• The 2002/IPO Report

available from Hale and Dorr on the Internet at<www.ipoleader.com>

32

Where’s the Money?IPOs by State 1996-2002

33

FEWEST IPOs in 2002 SINCE 1979Average Deal Size Above 1999/2000 Levels due to

Fewer Start-up IPOs

12

34

EAST LED WEST IN NUMBER, PROCEEDSin 2002

Foreign IPOs an Important Contributor

35

WHO ARE THE UNDERWRITERS?

36

COUNSEL TO ISSUERS ANDUNDERWRITERS 1996-2002

13

37

IPOs UP IN NEW ENGLAND IN 2002BUT NONE TECH-RELATED

38

TRI-STATE VERY ACTIVEBUT CIT IPO WAS 65% OF PROCEEDS AT US$4.6B

39

MID-ATLANTIC IPOsNATIONAL SECURITY, GOVERNMENT CONTRACTING,

DEFENSE COMPANIES

14

40

FOREIGN IPOs IN THE STATESALCON (US$2.3B) AND CHINA TELECOM (US$1.4B)

LED IN 2002

41

There’s Not Much MoneyAND

You’ll Work Harder For It

THE SARBANES-OXLEY ACT OF 2002 WILL AFFECTPRIVATE COMPANIES AS WELL AS PUBLIC

COMPANIES

42

TCA CYCLE

15

43

CORPORATE GOVERNANCE CYCLE

44

The New Rules

Sarbanes-Oxley Act of 2002l Increases personal accountability of managementl Enhances corporate responsibility and reportingl Expands criminal and civil liabilityl Strengthens external oversight

—Accountants

—Research analysts

—Lawyers

SEC rulesNASDAQ and NYSE listing standards

45

Why Should Private Biotech Start-UpCompanies Care

About the New Rules?New rules do not govern private companies, but they do affect

them

l Require action to preserve an exit strategy

—a private company becomes subject to Sarbanes-Oxley when itfiles a registration statement

—a private company could also indirectly become subject toSarbanes-Oxley if it is acquired by a public company

l Result in practical realities that will affect private companies

l Represent “best practices”

—Boards of directors and managements of many privatecompanies are embracing aspects of the new rules as “bestpractices”

16

46

Prohibitions on Personal Loans

Sarbanes-Oxley prohibits public companies frommaintaining personal loans to executive officers anddirectorsl Loans made before 7/30/02 are grandfathered, unless

modified or extended

l No statutory relief for loans made after 7/29/02, even ifmade before going public

Loans made or modified by private companies after7/29/02 will be illegal upon:l Filing of registration statement, if borrower is an

executive officer or director at that timel Acquisition by a public company, if borrower will be an

executive officer or director of the surviving publiccompany

47

Prohibition on Personal Loans

Personal loans to employees and directors should provide forrepayment or forgiveness upon:

l Filing of registration statement, if borrower is an executive officeror director at the time of the filing

l Acquisition by a public company, if borrower will be an executiveofficer or director of the surviving public company

Deciding whether to make a loan forgivable or repayable

l Assume that the company may have to forgive the loan

l Special case: Loans for equity—Forgiveness of such loans may result in unfavorable accounting

treatment

What is the business reason for the loan?

48

Stockholder Approval for Stock Plans

NYSE has proposed making approval of new employeestock plans and increase of old employee stock plansnon-discretionary for NYSE brokersl Affects all public companies because would apply to all

brokers that are members of NYSEl Will make obtaining stockholder approval of stock

plans much more difficult for public companiesl More important for private companies contemplating an

IPO to consider adopting new stock plans or increasingold plans while still private

17

49

Board of Directorsand Board Committees

Early in the IPO preparation process, a private company should review itsboard composition and prepare to comply with the new rules

Independence of board

l Proposed Nasdaq and NYSE rules require at least a majority of“independent” directors

l Different definitions of “independent”

Audit Committee

l All members must be “super independent”l Financial expertise

l Increased responsibility

Compensation CommitteeNominating Committee

50

Disclosure Controls andInternal Controls

Public companies are now required to maintain,periodically evaluate and report on the effectivenessof “disclosure controls and procedures”

The SEC has proposed similar rules regarding “internalcontrols and procedures” for financial reporting

l Private companies planning to go public or consideringan acquisition by a public company should establishappropriate controls and procedures

l Also represent “best practices”

51

Relationship with Auditors

Prohibition on Non-Audit Servicesl Private companies receiving non-audit services should

be prepared to obtain these services from otherparties, and should negotiate agreements to providefor termination upon filing of an IPO registrationstatement

Beware of the rotating audit partnerl Sarbanes-Oxley requires that the lead audit partner

and lead review partner rotate every 5 years, even ifthe company was private for the first 4 1/2 years

18

52

Relationship with Auditors

Be careful hiring from your audit firm

l Audit firm not independent if company’s CEO, CFO, CAO orcontroller was former employee of audit firm who worked oncompany’s audit during the past year, even if the companywas private during the previous year

Year-end audit crunch

l New rules increasing disclosure and decreasing time to fileForm 10-K will make it more difficult and costly for privatecompanies to get audits completed in time to send toinvestors

l Consider changing year-end or hiring non “Final 4” audit firm

53

Covenant Creep

Outside forces will likely impose new public companyprocedures on private companiesl Auditors

l Banks

l Financial institutions

l Investors

l Joint venture partners

l Insurers

54

Other Best Practices

Code of Ethics and Conduct

Procedures for handling anonymous tips fromemployees

19

55

In Summary

Private companies are affected by the new rules and,more importantly, by the new environment

A Biotech start-up company can learn from the mistakesof public companies and take this opportunity, earlyin the company’s life, to implement best practices andadopt a company culture that is less susceptible tothe problems that led to the enactment of these newrules

56

There’s Not Much MoneyAND

You’ll Work Harder For It

• BIOTECH INVESTORS ARE LOOKINGINCREASINGLY HARD AT COMPANYINTELLECTUAL PROPERTY

• START-UPS AND COMPANIES HOPING TO BEACQUIRED SHOULD MAKE SURE THEIR IPPORTFOLIO IS IN GOOD ORDER

57

WHY REVIEW YOUR COMPANY’SINTELLECTUAL PROPERTY NOW?

Ask the hard questions of yourself – and answerthem – before they get asked by counsel as part

of due diligence for the underwriteror merger partner

20

58

- - Documentation - Does Documentation - Does COMPANY have adequate have adequateprocedures in place to document the creation of potentiallyprocedures in place to document the creation of potentiallyvaluable intellectual property rights and to ensure that thevaluable intellectual property rights and to ensure that therights are assigned to it (or that title otherwise vests torights are assigned to it (or that title otherwise vests toCOMPANY))

-- Maintenance - Does Maintenance - Does COMPANY have systems to have systems todocument action dates so that rights (i.e., patents anddocument action dates so that rights (i.e., patents andtrademarks) are maintainedtrademarks) are maintained

-- Infringement - Determine what Infringement - Determine what COMPANY is doing that is doing thatmight infringe the rights of others and whether procedures aremight infringe the rights of others and whether procedures arein place to review newly adopted rights for potentialin place to review newly adopted rights for potentialinfringementinfringement

-- Rights of Others - If Rights of Others - If COMPANY is using the intellectual is using the intellectualproperty rights of others, does the documentation which allowsproperty rights of others, does the documentation which allowssuch use adequately protect such use adequately protect COMPANY if, for example, the if, for example, theowner of the rights were to file for bankruptcy protectionowner of the rights were to file for bankruptcy protection

59

What Intellectual PropertyWhat Intellectual PropertyDo You Have?Do You Have?

The underwriter or acquiror will demand an inventory of allintellectual property assets, including:

—Patents;

—Trademarks;

—Copyrights;

—Trade secrets/know-how; and

—Licenses (including in-license and out-licenses).

60

Diligence Issues To ConsiderDiligence Issues To Consider

Documenting the Company’s Intellectual Property

—Proof of Invention (Laboratory Notebooks)

—Offers for Sale

—Prior Art

21

61

Has Patentability Been Evaluated andHas Patentability Been Evaluated andDocumented?Documented?

Product Life Cycle: If the product’s design will be obsolete within 5years - a 20 year patent may make no sense unless licensingrevenues are likely to be high or it will prevent your competitorsfrom entering the area (remember, it can take several years toprosecute a patent).

What are the odds that others are ahead in patenting the sameinvention?

What was obvious to the art at the time the invention was made?

Are there legal bars to patenting, e.g., publication or on sale bars?

62

Have You Evaluated Freedom To Use?Have You Evaluated Freedom To Use?

Is there a dominant patent that will bar the use of theinvention absent permission from the patent holder,even though patenting may be possible?

Clearance opinion obtained?

Cross license secured?

Design-around opinion?

63

IP Due Diligence

Consider Company’s Technology:l Is the technology adequately protected?

l Does it cover your, and your competitors’, products and processes?

l Does it look into the future?

l Are patents in place?

Consider the competition:l How active are they in protecting their technology?

l Have you analyzed their patent portfolios?

— Have you obtained opinions of counsel where necessary?

— Have you effected work- arounds where necessary?

22

64

Due Diligence – Are Your PatentClaims Supported?

Claims define and limit your legal rights

They must be supported by a substantial disclosure

Relationship between claims and disclosure: backbone(claims) of the patent supported by the muscles(disclosure)

Provide substantial disclosure to support the full breadthof at least one set of claims with as many examplesas possible

65

Have you built a “patent picketfence?”: Claim Strategies

Multiple patents (U.S. and foreign)

Vary the scope of the claims

l broad, intermediate, and narrow

Vary the wording of the claims

Vary the type of claim:l product claims, method claims for making the products,

and method claims for using the products

66

Claiming Strategies (cont.)

By drafting a series of claims approximating a spectrumof patent protection:l if broader claims invalidated, narrower claims remain

enforceable

l patent statute specifically permits this form of multipleclaim drafting

l narrower claims contain additional restrictions andlimitations and stand better chance of not “reading on”prior art

23

67

EVALUATING COMPANYEVALUATING COMPANY’’S EXISTINGS EXISTINGPATENT PORTFOLIOPATENT PORTFOLIO

A. Conducting the Inventoryl 1. Issued U.S. & Foreign Patents

l 2. Pending Applications

l 3. Unfiled Disclosures

68

Reviewing Relevant Agreements

1. Employee Agreements - Obligations re Inventions

a. Ownership by, Assignment to, Employer— (1) Subject to State Employed Inventors ’ Rights Statutes,

e.g., Calif. Labor Code 2870

b. Prompt Reporting of Inventions to Employer

c. Confidentiality - Nondisclosure Except Co-Employees with Need-to-Know

d. Cooperation in Patenting Process, Execution of Documents

69


2. Patent Licenses - Inbound, Outbound, and Cross

3. Technology Transfer Agreements

4. Joint Development Agreements

a. Ownership of Joint and Sole Inventions

b. Licenses to/from Development Partner(s)

24

70


5. Consulting Agreements - Ownership of Inventions

6. Agreements with Suppliers - Infringement IndemnityProtection

7. Agreements with Customers/Distributors - IndemnityObligations

8. Outsourcing Agreements

71

Confirming Ownership; Checking forLiens and Encumbrances

1. Financing Agreements: Patent Mortgages & SecurityInterests

2. PTO Title Searches - U.S. and Foreign

3. State Filings: UCC-1 Statements, Judgment Liens

72

Is There Infringement of CompanyPatents by Third Parties?

a. Competitors vs. Non-Competitors

b. Maximizing Return on Patent Investment: Exclude orLicense?

c. Opinions of Counsel re Infringement/Validity

25

73

Are There Third Party PatentInfringement Claims?

a. Asserted Claims(1) Pending Litigation

(2) Infringement Notice (Hard) Letters

(3) License Offer (Soft) Letters

(4) Opinion(s) of Counsel re Invalidity/Noninfringement

(5) Preemptive Option - Declaratory Judgment Action

74

Are There Third Party PatentInfringement Claims?

b. Anticipating Claims(1) Suits Against Others

(2) Knowledge of Relevant Patents

(3) Development of Competitive/Compatible Products

(4) At What Point Does it Become Necessary to Obtainan Opinion of Counsel in Order to Neutralize TrebleDamages Exposure for Willful Infringement?

