Southern Cross Biotech Pty Ltd. Melbourne. Vic. 3000
I am from an Australian biotechnology company, Southern Cross Biotech. This is one of the few companies in Australia moving to bring their efforts to commercial reality. My comments are not a company statement but my own comments on the process of biotechnology product development in Australia. I confess to being neither a scientist nor a technologist but essentially a salesman, an essential part I would argue of the process.
SCB is as yet a small company with large ambitions, ambitions which I would suggest are essential in new technology industries such as biotechnology since, without large ambitions, there will be little in the way of other encouragement to sustain the company team through the difficult process from first beginnings to a successful operation.
The project which SCB continues started 12 years ago as one of a series of research projects to improve the productivity of a large food company based in Victoria, Bunge Australia. The company’s interests included a wide range of food production covering both the meat and grains sectors. The
particular project which has become the focus of SCB’s current activity is the production through biotechnology of PST, which is the natural hormone now used for managing fatty tissue growth in pigs.
Using this project as an example, some of the features that I would argue are important for any technology-based product development were presented. The research group was charged with improving the productivity of the company’s pork production operations. Firstly, they confirmed what the market wanted, either that the existing supply could be improved or that there was something the company was unable to supply. The group worked closely with the production and marketing people and understood what they were looking for. They then reviewed possible options which might assist in the process. At that early stage the concept of forming an entirely separate company to develop and market this technology was not considered.
Wide Scale Use
This focusing process, or something similar, is now going on in many of Australia’s companies involved in both food and other sectors looking to improve their productivity. Biotechnology looks like a positive and manageable process to improve existing products and develop new ones. Initially, certainly those companies with involvement in “traditional” approaches probably made more progress as the technology seemed less strange. Today there is a much wider range of companies looking at developments and introductions using biotechnology.
Agriculture forms a large part of the economic activity in Australia and much of it is aimed at food production. It is a technology that does not require a large techno-structure such as the information technology industry. It does require a highly educated and capable group of scientists. It is not surprising, therefore, that biotechnology is having an increasing impact in this sector in this country.
This industry basis is, of course, a key factor in the success of any science-based program of development. SCB’s example is helpful. The focus of the pig industry for many years prior to the project, and still today, is the efficient production of lean pork. Leanness or absence of fat is critical in the consumer’s choice of meat products. The pork industry had introduced new grading systems which penalised fatty carcases, and promoted new retail cuts designed to reduce what fat was left. They sought and gained endorsement from the National Heart Foundation for these special cuts and continued to energetically promote pork as a lean, healthy meat. The difficulty for the producers was that pigs tended to become fat as they approached maturity. The existing technologies, selective breeding, the introduction of new genotypes, nutritional manipulation and environmental management were providing some advances. Progress on the whole was fairly slow and in particular in the area of selective breeding. The possibility of managing the fatty growth rate of the finishing pig appeared as an interesting opportunity. Initially the natural hormone was sourced by the collection of material from carcases at the abattoir. The reduction in fat was very encouraging - it appeared that this would deliver a competitive advantage. However, it would not be possible to source sufficient material from carcases to cover normal production requirements. Biotechnology in this context seemed a better, more reliable process for providing a source of this means of fat reduction.
Most of the successful projects I have seen have a similar focus, that is, the goals of the project were identifiable as fitting with the goals of the eventual customers of the biotechnology product.
Focus of Science Effort
While in many projects the excitement and interest for the science group may be the challenge of the problem, in a commercial framework the science priority is to solve the industry problem.
Necessity is the mother of invention. That is not to diminish the praiseworthy and very significant contributions made by the science team working over the years on the SCB project. Without their insight, inspiration and preparedness to put in effort above and beyond the call of duty, I would not be here today. The project was developed with fundamental assistance from the Melbourne University Veterinary Science School’s Centre for Animal Biotechnology researchers Dr Mal Brandon (and Dr Ted Stylmasiak) and many other dedicated scientists without whom the technology would not have been developed. It always had clear objectives in a commercial sense.
Evaluation of the Commercial Opportunity
One of the problems in new technology development is the difficulty in defining the value of the technology in terms of its final market. This requires an understanding of the requirements of the eventual customers and the value of the benefits to them. In the case of the SCB project, the market, as for many other agricultural products, was well-defined. The premium available for lean meat production was well-established. Even so it was a difficult and risky task to estimate the final market value of the technology. This evaluation provides a yardstick against which the eventual manufacturing costs and ultimate commercial viability of such a project can be assessed. Not all new developments start with such a well-defined and ordered marketplace.