(5) Product Clearance (Infringement) Search

75

HAVE YOU ACQURED NECESSARYHAVE YOU ACQURED NECESSARYTHIRD PARTY PATENTS?THIRD PARTY PATENTS?

A. Individual Third Party Patents

B. Acquiring a Patent Portfolio via a Corporate AssetPurchase

C.Identifying Target Patents and Owners

26

76

OTHER FUNDING SOURCES IN THESTATES

• Federal

• State/Regional

77

Federal Support for Small BusinessInnovation

• National Institutes of Health Small Business InnovationResearch Program (SBIR) is a major source of start-up capitalfor many emerging companies in the biotechnology industry.

• In 1999, over US$300 million were available through NIH forSBIR grants. The biotech industry received approximately 50percent of these awards.

• Award sizes range from US$100,000 for Phase I grants toUS$750,000 to US$1.25 million for Phase II grants. Thesegrants encourage the technology transfer process and in manycases help validate technology in its early development.

• Other federal agencies - the Department of Defense,Department of Energy, the Environmental Protection Agency,the Department of Agriculture and the National ScienceFoundation - award SBIR grants to biotech companies.

78

STATE BIOTECHNOLOGY INITIATIVESSource: State Government Initiatives in Biotechnology 2001 , BIO

• 16 STATES USING TOBACCO SETTLEMENTFUNDS FOR BIOTECH R&D

• 28 STATES HAVE AT LEAST ONE PUBLICLYSUPPORTED VENTURE FUND; 5 OF THESE AREEXCLUSIVELY BIOTECH

• 9 STATES USE TRADITIONAL ECONOMICDEVELOPMENT PROGRAMS, INCLUDING LOAN,LOAN GUARANTEE, OTHER PUBLIC FINANCINGPROGRAMS, TO FUND BIOTECH FACILITIES

• 35 STATES HAVE AT LEAST ONE BIOTECHNETWORKING ORGANIZATION; 12 HAVE MORETHAN ONE

27

79

STATE BIOTECHNOLOGY INITIATIVES Source: State Government Initiatives in Biotechnology 2001, BIO

• MAJORITY OF STATES OFFER R&D TAX CREDITS, OFTENTIED TO THE FEDERAL R&D TAX CREDIT

• SALES AND USE TAX EXEMPTIONS, INVESTMENT TAXCREDITS ALSO OFFERED BY MAJORITY OF STATES –HAWAII, CONNECTICUT AND NEW JERSEY ALLOWBIOTECHS TO TRANSFER TAX BENEFITS

• 26 STATES HAVE RESEARCH PARKS HOUSING BIOTECHS;9 OF THESE ARE EXCLUSIVELY BIOTECH, OTHERS INPLANNING STAGES

• 15 STATES HAVE BIOTECH INCUBATORS; 19 HAVETECHNOLOGY INCUBATORS INCLUDING WET LAB SPACE

80

STATE BIOTECHNOLOGY INITIATIVES Source: State Government Initiatives in Biotechnology 2001, BIO

• MAJORITY OF STATES OFFER COMMERCIALIZATION ANDBUSINESS DEVELOPMENT SUPPORT TO BIOTECH START-UPS; SEVERAL HAVE DEDICATED SUPPORT CENTERS

• MANY STATES HAVE IMPLEMENTED BIOTECHWORKFORCE DEVELOPMENT INITIATIVES, INCLUDINGASSOCIATE DEGREE PROGRAMS AND NEW POST-GRADUATE PROGRAMS IN BIOSCEINCES

81

KEY ISSUESin

LICENSE AGREEMENTSR&D AGREEMENTSJOINT VENTURES

STRATEGIC ALLIANCES

28

82

SCOPE OF RIGHTS

Types of Intellectual Property

• Patent Rights

• Know How/Trade Secrets

• Trademarks

• Copyrights

Current vs. Future Inventions

• Academic: Often limited to specified, existing inventions;possible to obtain option on future inventions by specifiedresearchers, especially where research sponsorship isinvolved

• Commercial: Negotiable; critical for Licensee to obtainrights to potential “second generation” developments

83

SCOPE OF RIGHTS (cont’d)

Field of Use

• Geographic

• Type of Use

• From Licensee’s perspective, broadest possible fieldis desirable

• Range of possibilities

- All uses of Licensed Technology, including but notlimited to human and veterinary therapeutic,diagnostic and prophylactic uses

- All uses for medical purposes

- All uses for [specified disease – e.g., multiplesclerosis]

• Possibility of right of first negotiation to cover usesnot within original scope of Field

84

DEVELOPMENT DILIGENCE

Nature of Diligence Obligation

• Academic: Often includes specific diligence benchmarks to beachieved (e.g. file an IND within 3 years after license is signed);usually can extend deadlines by paying a modest fee.

• Commercial: “commercially reasonable efforts” standard istypical. Depends on nature of collaboration – jointdevelopment with steering committee vs. one-partydevelopment efforts.

29

85

DEVELOPMENT DILIGENCE (cont’d)

Remedies for Diligence Failure

• Range of possible remedies:

- Entire agreement terminates (most appropriate whereonly one product/technology involved and failureoccurs in entire territory)

- Licensed rights become non-exclusive

- Agreement terminates only as to product/technologyimpacted by diligence failure and only in territoryinvolved in the failure (e.g., if worldwide, multipleproduct deal and failure relates to Product A in Europe,then rights terminate (or become non-exclusive) onlyfor Product A in Europe).

- Step-in rights to Licensor to cure failure with resultingchange in deal economics

86

FINANCIAL TERMS

Equity Purchase

- Used to avoid impact on income statement of fundingobligations (post-Enron implications?)

- Class of Equity

- Valuation issues- Registration rights

“Up-Front” Payments

- One-time vs. recurring

- CreditabiltyResearch Funding

- FTE-based payments

- Fixed payments

- Result-oriented payments

87

Financial Terms (cont’d)

Milestone Payments

- Establish relevant benchmarks

- Multiple products/indications- Creditability

Royalties

- Rate ranges based upon status of technology at time oflicensing

- Royalty duration (longer of life of patent or X years)- Royalty rate reduction once patent expires (typically 50%)

- Royalty stacking rightsProfit-Sharing

- More common in joint development deals where Licensor andLicensee share in development costs

- Definition of Net Profits is critical (overhead, G&A, etc.)

30

BREAKING UP IS HARD TO DO

Terminating the Alliance

89

BREAKING UP IS HARD TO DO

A significant percentage of strategic alliances are terminated priorto the introduction of the targeted products/technologies.

While strategic alliance agreements typically cover productdevelopment, commercialization and financial terms in greatdetail, dispute resolution and termination clauses are often anafter-thought.

l Usually not included in deal term sheet

l Viewed as emphasizing potential negative outcomes

90

BREAKING UP IS HARD TO DO (con’t)

l Akin to “pre-nuptial agreements” - contemplating the breakupof the marriage/alliance before the wedding/closing occurs.

Despite negative overtones, parties must focus on how to resolve disputes,establish termination events and decide how to divide rights/assets inthe event of a termination.

31

91

DISPUTE RESOLUTION MECHANISMS

Steering committee structures

l Usually equal representation

l Presents dispute potential - raises concerns aboutdisrupting progress of collaboration

l Possibilities– Kick up issues to senior officers

– Provide one party with veto power over all issues orspecified issues

– Resort to mediation or arbitration

92

DISPUTE RESOLUTION MECHANISMS (con’t)

Typical dispute resolution mechanisms

l Mediation/arbitration– binding vs. non-binding

– designation of arbitrators

– governing rules (e.g., AAA, UNCITRAL, etc.)

– location

– specify rules for the proceedings (e.g., timetables, limitson discovery, etc.)

– special types of arbitration - e.g., “baseball”-style

93

DISPUTE RESOLUTION MECHANISMS (con’t)

l Buyout clause– Mandatory Buy-Sell

– “Russian Roulette”

l Termination right

– need to address continuing rights to intellectualproperty/assets

l Litigation– Agreement can be silent as to how disputes get resolved

– Theory: force parties to reach agreement

32

94

TERMINATION OF STRATEGIC ALLIANCES

Events of termination

l Breach (universal)

– cure period

– in multi-product or multi-technology deal, may need toprovide for termination on a product-by-product/technology-by-technology basis

95

TERMINATION OF STRATEGIC ALLIANCES (con’t)

l Change of control

– often an important issue for the larger company

– equally critical for technology company

– possible compromises - right to terminate researchprogram but not agreement; only applies if control gainedby specified type of company

96


l Unilateral termination right (i.e., without “cause”)

– sometimes requested by larger company

– usually would kick in after some specified time period

– depending on effect of termination on rights, may not be aproblem for technology company (reacquisition of rightsvs. public relations impact)

33

97


l Failure to achieve milestones

– weaker than unilateral termination right because basedupon failure to achieve specified results

– not usually desirable from perspective of technologycompany; casts doubt on program

98


Effects of termination

l depends on nature of termination (i.e., one size does not fitall situations)

l issues to be addressed:– survival of licenses

– transfer of technology/improvements

– assignment of data and regulatory filings/approvals

– financial obligations

– survival of key provisions (e.g., confidentiality, productliability indemnification)

99

Taking New Zealand Technology tothe States

• A Glance at the US Biotechnology Industry

• Regulation of Biotechnology

• The US Capital Markets in 2002• Venture Capital-Backed Financings


• Enhanced Corporate Responsibility and Reporting UnderSarbanes-Oxley Act

• Importance of Intellectual Property Due Diligence in a DifficultMarket

• Other Funding Sources – Federal and State• Key Issues in Structuring Agreements, JVs and Alliances,

including Termination

34

BIOTECHNOLOGY SEMINAR8 APRIL 2003

Taking New Zealand Biotechnology

to the World Market


Henry WixonSenior Partner

Hale and Dorr [email protected]

1

PRAC ConferenceAuckland (April 2003)

Symposium: "Taking New ZealandBiotechnology to the World Market - AGlobal Perspective"

Peter ShawPartner

Comparative size of the AustralianMarket

3,84034,180141,000Number ofemployees

103 4,244 11,532R&D Expense(US$M)

590 7,533 25,319Revenues (US$M)

Public Companydata

AustraliaEuropeU.S.A

Comparative size of the AustralianMarket (cont)

198 1,879 1,457Total companies

160 1,775 1,115Private companies

38 104 342Public companies

6,00087,182191,000No. of employees (publicand private companies)

AustraliaEuropeU.S.A.

2

Revenues

0

5,000

10,000

15,000

20,000

25,000

30,000

USA Europe Australia

No. of Companies

0200400

600800

1,0001,2001,4001,6001,800

2,000


No. of Employees

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000


3

It’s a lot smaller, so why focuson the Australian market?

w Proximity

w Active and developing marketw Similar laws and growing harmonizationw A solid stepping stone in a global industry.

What is on Offer?w There are government incentives:

– funding (START, COMET, IIF, BIF, CRCs, PIIP)– HQ establishment relief/incentives (State)– tax breaks (R&D expenditure)

w BUT:– there are national interest tests; and– the pool of cash is not enormous.

w Private capital is available BUT not an enormous source offunds.

What about regulatory issues?

w Two key levels of regulation:– fundraising/tax/corporate law

– biotech industry regulation

4

Fundraising/tax

w Fundraising laws are relatively straightforward:– prospectus or offer information statement for 'public

offers'– sophisticated investor exceptions to prospectus

preparation.

Fundraising/taxw Tax:

– there is a capital gains tax;– there are cgt exceptions - 50% reductions for individuals

for 12 months; scrip for scrip roll over relief; VCLLPstructure

– there are other traps withholding tax, thin capitalisation,transfer pricing, GST, stamp duty

w Australian entities can be foreign owned BUT there arerestrictions on levels of foreign ownership.

Biotech Regulation in Australia

w Comprehensive:– therapeutic goods legislation (Federal and State)– intellectual property laws (Patent, copyright, confidential

information etc)w Genetically Modified Organisms - Gene Technology Actw Human Research regulation - National Statementw Restrictions on stem cell usew Prohibition on human cloning

5

Biotech Regulation in Australia(cont'd)w Legislation is fairly consistent with global trends in particular

global harmonization;w Patents - Australia is a member of the Paris Convention, PCT,

TRIPS, the Budapest treaty;w Therapeutic goods - Australia/NZ harmonization plans;

medical devices regime adopts the internationalharmonization philosophies manufacturing principles formedicines follow the international standard;

w Current law reform commission inquiries:– genetic testing and information– issues surrounding genes patenting

Recent trends - What are weseeing?

w Lack of capital means:– M&A activity, strategic JV's, strategic

partnering, and licensing;– to access funds to survive and to

develop/commercialise product

Why off-shore entities need goodAustralian lawyers with internationalexperience

w Regulation of the biotechnology sector inAustralia.

w How does Australian law differ?

w Competence in deal structuring - knowing theissues and getting it right

6

Regulation of the biotechnologysector in Australia:

w Comprehensive:

– Therapeutic goods legislation (Federal and State)

– Intellectual Property laws (Patent, copyright,confidential information etc)

w Genetically Modified Organisms - Gene TechnologyAct

w Human Research legislation - National Statementw Restrictions on stem cell use and cloning

How does Australian law differ?

w Common law basis - the need forconsideration or a deed

w Privity of contractw Restraints must be reasonable

How does Australian law differ?(cont'd)

w The Courts won't enforce a penalty provision

w Limitations on liability can be effectivelydrafted but will be construed narrowly

w Contractual obligations must be novated

7

Legal issues in joint ventures,acquisitions, licences

w Carefully consider the structure:– tax concerns (cgt, gst, withholding tax, thin

capitalisation, grouping, transfer pricing)– optimum legal vehicle (unincorporated joint

venture, corporate entity, partnership)

– intellectual property ownership - the way in, forexploitation and on the way out

– confidential information use and protection

Competence in deal structuring,due diligence and documentation

w Understand the parties' intentionsw Due diligence is important

w Document comprehensively andunambiguously

Conclusion

w The biotechnology sector in Australia isgrowing and has potential

w Regulation of the sector is comprehensive butrelatively consistent with global trends

w There is a short term need for capital in theAustralian market so there are opportunitiesfor partnering and acquisitions

8

Conclusion

w There are funds available but competition forfunding is stiff and national interest hurdlesare an important consideration given thepercentage contribution of governmentfunding

PETER SHAW PRESENTATION (2) 0804 - AK030920018

PRAC CONFERENCE

AUCKLAND

APRIL 2003

SYMPOSIUM: "TAKING NEW ZEALANDBIOTECHNOLOGY TO THE WORLD

MARKET - A GLOBAL PERSPECTIVE"

The Australian Market

Peter ShawPartnerClayton Utz

PETER SHAW PRESENTATION (2) 0804 - AK030920018 2

1. Introduction

The biotechnology industry promises to continue to be an exciting frontier for those working in the sectorand increasingly to become a driver for economic growth in world economies. It is also already a globalindustry and the likelihood is that in future, successful biotechnology companies will need to havesignificant operations around the world and/or important strategic partnerships with other global industryparticipants or companies in key niches and/or locations in the world.

For industry participants, this means an ever greater need to understand the regulatory and economicenvironments of territories in which they wish to do business or establish key relationships.

For regulators, national governments have started to pay attention to the economic potential of the sectorand must therefore consider the ramifications of their chosen public policies on the potential forbiotechnology sector growth. Those countries with more favourable policies on intellectual propertyprotection and exploitation, control of product manufacture and sale, new areas of research which involveethical concerns (such as stem cells and cloning) and accessible capital markets, could be assumed tohave an advantage in attracting and retaining key biotechnology players to their jurisdictions and reapingthe rewards of the economic growth associated with success in this sector.

This economic potential adds a new layer of complexity to the existing debate surrounding the ethics ofbiotechnology research, development and commercialisation as well as the tension between protection ofexploitation of ideas and the public benefit from those ideas, which underlies any sovereign state'spolicies on intellectual property protection.

It is not the purpose of this paper to predict the future, rather to present an overview of the biotechnologyindustry in Australia and to identify current trends in the establishment of collaborative arrangementsbetween biotechnology companies in Australia and offshore entities. However, to put this outline incontext, it is sobering to realise that the decisions taken in Australia about how to regulate thebiotechnology sector, how to support it and how much to invest in the sector, will shape the response ofoffshore participants. In what is a global knowledge economy industry, the response of offshorecompanies to the comparative opportunities to establish a presence in Australia, introduce and marketproduct in the territory, conduct research in Australia or invest (either directly or indirectly) inbiotechnology companies in the jurisdiction, is likely to have a significant longer term economic effect.The good news is that the biotechnology industry in Australia has a solid foundation and that governmenthas recognised the sector as important and one to be invested in; the regulatory regime is comprehensivebut straightforward; and recent initiatives in the area have promoted the move to global harmonisation ofregulation in this area. The test for the Australian biotechnology industry will be whether governmentinitiatives have been the appropriate ones and sufficient in scope, and whether investment in the sectorwill prove to be adequate and appropriate to enable Australia's, so far small but successful, biotechnologysector to compete on the world stage, and in particular in doing so, overcome an historical failing tocapitalise on commercial exploitation of innovation and discovery.

2. The Biotechnology Industry in Australia

2.1 Industry size

The biotechnology industry in Australia has a strong heritage, with a considerable history ofinnovation in bioagricultural and biomedical research. Australia's contribution to bothbiomedical research and medical device development (in areas such as hearing - Cochlear'sbionic ear and sleep apnoea - ResMed) is all the more significant when population size andavailability of funds are considered.

Australia has also been included in Ernst & Young's most recent global biotechnology report1

placing it among the 25 nations which, in Ernst & Young's opinion, represent the nations withthe most developed biotechnology industries.


However the sector remains a fraction of the size of the biotechnology sector in Europe and theUnited States of America and its development as an industry remains at quite an early stage.

Based on the Ernst & Young figures for 20012:

• In Europe there are in excess of 1,800 biotechnology companies (of which over 100are publicly listed) employing more than 85,000 people, with revenues of overUS$13.7 billion. Approximately US$7.5 billion was spent on research anddevelopment;

• In the USA, there are in excess of 1,400 biotechnology companies (of which over300 are publicly listed) employing more than 190,000 people, with revenues of overUS$28 billion which attracted investment of approximately US$8 billion.Approximately US$15.7 billion was spent on research and development;

• In Australia, in contrast, there are approximately 200 biotechnology companies (ofwhich 38 are publicly listed) employing approximately 6,000 people, with revenuesfor public companies3 of US$590 million. Public companies spent approximatelyUS$103m million on research and development4.

Other recent reports on the Australian sector5 suggest that there may be 250 to 300 corebiotechnology companies in Australia (including more than 50 listed companies) and ifpharmaceutical companies and medical device companies are included the numbers, revenuesand exports increase more significantly.6 However the contrast with the US and Europe isreadily apparent.

Moreover, the majority of Australian biotechnology companies are small and relatively earlystage enterprises, more than half of which are spin-offs from research institutions.7 By way ofexample, at the time of writing of the 2002 Ernst & Young report, one listed company, CSL,accounted for more than 70% of the market capitalisation of biotechnology companies listedon Australian Stock Exchange Limited. The Ernst & Young report would appear to rightlydescribe the Australian biotechnology sector as "fledgling".

It follows that many of these companies are in the position of needing ongoing access togovernment funding and support and access to private capital to survive and grow. In adifficult capital market, this is not an insignificant challenge for the Australian biotechnologysector.

2.2 Government's response

Government has recognised the need to invest in the growth of biotechnology in Australia andinitiatives to promote that growth have been taken at both State and Federal levels.

Biotechnology and health sciences companies in Australia are predominantly headquartered inthe States of New South Wales, Queensland, Victoria and Western Australia 8. By number,biotechnology firms are currently concentrated in Sydney and Melbourne, with Melbournebeing home to the most companies and employing the most people in the sector, but clusters ofbiotechnology industry companies are also forming in Brisbane, Perth and Adelaide. Forexample BresaGen limited (one of only 12 companies in the world holding cell lines approvedby the US administration for embryonic stem cell research) is headquartered in Adelaide. It istherefore perhaps not surprising that investment in the sector has occurred mostly in the Statesof New South Wales, Queensland, Victoria and Western Australia 9 and that the Governmentsin those States, together with the Federal Government, have been most active in developinginitiatives to support and grow the biotechnology industry in Australia.


Federal

At the Federal Government level, the biotechnology industry has access to a number offunding programmes, such as START grants, IIF Funds, Pre-seed Funds, R&D taxconcessions, the CRC (Co-operative Research Centres) programme, and the COMETprogramme. Other initiatives, such as Pooled Development Funds and Venture Capital LimitedLiability Partnerships, also provide indirect assistance to the biotechnology sector and arediscussed below in the context of capital raising.

The START programme (Strategic Assistance for Research and Development), offers grants orloans to companies of up to 50 percent of eligible expenditure on development andcommercialisation of innovative products. Companies apply directly to the government forfunding. In the 2000/2001 financial year, around 15% of all grants (in excess of AU$25million) were made to biotech/ health sciences entities. Individual grants of up to AU$15million can be made to non-tax-exempt Australian companies with fewer than 100 employees.In our experience, there is generally no impediment to off-shore entities owning the entityseeking funding or later acquiring an interest in, or indeed control of, a START programmerecipient. However, whilst a foreign controlled/owned but Australian incorporated entity isprima facie eligible for START grant funding, this funding is discretionary and the entity inquestion must satisfy a number of criteria, including:

• overseas expenditure on the funded project is limited to 10% unless express IR&DBoard approval is obtained;

• funding approval is based on merit and one core criteria is the level of nationalbenefit the project would offer Australia (both industry and the wider community);

• in determining turnover and employee numbers for eligibility purposes, the IR&DBoard will look to corporate group numbers not just to those of the research entity(obviously precluding big pharmaceutical company subsidiaries for example).

In addition, change of control of a funded entity or of the intellectual property created throughfunded projects, may require the prior consent of the Federal Government10. This consent isagain discretionary and matters such as Australian national benefit are considered. A case inpoint is Aortech plc (a Scottish-based company), which acquired a stake in, and then at a laterstage acquired the balance of, Elastomedic Pty Limited (which had been the recipient of R&DSTART programme funding) and obtained prior government approval to the change.

Approximately 15 percent of grants made under the COMET (commercialising emergingtechnologies) programme in that year (amounting to AU$1.7 million of a programme total of$12.5 million) were also made to biotech/ health sciences entities. The COMET programmeprovides individuals, early stage, growth and spin-off entities, with the majority of theircurrent business activity in Australia and which are looking to grow substantially throughcommercialisation of an innovative product, with a package of support, designed for therecipient, to assist in increasing the recipient's potential for commercialisation. Grants of up toAU$100,000 can be made to support strategic and business planning, market research,establishment of management, development of an intellectual property strategy anddevelopment of prototypes. "Early stage" and "growth" entities are considered to be entitieswith an average annual income over the previous two years of AU$4 million or less; revenueof not more than AU$5 million; and should be less than 5 years old at the time of application.

Commercialisation potential is key to COMET funding and funded entities are typicallyrequired to work with an appointed business adviser, whose fees the entity must cover. Theentity must also be prepared to consider giving up equity in exchange for growth.

In January 2001, the Federal Government launched its innovation plan, "Backing Australia'sAbility", which is a strategy to invest AU$2.9 billion over a 5 year period to encourage and


support innovation in Australia. The strategy involves the continuation and growth ofprogrammes such as START grants, R&D tax concessions and the CRC programme as well asUniversity, research grant, and research infrastructure, funding.

For the biotechnology industry, the strategy has included the establishment of a AU$40 millionBiotechnology Innovation Fund (BIF) and up to AU$46.5 million allocated to the developmentof Centres of Excellence of Biotechnology.11

It is readily apparent from the focus of these programmes, that there is a recognised need toinvest in improving commercial exploitation of innovation particularly in the biotechnologysector. The Biotechnology Innovation Fund, for example, aims to assist biotechnologycompanies progress projects from the research stage through to early commercialisation.Under the programme, grants of up to AU$250,000 or 50% of the eligible expenditure for aproject (whichever is the lesser) can be made to companies or proposed companies with accessto intellectual property which can also demonstrate ability to fund the balance of the eligibleproject expenditure. The project must be for the commercialisation of biotechnology and be atthe proof of concept stage of development.

Another federally funded program of relevance to the biotechnology sector is thePharmaceuticals Industry Investment Program ("PIIP"). The PIIP commenced on 1 July 1999and will run until 30 June 2004. The main rationale for the PIIP is that price suppression forpharmaceuticals (via the Pharmaceutical Benefits System) has an adverse impact onpharmaceutical activity in Australia.

Firms participating in the program are paid subsidies for eligible R&D. However, subsidiesare only available to the extent that a firm faces prices for its PBS-listed drugs that are belowthose in the European Union. As such, only firms that supply PBS listed drugs may participatein the PIIP.

With the expiry of the PIIP due in 2004, the Government asked the Productivity Commissionto undertake an evaluation of the PIIP. The Productivity Commission issued a report based onits evaluation of the PIIP on 14 February 2003.

Given the focus on "big pharma companies" (as companies must have a PBS listed drug toqualify) this scheme is of limited reference to the biotechnology sector in the immediate term.

State

In parallel with the Federal Government's initiatives, several State governments have initiatedprogrammes to develop the biotechnology sector in their respective States. Broadly speaking,these programmes pick up on the themes of "filling in the gaps" between research andcommercialisation as well as looking at ways to foster growth of biotechnology companies inthe territory and enticement of international companies to establish regional headquarters andconduct R&D activities in Australia - leveraging off Australia's high standard of education andquality of living, reputation in clinical trials services and low comparative cost of conductingresearch and development (in real terms salaries are estimated to be 40% lower than in theUS). The programmes tend therefore to be a mixture of promotion of the capabilities of thelocal industry, creation of networks and other connections between investors and thebiotechnology sector, infrastructure support for start ups and assistance with non-researchestablishments costs and support - including financial support for companies seeking fundingunder the various Commonwealth programmes, such as BIF.

The Victorian government has also committed to build Australia's first synchrotron at MonashUniversity (construction expected to be completed in 2007) and has entered into arrangementsinvolving New Zealand and Canadian collaboration in synchrotron research.


These programs suggests that there are opportunities for growth and investment in the sectorthrough accessing available capital and other Government support. At the same time there isan ongoing concern that Australia lags the OECD average in terms of business expense onR&D ("BERD"). In 2001, BERD was approximately 0.64% (below the international averageof 0.66%) and the Miles Report12 noted that Australia's business expenditure on R&D as ashare of GDP ranked 7th lowest out of 24 OECD nations and was falling. Figures for 2002show an improvement with Australian BERD as a percentage of GDP of 0.72% but all of the 7top OECD countries spent almost double the BERD as a percentage of GDP.13 Analysts haveattributed both the reduction in the rate for R&D tax concessions in 1996 from 150% to 125%(except in certain limited cases where a premium rate applies) and the increasingly moremarginal benefit of the concessions compared with compliance costs of obtaining thatconcession, as the main factors for the fall in BERD in Australia. It is likely the fall incorporate tax rates from 39% in the mid 1990's to 30% currently has also resulted in thebenefit becoming more marginal. This suggests that Government in Australia cannot rest onits laurels at this point and will need to continue to closely monitor and fine tune its supportfor, and investment in, the biotechnology sector, if Australia is to reap the long term rewardsthe sector has the potential to deliver.

2.3 Access to capital

Available Funds

A report prepared for the purposes of raising debate on reforms to be made to facilitate growthof the biotechnology industry14 noted that Commonwealth expenditure on biotechnologyresearch and development is approximately AU$250 million per year matched by privatesector spending. Whilst this might appear to be a relatively small amount compared to otherexpenditure in the sector in other jurisdictions, it does evidence a commitment and interest inthe sector from both Government and private capital sources interests, which will facilitate thegrowth of the sector.

It is also apparent that amount of capital available to companies in the biotechnology sector isgrowing, but is growing from a low base. A recent report concluded that private venturecapital funding has consistently, over the second half of 1990s and into the early part of thisdecade, comprised more than 50% of total funding invested in the healthcare and biosciencesector in Australia.15 However, that report also calculated that the total amount invested in the5 years to 2001 was only approximately AU$245 million of which approximately AU$129million was invested in biotechnology entities (as opposed to entities engaged in health relatedIT, medical devices, other health care or pharmaceuticals16).

There are a number of issues which confront private venture capital investment in the sectorwhich have contributed to this situation. Firstly the key importance of intellectual property toa biotechnology entity's future and therefore the potential costs involved in protecting and thendefending the protection of intellectual property (particularly in the case of patents) issignificant. Secondly the venture capital industry in Australia has typically looked at shorterterm investments then those required in the biotechnology sector, particularly by early stagebiotechnology companies. Under current models, very few of the typical venture capital fundshave a life span of more than 10 years and the fund managers tend to look to have fullyinvested available funds and then fully divested all investments by that fund well inside the lifeof the fund. It follows that growth of available capital for the sector has to some extent beenlimited by the degree of understanding of, and the appetite of venture capital fund managersfor investors in, the sector and in particular an understanding of the timeframes and riskinvolved in developing an investment in biotechnology.

Having said that, there are an increasing number of private equity/venture capital firms thatspecialise in the healthcare/bioscience sectors with approximately 9 specialist firms andanother 37 firms as at December 2001 with a focus or an interest in investing in one or moreaspects of the biotechnology sector.17 However, capital invested per investment and the


number of investments in the biotechnology sector still tends to be smaller than other sectorsin which the venture capital industry operates (in 1996 the average investment size forhealthcare/bioscience was AU$1.39 million and in 2000/01 the average investment in thesector was AU$1.4 million) and the type of investment tends to mean that companies receive ahigher number of follow-on investments and co-investments.18

None of this information is surprising given the relative youth of the venture capital industry inAustralia, its size and therefore its limited degree of specialisation when compared to the USindustry. For example the Australian industry encompasses all players from seed investorsthrough to management buy-out and investors and those wishing to fund and invest in public-to-private transaction whereas the US industry deals only with the venture capital end of thespectrum rather than the broader private equity industry. It does mean that growth of availablecapital in the biotechnology sector has been incremental and will continue to take time todevelop and suggests that a key part of the growth of the biotechnology sector in Australia willbe the development of a larger sector of the private equity market focused on investment inbiotechnology. It also suggests that access to government assistance is critical in theimmediate and mid-term to the growth of the biotechnology sector in Australia. The fact thatsuch a high number of biotechnology companies established in Australia are spin-offs fromresearch institutions also highlights the ongoing need for grant support in the sector for theforeseeable future at all levels from core-research to later stage expansion, to ensure that newbiotechnology companies are given the opportunity to develop.

2.4 Fundraising Laws

In terms of the ease of obtaining capital in the Australian sector, there are no particularimpediments over and above those faced by any other entity seeking funds in Australia orseeking investment from Australian investors. The Corporations Act 2001, (Cth) deals withfundraising laws in Australia. These laws apply both to Australian entities seeking fundswithin Australia and off-shore entities seeking funds in Australia and are not dissimilar toregimes in place in New Zealand, the UK and the US, where a prospectus is typically requiredin order to raise funds from the public, with a limited number of exclusions from theprospectus regime for investors categorised as "sophisticated" investors.

As with any legislative regime where a prospectus is required to raise funds from the public,the preparation and lodgement of a prospectus is a relatively costly and time consumingprocess and one to be approached carefully. On the other hand with appropriate guidance it ispossible to navigate the various exceptions for sophisticated investors so that early stageentities in particular, can raise capital in a relatively inexpensive fashion.

One comparative impediment to investing in Australian incorporated entities is that Australia'staxation regime includes a capital gains tax. Subject to certain exceptions, the regime providesfor taxing of capital gains on investments held at the investor's normal tax rate, at the point ofdivestment. For individuals who hold investments for more than 12 months, the capital taxregime provides a 50% discount on the tax otherwise payable on the gain and where thedivestment is effected through a scrip for scrip transaction, provided the relevant tests are metthe taxing point can be deferred until subsequent divestment of the shares acquired upon saleof the original shares.

Presently non-resident investors are taxable on disposal of their shares in Australian privatecompanies. The existence of a capital gains tax regime puts Australia at a relativedisadvantage in terms of investment by off-shore entities into Australian entities. However theFederal Government has recently introduced changes to the tax legislation to provide for thecreation of venture capital limited liability partnerships. Certain non-residents and non-resident venture capital funds of funds will, by investing through the venture capital limitedlability partnership model, enjoy a tax exemption on profits from the disposal of investments ineligible venture capital businesses. The legislation gives flow-through taxation treatment toventure capital limited partnerships, Australian venture capital fund of funds and venture


capital management partnerships. However, as the legislation was only enacted in December2002 and unintended consequences are still being worked through, it is too early to form aview on the success or otherwise of this initiative at this stage.

Another form of investment vehicle which has been used for investment in the biotech sector,are companies which qualify as Pooled Development Funds ("PDF") under the PooledDevelopment Fund Act (BioTech Limited and Starpharma Pooled Development Limited areexamples). The objective of the PDF legislation is to develop the market for patient equitycapital for growing small and medium-sized enterprises. Generally an entity which isregistered as a PDF is taxed at a concessional rate on its taxable income and shareholders in aPDF are also generally taxed at a concessional rate and there are modifications to the mannerin which dividend and capital gains from an investment in the PDF are taxed to theshareholder. Whilst PDFs offer another alternative for investment in the biotechnology sectorin Australia, registration and ongoing compliance with the requirements of the PDF legislationis relatively complex and time consuming and as a consequence the use of these vehicles forinvestment in the biotechnology sector has been fairly limited to date. In addition the PDFentity is required to invest in Australian incorporated entities, must acquire equity and theentity must meet a number of criteria relating to the core aim of facilitating growth of SMEs.The PDF company is also restricted to investing in not less than 10% and not more than 30%of the target entity's issued share capital and the total assets of the target entity at the time ofinvestment must not exceed AU$50 million.

2.5 Foreign Investment Restrictions

Investment in, and establishment of, companies and businesses in Australia by off-shoreentities, is also subject to Australian laws on foreign investment. The Foreign Acquisitionsand Takeover Act 1975 (Cth) and the Federal Government's published policy on foreigninvestment are the primary sources of this form of regulation. Single foreign investments of15%, or aggregate foreign investment of 42% or more, in an Australian business or company,are subject to this legislation. As a rule of thumb, investors in business/companies where thevalue of the entity is less than AU$50 million are not subject to the legislation and where thevalue is between AU$50 million and AU$100 million, are unlikely to be prevented.Exceptions include acquisitions of land and investment in particularly sensitive industries suchas broadcasting. A different threshold applies for the establishment of new businesses wherethe threshold is of AU$10 million.

3. Regulation of biotechnology in Australia

The regulatory regime affecting the biotechnology sector in Australia is, as one would expectfor a sector utilising biological systems to make or change products, relatively comprehensive.The main elements of regulation of the biotechnology sector comprise:

• Australia's intellectual property laws;

• laws on therapeutic goods manufacture and sale;

• legislation concerning dealings with genetically modified organisms.

• legislation dealing with research and the ethics of research; and

• legislation dealing with matters of social and ethical interest such as in vitrofertilisation, cloning and the use of stem cells.

The sector is also impacted by other important areas of law in Australia which are notdiscussed in this paper in any detail, such as privacy laws (which have relatively recently beenextended to the private sector and have a particular impact in relation to health records),product liability and product recall laws and advertising and promotion and anti-trust laws.


3.1 Intellectual Property Protection

Participants in the biotechnology sector have access to the full suite of intellectual propertyprotection mechanisms available under Australia law including copyright laws and protectionof confidential information.

Most important for this sector is the statutory regime provided for the registration andenforcement of patents in Australia.19 Standard patents have a 20 year term but patents forpharmaceutical substances can be extended for up to a further 5 years to account for delays inmarketing approval. Whilst the usual threshold novelty requirements apply, in that inventionsmust not have been made publicly available before the filing date of the patent application forthe invention, since 2002 a grace period has applied in Australia which permits limited publicdisclosure of an invention by a limited group of people (applicants and investors) withoutcompromising the novelty of a subsequent patent application provided the completeapplication is filed within 12 months of the disclosure.

The Australian patents legislation expressly excludes from patentability, human beings andprocesses for generating human beings. This exclusion would cover inventions relating to thecloning of human beings but does not prevent the patentability of human genes, tissues or celllines.

Subject to the specific exceptions under the legislation, life forms are patentable, although thegeneral principals for description of an invention apply to life forms and accordingly thespecification must describe the invention fully and contain a best method of performance. Formicro-organisms the applicant can fully describe the micro-organism either in words or bysatisfying deposit requirements. Full description of the micro-organism means the fullmorphological, biochemical and taxonomic characteristics of the micro-organism known to theapplicant.

A recent decision of the Full Bench of the Federal Court20 has established that methods ofmedical treatment are also a patentable subject matter. Similarly agricultural and horticulturalprocesses are patentable provided they satisfy the general rules of the subject matter. A newuse of a known substance is also patentable provided the use takes advantage of a previouslyunknown property of the substance.

In Australia there is also a second level of patent protection known as an innovation patentwhich has a term of only 8 years. This type of patent is used to protect inventions that areincremental or represent only a small advance beyond the prior art but are said to display aninnovative step (as opposed to an inventive step). However, innovation patents are notavailable to protect humans, plants or animals or biological processes for their generation, somay be of limited use in the biotechnology sector.

Plant varieties are protected under a particular regulatory regime - the Plant Breeders RightsAct 1994. Under this legislation breeders are granted a 20-25 year exclusive marketing rightto plant varieties and reproductive material. These rights exist alongside any patents availablein respect of the plants.

3.2 Regulation of Therapeutic Goods

Therapeutic goods are subject to regulatory control at both Commonwealth and State andTerritory levels in Australia.

Federal regulation

At the Commonwealth level the Therapeutic Goods Act, 1989 (Cth) broadly definestherapeutic goods to include goods that are represented in any way to be, or are likely to betaken to be, for therapeutic use or for use as an ingredient or component in the manufacture of


therapeutic goods, unless specifically excluded. This means the Act regulates goods used for,or represented as being for, the prevention, diagnosis or treatment of diseases and other bodilyconditions.

The Act and associated regulations (Therapeutic Goods Regulations 1990 and TherapeuticGoods (Medical Devices) Regulations 2002) regulates both medicines and medical devices.

A medicine is defined to include therapeutic goods that are represented to achieve, or are likelyto achieve, their principal intended action by pharmacological, chemical, immunological ormetabolic means in or on the body of a human or animal.

A medical device is defined as any instrument, apparatus, appliance, material or other article(whether used alone or in combination, and including the software necessary for its properapplication) intended by the person under whose name it is to be supplied, to be used forhuman beings for the purposes of one or more of the following:

• diagnosis, prevention, monitoring, treatment or alleviation of disease;

• diagnosis, monitoring, treatment, or alleviation of, or compensation for, an injuryhandicap;

• investigation, replacement or modification of the anatomy or of a physiologicalprocess; or

• control of conception,

and does not achieve its principle intended action in or on the human body bypharmacological, immunological or metabolic means, but which may be assisted in its functionby such means. A medical device also includes an accessory to such an instrument, apparatus,appliance, material or other article.

The Therapeutic Goods Act establishes a licensing scheme for the manufacture of medicinesand provides that it is an offence for a person to carry out a step in the manufacture ofmedicines in Australia for supply for use in humans without a licence issued by theTherapeutic Goods Administration ("TGA"). Manufacture is broadly defined and covers theproduction of goods as well as engaging in any part of the process of producing the goods or ofbringing the goods to their final states. This includes processing, assembling, packaging,labelling, storing, sterilising, testing or releasing for supply of the goods or of any componentor ingredient of the goods as part of that process.

Manufacturing licences relate to specific manufacturing premises and to obtain a licence tomanufacture medicines, the manufacturer must demonstrate compliance with manufacturingprinciples determined under the legislation (which are based on the international standard -Guide to Good Manufacturing Practices for Medicinal Products).

The legislation provides for the TGA to list, register or include therapeutic goods in theAustralian Register of Therapeutic Goods ("ARTG"). Unless exempt, therapeutic goods forhuman use that are imported into Australia, manufactured in Australia, supplied for use inAustralia or exported from Australia must be entered in the ARTG. In this way, therapeuticgoods are evaluated for quality, safety and efficacy. The TGA assesses the level of risk intherapeutic goods - risk being an assessment of the potential of a product to harm its intendedusers. Medicines considered to be high risk are subject to more rigorous evaluation by theTGA. The TGA will generally register medicines in the ARTG which are considered to be ofhigh risk and list those medicines which are considered to be of lesser risk. Registeredmedicines are further categorises as being of lower risk (generally non-prescription goods) orhigher risks (prescription goods).


In October 2002 a new regulatory scheme relating to medical devices came into force adoptingthe philosophies of the Global Harmonisation Task Force on medical devices. The features ofthe new system are:

(a) a device classification scheme based on different levels of risk for each class of device;

(b) essential principles for the quality, safety and performance of the medical device thatmust be complied with before the product can be supplied;

(c) options as to how compliance with the essential principles can be satisfied and assessed -manufacturer quality schemes, type testing and design evaluation;

(d) the use of recognised standards to satisfy the requirements of the essential principles;

(e) a comprehensive post market surveillance and adverse incident reporting program;

(f) appropriate regulatory controls for the manufacturing processes of medical devices;

(g) the continued use of the ARTG as a central point of control for the legal supply ofmedical devices in Australia.21

The regulatory scheme is intended to cover products such as in vitro diagnostic devices anddevices of human origin. Medical devices under the new regime are classified based on themanufacturer's intended use of the device, the level of risk and the degree of invasiveness inthe human body. As in the case of medicines, higher classed devices undergo a more stringentform of conformity assessment than lower class devices. The essential principles set out therequirements relating to the safety and performance characteristics of medical devices.22 Theconformity assessment procedures set out the requirements relating to the application ofquality management systems for medical devices and other requirements imposed onmanufacturers.

State/Territory regulation

At the State and Territory level, the legislative terminology relates predominantly to drugs,poisons, controlled substances and therapeutic substances. The State and Territory legislationtends to govern the manufacture of drugs and poisons as well as the sale of drugs and poisonsby wholesale and retail and typically licences are required for activities including themanufacture of drugs and poisons and the sale and supply of drugs and poisons by wholesaleand retail. The regulations vary from jurisdiction to jurisdiction. In some jurisdictions alicense to manufacture goods under the Therapeutics Goods Act is sufficient to exempt theholder from the requirement to hold a licence under the State or Territory legislation. In otherjurisdictions it is necessary to have a licence to manufacture goods at both the Commonwealthand State level.

The States and Territories do not have specific registers on which drugs and poisons must beentered.

3.3 Regulation of Genetically Modified Organisms

The key legislation in Australia concerning genetically modified organisms ("GMOs") is theGene Technology Act 2000 (Cth) which together with the Gene Technology Regulations 2001(Cth) establishes a program for regulation of gene technology in Australia for GMOs nototherwise regulated by other bodies.

The legislation is administered by the Office of the Gene Technology Regulator ("OGTR")which performs monitoring, auditing, inspection and investigative functions, aimed at ensuringthat GMOs comply with the regulatory requirements of the legislation.


The object of the legislation is to protect the health and safety of people and to protect theenvironment by identifying the risk imposed by, or as a result of, gene technology and bymanaging those risks and regulating certain dealings with GMOs.

A GMO is defined as an organism which has been modified by gene technology and includesan organism with inherited traits from an initial organism which occurred in the initialorganism by reason of gene technology. Gene technology is defined to include any techniquefor the modification of genes or other genetic material other than by means of sexualreproduction or homologous recombination or other techniques specified by regulations madeunder the legislation. Somatic cell nuclear transfer has been excluded from the definition ofgene technology by the regulations provided it does not involve genetically modified materialand human beings who have undergone somatic cell gene therapy are excluded from thedefinition of GMOs.

A "dealing" with a GMO means conducting experiments, making or manufacturing,developing, breeding, growing and importing. The legislation establishes four categories ofdealings with GMOs - exempt dealings, notifiable low risk dealings, dealings on the GMOregister and licensed dealings. All dealings with GMOs are prohibited unless a GMO licenceis issued authorising the dealing, the dealing is a notifiable low risk dealing, the dealing is anexempt dealing or the dealing is included in the GMO register.

Exempt dealings: chiefly laboratory experiments with naked DNA, bacterial and yeast systemsor somatic modification of mature animals using genes not known to be harmful to humans -the particular categories of exempt dealings are found in the Regulations. The dealings must beconducted in a secure, enclosed environment and must not involve the intentional release ofthe GMO into the environment. Anyone can undertake exempt dealings without notifying theRegulator.

Notifiable low risk dealings: chiefly laboratory experiments involving the genetic modificationof animals at early stages of development, and flowering plants. The dealings must not involvethe intentional release of a GMO into the environment. Anyone can undertake notifiable lowrisk dealings, but the dealing must be approved by an Institutional Biosafety Committee andnotified to the Regulator. The dealing must also meet certain conditions in relation to thecontainment level of the facility where it is conducted.

Dealings on the GMO Register: the GMO Register is established under the Act and will bemaintained by the OGTR. Once a dealing is on the Register it can be undertaken by anyone,subject to whatever conditions are imposed by the OGTR. Most dealings on the Register willbe dealings which otherwise need to be licensed, but the OGTR must not place a dealing onthe Register unless satisfied that any risks posed by the dealing are minimal and do not need tobe licensed to protect the health and safety of people and the environment.

Licensed dealings: the Act requires that dealings with GMOs be licensed, unless the dealing isan exempt dealing, a notifiable low risk dealing, or is on the GMO Register. The OGTR canimpose conditions on the grant of any licence and there are also standard conditions imposedby the Act. Licence conditions may relate for example, to the scope of the authorised dealings,documentation and record keeping requirements, and required containment levels for thedealings or required insurance in respect of the dealing.

The OGTR is required to prepare a risk assessment and risk management plan for GMOdealings before issuing a licence. The requirements for the risk assessment and riskmanagement plan are more detailed in the case of a proposed intentional release of a GMOinto the environment than they are in relation to proposed dealings where there is no suchintentional release. In preparing a plan the OGTR must consult widely with Local, State andFederal Governments.


The legislation establishes a comprehensive record, maintained by the OGTR, of GMO andGM product dealings, including any conditions to which the dealings are subject.

The legislation also provides for the protection of confidential commercial information that isprovided to the OGTR so that the it can consider that person's application for a GMO licence.However, the OGTR may refuse to declare information to be confidential commercialinformation if the OGTR is satisfied that the public interest in disclosure outweighs theprejudice that the disclosure would cause to any person.

3.4 Legislation concerning human tissue research

Research involving humans is the subject of a number of pieces of legislation. The principlelegislation is the National Health and Medical Research Council Act 1992 (Cth) under whichthe National Health and Medical Research Council ("NHMRC") has responsibility forresearch involving humans through its Australian Health Ethics Committee ("AHEC") whichadministers the national statement on ethical conduct in research involving humans ("NationalStatement"). Under the National Statement all proposals involving human research must beapproved and monitored by an institution or Human Research Ethics Committee ("HREC").

The purpose of the National Statement is to provide a national reference point for ethicalconsiderations involving all human research so as to protect the welfare and rights ofparticipants in research and to facilitate research that is, or will be, a benefit to the community.The National Statement includes sections on use of human tissue sample and human geneticresearch.

In terms of clinical trials, all clinical trials must comply with the requirements of both theNHMRC and the TGA under the Therapeutic Goods Act. For medicines not yet entered on theARTG, the sponsor of a clinical trial must gain a specific exemption or approval from the TGAunder either the Clinical Trial Exemption Scheme or the Clinical Trial Notification Scheme(the latter being the more common scheme in practice). All trials approved under eitherscheme must have an Australian sponsor responsible for the conduct of the trial.

Research involving human participants requires compliance with relevant State or Territorylegislation as well as the National Statement. For example in several States legislation dealingwith in vitro fertilisation has been introduced.23 Similarly the States and Territories havetended to introduce legislation dealing with dealings with blood and other dealings with humantissue. There is also a separate suite of legislation dealing with notifiable diseases and otherinfectious substances.

In late 2002 two new pieces of legislation were enacted dealing with research involvingembryos, under the Research Involving Human Embryos Act 2002 (Cth), and prohibition ofhuman cloning, under the Prohibition of Human Cloning Act 2002 (Cth),

Under the Prohibition of Human Cloning Act 2002 (Cth) human cloning and otherunacceptable practices associated with reproductive technology are prohibited. The object ofthe Act is to address concern, including ethical concerns, about scientific developments inrelation to human reproduction and the utilisation of human embryos by prohibiting certainpractices. It is an offence under the Act to create human embryo clone, place a human embryoclone in a human body or the body of an animal, or import or export a human embryo clone.Penalties include imprisonment for up to 15 years.

It is also prohibited to create a human embryo other than by fertilisation; or developing such anembryo; to create a human embryo for a purpose other than achieving pregnancy in a woman;to create or develop a human embryo containing genetic material provided by more than twopersons; to develop a human embryo outside the body of a woman for more than 14 days; touse pre cursor cells from the human embryo or a human fetus to create a human embryo, ordevelop such an embryo; to collect a viable human embryo from the body of a woman; to


import or export a human embryo; to place a prohibited embryo in the body of a woman; or tocommercially trade in human eggs, human sperm or human embryos.

Under the Research Involving Embryos Act 2002 (Cth) certain activities involving humanembryos created by assisted reproductive technology ("ART embryos") are regulated.Offences include, intentionally using an excess ART embryo unless authorised by a licence orfor an exempt use. "Exempt" use includes storage, removal from storage, transport,observation, certain uses carried out by an accredited ART Centre, or uses of a kind prescribedby the Regulations. It is also an offence to intentionally use, outside the body of a woman, ahuman embryo that is not an excess ART embryo, when that use is not for a purpose relating toART treatment of a woman carried out by an accredited ART centre and the person knows oris reckless to that fact. It is also an offence to intentionally engage in conduct whichcontravenes a condition of a licence authorising use of excess ART embryos. Penalties includeimprisonment for up to five years.

That legislation has also established the Embryo Research Licensing Committee of theNHMRC for the purpose of performing functions and exercising powers under the Act,established a scheme for the assessment and licensing of certain activities involving the use ofexcess ART embryos and provided for a publicly available database of information about alllicenses issued by the NHMRC Licensing Committee.

In both cases a review of the legislation must be undertaken as soon as possible after 19December 2004 which is the second anniversary of the date of ascent of each piece oflegislation.

4. Recent initiatives

Recent initiatives taken in areas of the law which have implications for biotechnologyregulation show a careful but relatively progressive approach by Government to developmentof the sector as well as a move towards embracing global quality standards.

The Government's legislative response to the key issues of stem cell experimentation andhuman cloning, demonstrate a balanced approach of prohibiting acts which society continuesto see as abhorrent, whilst cautiously approaching research areas which whilst potentiallyethically dangerous also offer the possibility of substantial progress in disease control andimprovement in quality of life, for example through use of stem cells - utilising the existingNHMRC, National Statement and HREC framework to manage and monitor suchexperimentation.

The approach in terms of the Therapeutic Goods Act demonstrates the move to embrace globalharmonisation of regulation of medical devices and medicines. In keeping with this approachthe New Zealand and Australian governments are in the process of working towards a trans-Tasman therapeutic goods agency. Agreement in principal to the establishment of this agencyhas been announced by both governments with an intention that the regulator would beginoperations in 2004. The intention is to permit goods produced in Australia or in New Zealandto be traded without regulatory impediment in the other territory, facilitating trans-Tasmantrade, reducing compliance costs and enabling both countries to combine their regulatoryexpertise thereby sustaining regulatory capability in the longer term whilst protecting publichealth and safety.

When considered in the context of the move towards global harmonisation, the outcomeshould mean that entities which gain approval from the regulator in Australia and NewZealand will have lower costs involved in reaching a bigger market and will have compliedwith regulatory requirements approximated to, international regulatory requirements, therebyalso facilitating access to a wider international market.


In terms of existing law, Australia's current intellectual property laws also evidence acommitment to the global approach. Australia is a member of the Paris Convention for theProtection of Industrial Property, the Patent Co-operation Treaty the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and a party to the 1977 Treaty on theInternational Recognition of the Deposit of Micro-Organisms for the purposes of PatentProcedure (the Budapest Treaty). The Australian Law Reform Commission (ALRC) is alsoinvolved in this sector in several areas. Presently the ALRC together with the AHEC isconducting a joint enquiry into genetic testing and information with a view to consideringissues of privacy, unfair discrimination and ethical standards of conduct. That report and therecommendations of the Committee are due for release at the end of March 2003. This inquiryand any recommendations that might be made, have the potential to impact on laws dealingwith genetic testing and information, anti-discrimination, issues of consent insofar as theyrelate to human research, compilation and use of genetic data bases, the collection and storageof genetic samples, access to, and issues of confidentiality in, health services, access toinsurance, employment law as well as laws relating to parentage, law enforcement andevidence.

In the course of that enquiry, the ALRC also identified a need to further consider the laws andpractices governing intellectual property rights over genetic materials and related technologies.As a result, in December 2002, the Federal Government announced that it asked the ALRC toexamine issues surrounding genes patenting. The ALRC has been asked to report on theimpact of Australia's current patent laws and practices, including licensing issues, concerninggenes and genetic and related technologies and to propose changes which it considers arerequired to address any problems that exist in this area. That report is due to be completed by30 June 2004.

It will be interesting to examine the findings of that ALRC report in light of the submissionsmade by some in the legal community24 that the current patent regime may be hinderingresearch efforts of Australian companies by restricting access to essential research tools andtechnologies, for example, by use of blocking patents by international corporations and also,for example, due to the inability to access patented intellectual property for research purposeswithout infringing the patent in question. This issue obviously goes to the core of the contractbetween the inventor and society in assessing the terms on which society will grant to theinventor exclusive commercialisation rights in exchange for public access to information.

5. Current trends in onshore/offshore collaborative arrangements

Overview

A review of the current state of the Australian biotechnology sector and of the Australianregulatory regime affecting the biotechnology sector demonstrates that the sector in Australiahas significant potential. Potential to grow and become an even more dynamic industry inAustralia and also a potential source of innovation and new developments in the biotechnologysector for global exploitation, whether by Australian or international companies. A key issue,however, remains the size of the industry and its ongoing access to funding for developmentand growth. Quite clearly, given the percentage of funding which government schemescurrently contribute, ongoing government investment in the sector, in the short and mediumterm at least, is absolutely necessary. It is also clear that the sector must gain better accessprivate and industry sources of capital.

As noted above, the private equity sector is slowly but steadily developing an appetite forinvestment in this sector, but that growth is incremental and, given that many of the privateequity funds in Australia are part-way through funds raised in the late 1990s (many inconnection with promises of investment in the dot.com and information technology sectors)and also given the current significant downturn in global equity capital markets, theestablishment of private equity funds dedicated to investment in the biotechnology and life


sciences sector and investment by those funds is unlikely to occur in any significant form inthe short term.

At the same time, the vast majority of Australian biotechnology companies are relatively earlystage enterprises with consequent on-going capital requirements to fund product and marketdevelopment through to sustainability. In this predicament, biotechnology sector participantsmust look to industry and to mergers and strategic alliances to protect their investment to dateand to access capital and opportunities for growth.

Key concerns for biotechnology companies in Australia will remain the universal ones of howto develop and execute strategies which will enable an entity to access new capital andproperly manage and use that capital. In the current down cycle of capital markets, part of thestrategy has to be a deliberate attempt to make the entity attractive to significant industryplayers, either as a possible joint venture partner or as a takeover target. Thereby attracting apossible source of funds and a possible means of potential exit for private capital which mightbe encouraged by the greater possibilities of an exit, to invest in the entity.

An alternative strategy for those entities wishing to independently develop and grow, is tomake acquisitions to achieve scale and/or themselves sufficiently attractive to industry playerswith whom the entity requires an alliance, so that a strategic partnerships can be established.Another driver for mergers and acquisitions in the Australian sector in the short term, will bethe simple need to gain access to cash. With so many early stage entities, it is likely that in theshort to medium term we will see biotechnology sector participants merge in order to survive.

Underlying all of these initiatives, the sector must have access to quality management who candevelop and implement these strategies and also carefully manage cashflow in the business.

In light of the above, it is not surprising that current trends are for mergers and takeovers,strategic alliances and strategic licensing and partnering arrangements. Whilst these activitiesin the Australian sector have not to date been on the scale of some in the US sector, theAustralian moves appear to be consistent with international trends. CSL, for example, hasundertaken a series of international acquisitions in order to develop and grow to a sustainableinternational size. Proteome Systems, has undertaken a careful strategy of entering intoalliances with entities which can provide core services which it requires but does not have thecash to develop. For example, it outsources cryogenic storage and has entered into allianceswith entities providing it with robotics capability and computing power. Peptech is anexample of an entity which has taken internationally attractive products (its TNF patent) andaggressively sought to enter into licensing agreements with major pharmaceutical companies.However this latter strategy highlights the risk associated with a small Australian entity takingon the might of the large pharmaceutical companies as, once again, the validity of the patentswhich underlie those licensing arrangements, is being challenged.

We are also seeing entities look to tie up strategic acquisitions or partnerships in our region toachieve objectives such as, access to an Asia/Pacific platform for distribution of product, oraccess to Australian product to distribute through the offshore investor's existing marketchannels thereby increasing the efficiency and use of existing distribution infrastructure.

5.1 Practical issues surrounding joint ventures, strategic alliances, acquisitions and licensearrangements involving participants in the Australian biotechnology sector

There are many layers at which consideration of practical issues arising in connection withtransactions with knowledge economy entities operating in Australia, could be approached. Atone level there are core issues that arise in comparing a common law based legal system suchas the Australian system with American and civil law based systems. There are also numerouscommercial legal issues which arise in such arrangements.


Australian law

A detailed investigation of the core legal issues arising under Australian law and how theycompare with other law systems is the topic of a paper in itself. To this end I have, with thekind permission of my partner, Peter Knight, attached a copy of his paper "Forming StrategicRelationships with Technology" November 2001 - Peter Knight, Clayton Utz, which dealswith many of these issues in considerable detail. However, core issues which should beremembered when dealing with transactions in the Australian jurisdiction include:

• Australian contract law is based on the English common law and thereforeagreements must be supported by consideration or have been entered into by way ofa deed.

• Entities which are not parties to a contract cannot be bound by it and there are verylimited exceptions to this rule.

• Restraint of trade is dealt with under both the Trade Practices Act 1974 (Cth), underspecific legislation dealing with restraint of trade at the State level as well asthrough the common law doctrine. In essence a restriction may only go so far asreasonably necessary to protect the interests of the person benefited by the restraint,otherwise it may be void. In terms of the Trade Practices Act, a restraint which isseen to be anti-competitive and not connected with a sale of a business can also beheld to be unconscionable conduct.

• Whilst our law contemplates pre-agreed liquidated damages for breach, a provisionwhich is unduly onerous or arbitrary may be regarded as a penalty and will not beenforced by the Courts.

• Attempts to limit liability for breach of warranty or otherwise limit the applicationof law can be upheld. Australian courts will interpret an exclusion clause byconstruing it according to its natural and ordinary meaning read in light of thecontract as a whole. As a result, subject to specific statutory restraints, it is possibleto exclude or limit liability for breach of contract for negligence and for othercourses of action. However, under our sale of goods legislation, it is not possible tocontract out of warranties relating to fitness for purpose and merchantability.

• Contractual obligations cannot be assigned under Australian law, a novation isrequired. A formal novation is typically a tripartite agreement although High Courtauthority in Australia has held that a novation can be effected by notice in writingand subsequent conduct by the notified partyin light of the notification.

Legal issues in acquisitions, joint ventures, licences

There are certain issues which will arise in any commercial negotiation for an acquisition, jointventure or licence arrangement of significant importance when dealing with value, based onintellectual property and intellectual property rights.

A key issue is who owns the intellectual property in question. It may not automatically alwaysbe the case that the employer owns intellectual property rights created by its workers. In thecase of copyright, whilst copyright created by an employee is owned by the employer the sameis not true of copyright works created by a contractor. In those cases it is very important that awritten formal assignment of copyright be put in place with the contracting entity or person.Fortunately Australian copyright law permits assignment of future rights so it is possible to putin place such assignment provisions at the commencement of a project.

Even in the case of employees, recent case law in Australia has confirmed that it will notalways be the case that intellectual property rights created by an employee belong to the


employer. If the employee can establish that intellectual property created was created by thatperson outside of normal hours of employment and outside of the "terms" of that person'semployment, then it may well be that the intellectual property rights are retained by theemployee.

These issues become even more complicated when dealing with spin-off entities, whereintellectual property may be owned by research centres, universities or, in the case of specificFederal Government funded entities such as co-operative research centres, jointly owned by anumber of entities.

Joint ownership of intellectual property rights is even more problematic as there are particularproblems which will pertain to exploitation of those intellectual property rights by one jointowner without accounting to, or with the participation of, other joint owners.

Not all intellectual property is of course capable of registration, so it is fortunate thatAustralian forwards legal protection to confidential information. However the Australian lawon confidential information is entirely governed by the unwritten law of equitable doctrine.There is no codified protection of confidential information such as in the United States.

The general law imposes a duty of non-disclosure on a person in respect of confidentialinformation and also prohibits any use, even secret use of that information otherwise then asthe discloser has permitted. There is no need for a contract as time limits are irrelevant.However, it is important to remember that the law imposes duties on the disclosee not on thediscloser. In the absence of contractual provisions, there is nothing to prevent the discloser ofinformation using that same information including in a competitive manner. It follows thatwhere confidential information is to be provided either by or to a third party, specificcontractual terms dealing with the use of that information are desirable. It is also oftendifficult to distinguish between information which is confidential to the discloser andinformation which forms part of the general pool of knowledge and experience which anemployee (who may be a disclosee of confidential information) is entitled to take with him orher in order to earn a living.

In addition to issues such as ownership, access to, rights to use, and exclusivity of use of,existing intellectual property and intellectual property rights created under the venture, otherissues which arise in the context of an acquisition or joint venture of fundamental importanceinclude:

• are the key individuals locked-in to employment or consulting contracts;

• are there any surprises which will arise upon a change of control of the entity inquestion;

• have the consequences of the transaction under revenue law been considered;

• if part of the strategy of entity is to obtain the benefit of tax concessions forresearch and development, are the core requirements in order to access such taxconcessions met.

In terms of licences obviously issues such as field of use, exclusivity, access to existingtechnology for development and for commercialisation of developed property, will arise.

Issues such as the impact of privacy law and product liability and the availability of insuranceto cover risk such as product liability, are also issues which in the modern era are becoming farmore important.

Looking at employment law - Australian law starts from the premise that you cannot force anindividual to remain in employment. Therefore, if a joint venture or special purpose vehicle is


to be established and employee resources contributed, that separate entity must make an offerof employment to the employees in question in order to procure their services. This meansthat, as a corollary, the employment arrangement with the employees former employer isterminated. This can give rise to issues of termination and redundancy payments particularly ifthe workforce in question in unionised. There are also problems with ongoing access to theservices for that employee during the joint venture and at the end of any such venture..

• Change of Control - where control changes in a contract the prior consent of thethird party may be required or a right to terminate the contract early may arise. Thisis often the case with leases of property in Australia. It should also be noted thatwhere the entity in which the investment is made has received START grantfunding, as noted above, prior Federal government consent to the change of controlmay be required.

• Revenue law - income tax, capital gains tax, business tax and stamp duty issuesmust all be considered in any acquisition or joint venture. Disposal of assets canattract a 5.5% by value transaction tax (stamp duty) and an acquisition of privatecompany shares will attract stamp duty at the rate of 0.6% on the higher ofconsideration paid or market value of the securities in question. A disposal ofshares will attract capital gains tax on any capital gain (other than where the scripfor scrip concessions apply). In considering the funding of, or provision of servicesto, an Australian entity by an off-shore entity, regard must be had to the thincapitalisation rules, transfer pricing concerns and withholding tax. Australia alsonow has a consumption tax (goods and services tax) levied at a rate of 10% whichcan attach to a transfer of assets not constituting the sale of a business as goingconcern, and needs to be considered in the context of the creation of strategic jointventures.

There are obviously many other issues that arise at a practical level in any negotiation of alicence, joint venture or acquisition. The take home message is that it is fundamentallyimportant to understand the applicable laws in the relevant jurisdiction and to conduct duediligence not just on issues such as ownership of intellectual property rights but also on theimpact of the transaction from a tax and legal perspective as well as from the perspective offinance, accounting and organisation strategy. It is also trite to say, but nonetheless worthsaying, that clear, exhaustive and unambiguous legal documentation of the rights, obligations,responsibilities and intentions of the parties as to why they are entering into the arrangementsin question, who is contributing what and when, who will utilise what and the expectedoutcomes, is of critical importance.

6. Conclusion

This paper has provided a snapshot of the biotechnology industry in Australia. There issignificant biotechnology sector activity in Australia albeit, in comparative global terms, froma low base and at a small spend level.

The regulatory regime is comprehensive and must be approached carefully but evidences anincreasing trend towards global harmonisation of laws which apply in the sector.

Trends in the establishment of collaborative arrangements between biotechnology companiesin the jurisdiction and between onshore and offshore entities are essentially no different tothose occurring across the world. The differences primarily relate to size of transaction, thebiotechnology industry in Australia being relative small and substantially comprising earlystages entities, and the need to form strategic partnerships and merge is probably exaggeratedby the limitations in the current environment on accessing capital markets.

The Australian sector has a solid foundation, has attracted Government attention and isattracting investment. In specific areas the Australian biotechnology is world class. The


question remains, for a sector which needs ongoing support and capital investment, are theexisting Government initiatives sufficient to attract capital to and to develop the sector? Willprivate capital investors (onshore and offshore) take up the opportunity to invest in the sectorwhen the Australian sector and regulatory regime is compared with that of other countries? Inessence, will the Australian Government continue to approach the sector in a continuallyprogressive manner which can attract both research and investment capital to the sector inAustralia, to build the platform for growth and ensure that the Australian economy reaps thebenefit of biotechnology as a driver of GDP in this century.

1 "Beyond Borders: The Global Biotechnology Report 2002" - Ernst & Young, 2002

2 "Beyond Borders: The Global Biotechnology Report 2002" - page 10

3 No revenue figures supplied for private companies.

4 No revenue figures supplied for private companies.

5 "Venture capital and the Healthcare/Bioscience sector in Australia and New Zealand 1996-2001", Victor Bivelland Lyndal Thorburn, published by Pollitecon Publications and Advance Consulting and Evaluation, 2002 at page17; "Growing our Knowledge Economy - proposals for further reform" published by Ernst & Young, Committee forMelbourne and The BioMelbourne Network, 2002 at page 1, "2002 Bio-Industry Review", Kelvin Hopper andLyndal Thorburn and "Australian Venture Capital and Australian Biotech: The Love (More) and Hate (Less)Relationship", Australian Venture Capital Journal, March 2003 at page 31 ft.

6 Source - www.biofirst.nsw.gov.au - insert stats from NSW website on people sales and exports

7 Venture Capital and the Healthcare/Bioscience sector in Australia and New Zealand 1996 - 2001 at page 17

8 "Venture capital and the Healthcare/Bioscience sector in Australia and New Zealand 1996-2001", page 21 and"Beyond Borders: The Global Biotechnology Report 2002" - page 123

9 "Venture capital and the Healthcare/Bioscience sector in Australia and New Zealand 1996 - 2001", page 21

10 Principally where the change of control occurs within a reasonable timeframe after the grant was made (e.g. up to5 years).

11 In 2002 the National Stem Cell Centre was selected as the Centre of Excellence of Biotechnology.

12 Miles Report - Innovation Summit Implementation Group August 2000 - "Innovation: Unlocking the Future"

13 "2002 Biotechnology Report"

14 "Growing our Knowledge Economy - proposals for further reform" published by Ernst & Young





19 Patents Act 1990 as amended by the Patents Amendment (innovation patents) Act 2000 and the PatentsAmendments Act 2001

20 Bristol Myers Squibb Company v FH Faulding & Company Limited [date]

21 "Australian Medical Devices Guidelines: An Overview of the New Medical Devices Regulatory System",published by the TGA, 2002


22 General Principles - the use of a medical device must not comprise health and safety; the design and constructionof a medical device has to conform with safety principles; medical devices are to be suitable for the intendedpurpose; long term safety; medical devices are not adversely affected by transport or storage; the benefits of medicaldevices are to outweigh any side effects; and Principles about Design and Construction - chemical, physical andbiological properties; infection and microbial contamination; construction and environmental properties, medicaldevices with a measuring function; protection against radiation, medical devices connected to or equipped with anenergy source; information to be provided with medica devices; clinical evidence.

23 The States which have dealt expressly with infertility treatment and in vitro fertilisation, are Victoria, SouthAustralia and Western Australia. In other States such treatments and activities must comply with the NationalStatement and the NHMRC ethical guidelines on assisted reproductive technology.

24 "The Australian Medical Biotechnology Industry and Access to Intellectual Property: Issues for Patent LawDevelopment", Dianne Nichol and Jane Nielsen, The Sydney Law Review, Volume 23, No 3, September 2001 atpage 347 and following

Recent developments in biotechnology inEurope and their implications for New

Zealand's biotech industry

Benoît StrowelPartner

NautaDutilh, Brussels

Economic trends in the EU biotech industry

l During the 1980s, large companies.

l During the 1990s, new firms dedicated to biotech entered themarket.

l Between 1997 and 2001, the number of biotech companies inthe EU more than doubled

most rapid growth in the world.

Economic trends in the EU biotech industry(cont.)

l 1879 biotech companies employing 87182 workers.

l The European biotech market is now worth € 9.87 billion.

l It is struggling to achieve economic stability.

l Industry consolidation is needed in Europe.

Economic trends in the EU biotech industry(cont.)

l Talks to set up new financing instruments to consolidate thegrowth of Europe's biotech industry.

l By 2005, the European biotechnology market could beworth in excess of € 100 billion.

How biotechnology is regulated in Europe

l Fifteen Member States and ten Candidate Countries.

l Relevant competencies fall across a broad spectrum ofpolicies and actors.

the European Institutionsthe Member States

biotechnology is regulated on the basis of a principle ofshared responsibility.

How biotechnology is regulated in Europe (cont.)

The EU set two new strategic goals for the next decade:

l to allocate 3% of Gross Domestic Product (GDP) to researchin Europe, and

l to become the most competitive and dynamic knowledge-based economy in the world.

The EU Strategy for Life Sciences andBiotechnology

In January 2002, the European Commission adopted aStrategy for Europe on Life Sciences and Biotechnology, basedon three undeniable facts:

l the use Europe makes of its scientific excellence falls short ofUS performance in this sector;

l total European investment in R&D lags behind that of the US;and

l Europe suffers from the fragmented nature of aid to publicresearch and the low level of cross-border co-operation inR&D between companies and institutions in different regions.

The EU Strategy for Life Sciences andBiotechnology (cont.)

How the EU intends to bridge the identifiedgaps and increase cross-border co-operation in R&D?The EU has focused on the following issues, which are vital tothe development of biotechnology:lpublic funding of research and development (R&D);lcompliance with ethical principles;lthe regulation of GMOs; andlpatents and biotechnological inventions.

These issues are ranked in decreasing order of advancement in Europe.

1. Public funding of R&D

The Sixth Framework Programme ("FP6") is the key instrumentfor financing R&D activities in Europe during the period2002-2006.

Life sciences, genomics and biotechnology for health have beenidentified as priorities under FP6, and substantial budgetarymeans have been allocated to them: € 2.2 billion.

1. Public funding of R&D (cont.)

Research projects in this area of priority must be transnationaland serve strategic objectives.

A wide range of instruments are available.

Research projects are funded up to 50% of the costs.

1. Public funding of R&D (cont.)

New Zealand's biotech industry may consider participating in FP6. It may even benefit from EU funds in certain cases.

There are also specific schemes for SMEs in whichSME biotechnology companies established in NewZealand could participate; and programs to encourage themobility of researchers, which are open to researchers from New Zealand.

The first call for proposals was published on 17 December 2002,other calls will be published.

2. Compliance with ethical principles

In Europe, progress has been achieved in terms ofrequiring compliance with ethical principles.Conversely, little progress has been achieved in termsof harmonising these ethical principles.

Compliance with ethical principles is a necessity forthe purposes of:l receiving public funding,l obtaining authorisation for the marketing of GMOs; andl patenting biotechnological inventions.

3. The regulation of GMOs

l In Europe, some progress has been made in further advancingthe EU regulatory framework for GMOs.l However, political concerns remain, andl pending EU legislation is causing concern, not least for partners such

as New Zealand.

l Since 1998, a de facto “moratorium” has been imposed onauthorising new GMOs.

l In 2002, the European Commission proposed a strategy torelaunch the authorisation procedure.

3. The regulation of GMOs (cont.)

l The current GMO legislative package includes:

l a 1990 EC Directive regulating the contained use of GMOs; andl a 2001 EC Directive regulating the placing on the market of GMOs

l Two essential pieces of legislation are yet to be adopted:

l a Regulation on traceability and labelling of GMOs; andl a Regulation on GM-food and feed .


l The draft Regulation on traceability and labelling of GMOsis highly controversial:

l certain provisions are arguably not about safety but about how toextend labelling of GM products to meet consumer choice;l potential economic impact;l enforceability; andl whether the draft Regulation discriminates against products from

third countries


As a result of the draft Regulation, a large number of food

and feed products imported from New Zealand into the EU

will be subject to new labelling and traceability requirements

Whether the European Commission's strategy will succeedremains uncertain.

4. Patents and biotechnological inventions

The patentability of biotechnological inventions

l The Biotech Patents Directive was adopted in 1998.

l It aims to clarify the patentability of biotechnologicalinventions and to harmonise laws.

l To date only six Member States have transposed theDirective.

4. Patents and biotechnological inventions (cont.)

l The current lack of harmonisation of the laws may createtrade barriers and hamper the development of the internalmarket.

l The European Commission is trying to convince the non-compliant Member States to implement the Directive.

l It is also trying to address various concerns which theBiotech Patents Directive has aroused in public opinion.


Community patents

l Patent protection in the EU is currently ensured by thefollowing two systems:l the European Patent System; andl the national patent systems.

l As a result, patenting in Europe is expensive and fraught withlegal uncertainty.


l Many attempts to create a system under which it is possibleto obtain a Community patent of a unitary nature, valid in allMember States.

l Major difficulty creation of the first unitary courtwith jurisdiction in private law matters (>< European Courtof Justice).

l In 2002, the European Commission submitted a draftRegulation on the Community patent. A political agreementwas finally reached,including the commitment toestablishing a Community Patent Court by 2010 at the latest.

Conclusion

A distinction may be made between the public funding of R&D and the placing of technology on the market.

As far as the public funding of R&D activities are concerned, FP6 is an essential instrument which could be used by New Zealand's biotech industry and may serve as an example for other regions of the world, such as the Asia Pacific region.

On the other hand, there is not yet a sound legal framework toallow European businesses to develop and market their biotechproducts and processes.

Conclusion

There is an inconsistency between, on the one hand, setting theobjective of becoming a leading knowledge-based economy and,on the other hand, not translating these statements into bindingrules and commitments.

There are delays in progress on the adoption and implementationof the existing GMO legislative package and the EU legislationon patents.

1

BIOTECHNOLOGY SEMINAR:

TAKING NEW ZEALAND BIOTECHNOLOGYTO THE WORLD MARKET – A GLOBAL

PERSPECTIVE

Tuesday, 8 April 2003

Organised by Simpson Grierson

PACIFIC RIM ADVISORY COUNCIL

SINGAPORE’S BIOTECHNOLOGY DRIVE

Presented by:S. Sivanesan

Partner, Rodyk & DavidsonSingapore

THE DRIVERS

EDB

THE ECONOMIC DEVELOPMENTBOARD

Investing in Private Biotech

A*STAR

AGENCY FOR SCIENCE,TECHNOLOGY AND RESEARCH

Investing in Public Biotech

“FROM PILL TO PILLOW”

2

BIOMEDICAL SCIENCES CLUSTER

Pharmaceuticals MedicalTechnology

BiotechnologyHealthcare

Services

GenomicsMolecular Biology

ChemistryBioinformaticsBioengineeringBioprocessing

R&D Capabilities

IndustrySectors

IndustrySectors

INTEGRATED GOVERNMENT STRATEGYMinisterial Committee

• CHAIRMAN: DPM Dr Tony Tan

• Minister (Education)

• Minister (Health)• Minister (Trade and Industry)

Executive Committee

• CHAIRMAN: M r Philip Yeo,EDB / A*STAR

• Representatives from 12agencies

International Advisory Council

• CHAIRMAN: Sir Richard SykesRector, Imperial College

• CO-CHAIRMAN: Dr SydneyBrenner, Professor, SalkInstitute for Biological Studies

Human Capital• Biomedical sciences education

• Undergraduate training

• Graduate / Post-Doctoraltraining

Intellectual Capital• Public R&D

• IPR / Legal framework

• Industry R&DIndustrial Capital

• Investment promotion• Infrastructure development

• Equity investments

Ethical Framework• Bioethics Advisory Committee

HUMAN CAPITAL

• Manpower Development

• National Science Scholarships (US$280 million)

• Encourage Biomedical Sciences amongst teachers and

students

• Recruiting top researchers, specialists and scientists

• Training and Attachment Programmes

3

INTELLECTUAL CAPITAL

• PUBLIC R&D

• ROLE OF A*STAR:

- Knowledge creation and exploitation of scientific discoveries fora better world.

- ROLE OF THE BIOMEDICAL RESEARCH COUNCIL (“BMRC”):

- Supports, sustains and stimulates biomedical research;

- Responsible for IP and human capital development; and

- Funding and supporting research institutes and individualresearchers.

INTELLECTUAL CAPITAL

• IPR / LEGAL FRAMEWORK

BudapestTreaty

PatentCooperationTreaty (PCT)

World IntellectualProperty Org.

(WIPO)

Trade RelatedAspects of IPR

(TRIPS)

ParisConvention

§ Strong Intellectual Property Rights Protection & Regulations

§ Ranked 1st in Asia by PERC* consistently

§ Member of Pharmaceutical Inspection Co-operation Scheme(PIC/S) since 2000

* Political and Economic Risk Consultancy, 2000

INDUSTRIAL CAPITAL

“ONE NORTH” – BIOPOLIS

• Seven buildings providing about 900,000 square metres:

- Phase 1 (185,000 square metres) to be ready in June 2003.

- For public and private companies.

• Biomedical Complex to house public research institutes,private research organisations and biomedical universities.

• Shared R&D facilities – R&D equipment, utilities, animalfacility, lecture theatres and library.

4

INDUSTRIAL CAPITAL

TUAS BIOMEDICAL PARKS

• Land set aside for pharmaceutical / biologics manufacturing,

medical technology development.

• Air quality meets USEPA standard.

• Fast track approval process.

• Designed for quick start construction.

• Flexible payment scheme for use of land.

ETHICAL FRAMEWORKBIOETHICS ADVISORY COMMITTEE

• Identify legal, ethical and social issues of human biology research

• Formation of 3 Sub-Committees to address bio-ethical issues:- Human Stem Cell Research (Embryonic Stem Cell Research)- Human Genetics Research (Genetic Testing & Gene Therapy)- Publicity & Public Education (Website, Forums & Seminars)

• International Advisors include:- Prof Martin Bobrow, Deputy Chairman, Nuffield Council for Bioethics, UK- Dr Bernard Lo, Director, Program in Medical Ethics, UCSE & National

Bioethics Advisory Commission (NBAC), US

Protection ofindividual’s rights

Development ofbiomedical sciences

• Guiding Principle:

CONDUCIVE ENVIRONMENT

DRUG DISCOVERY &BASIC RESEARCH

NovartisLilly

S*BioViacellQugen

Merlion PharmaESI

PharmaLogicals Research

CLINICAL TRIALS &REGIONAL CLINICAL

RESEARCH MANAGEMENT

LillyMerck

PharmaciaBristol-Myers Squibb Company

Schering-PloughAstraZeneca

5

CONDUCIVE ENVIRONMENT

GLOBAL PHARMACEUTICALS/ BIOLOGICS

MANUFACTURING

GlaxoSmithKlineSchering-Plough

PfizerAventisKanekaMerckWyeth

MEDICAL TECHNOLOGY

BaxterBD

SiemensApplied Biosystems

Biosensors InternationalJMS

REGIONAL HQ PROGRAM

ü Supports regional management (e.g. brand / IPRmanagement, training, treasury and finance)

ü Preferential tax rate: 10 - 13%

AstraZeneca Aventis BDGlaxoSmithKline Merck PharmaciaBoston Scientific Johnson&Johnson NovartisCovance Siemens Lilly

COLLABORATIVE ARRANGEMENTS

• International Medical Centre:- A joint venture between Johns Hopkins and National University

Hospital

- Focus on immunology, virology and cancer

- To be relocated to Biopolis.

• Exploit Technologies:- Commercialisation arm of A*STAR offers technologies in

various industry clusters for commercialisation

- Exploit assists interested participants to licence the technologyand take the product to market for commercial application.

6


EXPLOIT TECHNOLOGIES(http:// techoffer.exploit-tech.com)

Commercialisation opportunities for Biomedical Sciences include:

- System, method and interface for building Biological Databases

- Control of bacterial infection by quenching bacterial cell-cellsignaling

- Mammalian Cell Expression System

- Protein Designer

Reference No. : LIT/02/TO/096Category : Software; BioinformaticsTitle : A system, method and interface for building biological databasesAbstract : This invention describes a web-enabled system for rapid creation of the specialistbiological databases. The core of this system is a set of templates, each encapsulating thelogic, interface and data requirements for a specific data analysis function or searchingmechanism. Given the modularity and flexibility of templates, this system reduces theproblem of constructing biological databases to simple steps of selecting the templates thatthe users, mainly the biologists require for rapid building of their own searchabledatabases. These databases are maintained and supported in a Data WarehousingEnvironment.This invention offers flexibility and scalability as the user can easily add or remove theanalysis function from the database.As a tool, this system enables biologists with no prior knowledge on programming toorganise their data and subsequently perform various analyses. Results from theseanalyses are directly available in the form of WWW-accessible reports. This invention,therefore, provides support for biological research and enables biological datamanagement.

7

Websites that are currently using this technology include:· FIMM - http://sdmc.krdl.org.sg/f imm· SLAD - http://charon.ima.org. sg /slad· Scorpion - http://sdmc.krdl .org.sg/scorpionPotential Applications:This system functions as a data management tool for supporting biological research. Theoverall architecture of the system can be applied to other domains for rapid construction ofWWW-accessible databases.Advantages :· Allows biologists a rapid way to create a database of sequence annotations specific tohis research· Organises biological information with ease; and provides user-friendly interfaces to theanalysis results of the data sets· Offers flexibility and scalability, given the modularity of the templatesCommercialisation Opportunities:· Technology is available for licensing from Exploit Technologies Pte Ltd.· Interested companies are invited to submit their plans to exploit the technology locally.All proposals are to be submitted to Exploit Technologies Pte Ltd.

Reference No. : LIT/02/TO/095 Category : Software; Bioinformatics Title : Protein designer Abstract : The Protein designer provides users a convenient way (a) to describe a targetprotein's composition/arrangement of domains, (b) to select preferred means foridentifying such domains, (c) to select preferred protein sequence databases, and (d) tosearch for their target protein. Potential Applications:•Protein design•Protein search without starting from a seed sequence Advantages :•Aids in formulating search query from a variety of pre-defined domain models•Integration of a variety of search methods and tools•Ability to combine pre-defined domain models with user-defined domain models•Ability to flexibly define multiple domain models and their complex compositions

8

Commercialisation Opportunities :•Technology is available for licensing from Exploit Technologies Pte Ltd.•Interested companies are invited to submit their plans to exploit the technology locally. Allproposals are to be submitted to Exploit Technologies Pte Ltd Contact Us :Exploit Technologies Private Limited(A member of A*STAR)10 Science Park Road #02-08Singapore Science Park IISingapore 117684Email: [email protected]


ü Develop research institutes

ü Educate and train manpower

ü Recruit PhDs and senior people with industry expertise

ü Attract R&D activities

CONCLUSION

§ Heavy capital and infrastructure investment

§ Some will succeed, some will fail – expected to lose moneybefore growing

§ Focused approach, pragmatic considerations

§ Sustained drive by government

§ Biomedical Sciences Industry Performance 2002:§ Industry Total Manufacturing Output:

àà US$77 billion (48% growth from 2001)

§ Industry Value-added Output:

àà US$20 billion (76% growth from 2002)

9

THANK YOU