Once the basic science is completed and the initial evaluations completed, the process of scale up begins. While in biotechnology, typically the initial experimental work can be carried out in the laboratory or in small trials, to develop a commercial process this must be increased in scale many times. For example, in SCB’s initial process testing, after moving beyond the bench scale the initial development was carried out at the 20 litre scale. When acceptable results were achieved at that scale the next step was to move to 200 litres, ten times greater. It took some time then to produce satisfactory results at this scale - the yields are never exactly the same as those achieved at small scale - and the results are usually pro rata less. However, the process continued and at full commercial scale SCB moved to operate in 30,000 litre tank facilities, up to 150 times greater than the previous stage.
SCB was successful, but there are many examples of biotechnology projects both here and overseas where the original scientific work has seemed very promising but the project has not successfully scaled up to full commercial size.
Risk Assessment Issues in Australia
So far we have discussed the research process and I hope you can see that it is a long and difficult process with no surety of a successful conclusion. There is another process which is conducted simultaneously which is equally difficult, time-consuming and also uncertain in outcome. I am referring to the process of risk assessment and regulatory clearance for marketing. Australia has had for some time an excellent and far-sighted approach to biotechnology developments. From the very early days it was concluded that this technology did not fit comfortably within any of the existing procedures for approving the novel developments.
This led to the formation of the Genetic Manipulation Advisory Committee (GMAC) which initiated a process of review and approval for all the developments in this new area of science. This has operated for almost a decade as an “advisory” body with no powers, but functioning through its subcommittees and institutional biosafety committees. However, it is fair to say that it has operated successfully, reviewing new projects and securing universal support from the science community and other regulatory bodies. It is still an advisory committee because Australia’s complex Federal system requires that all States agree with the Commonwealth before a statutory body can be created. This has yet to happen. Nevertheless, with our project and many others GMAC set guidelines and reviewed each step from early laboratory work to the final large scale release.
It was, as are many other regulatory bodies, not just a scientists- only review, but had represented on its board consumer and environmental groups including the Australian Conservation Foundation. Each step of the scientific development could not proceed until preliminary research and risk assessment had been carried out and a submission prepared and forwarded to GMAC. The approval process was (and still is) never a rubber stamp. There are strict guidelines and requirements to be observed. It is a credit to Australian scientists that these were observed (and still are) in every case.
However, the main impact on project development is to add to the time taken to achieve goals. Our 12 years of development may become more understandable when some of the approval processes are considered. New products which are to be used with animals require approvals from a central regulatory authority, the National Registration Authority for Agricultural and Veterinary Chemicals (NRA). The NRA requires applicants to submit extensive data from independent trials and studies to show that the product is effective for the proposed use and that its use represents no threat to the health and safety of both the target animal and any other species. Further, it must represent no danger to the health and safety of the user or any other person likely to be in contact with it. In the case of meat animals this means that a very considerable amount of work has to be carried out to show that no negative effects can be expected.
Data from the work is submitted and the human safety issues are extensively reviewed by the Commonwealth Health Department, the National Health and Medical Research Council and Worksafe Australia, all coordinated by the NRA. The animal data is reviewed by the Department of Primary Industry evaluators and specialists in institutes and research facilities. Not surprisingly, this process takes around three years and no further progress can usually be made on the product until approval is given.
Basic food products such as the transgenic tomato have not, until recently, had in Australia a similar process of review, although there has been a review for food additives such as biotechnology-produced chymosin for cheese production. It now seems likely that all novel foods will be reviewed and assessed under a new food standard from what was the National Food Authority, now known as the Australia and NZ Food Authority. This follows a recent forum on food labelling held by ANZFA with input from many groups with views on the use of biotechnology in the food industry. Such a procedure, if it is approved, will provide certainty and continued consumer confidence in the food supply.
This brings me to the next hurdle faced by biotechnology companies in product development - public issue management. Whenever new technology is developed it seems to some to be irrelevant, to others downright dangerous.
“I think there is a world market for maybe five computers”, said a far-sighted Chairman of a major office products company in 1943. His company went on to be a leader in that market. His name was Thomas Watson, Chairman of IBM. He was followed 30 years later by another computer company leader who said, “I cannot imagine why anyone would want a computer in their own home”. Ken Olsen, President of Digital Equipment, was to live to see 35% of homeowners show him why in less than 20 years.
When the first self-propelled vehicle was introduced, the steam train, it was so much feared by some that an Act of Parliament was passed requiring a man to walk in front of it carrying a red flag. It was claimed that should passengers travel at such an unimaginable speed (i.e. exceeding 35 kilometres per hour) they would suffer, their hearts and lungs would burst. Fortunately, practical risk assessment prevailed and development of the railways continued.
Biotechnology development has therefore been the subject of a considerable number of attacks, both from those who fear that new developments will disadvantage them commercially and from those who find it disruptive to their view of the world.
Because many of the early developments have been in the food industry, many of these have been characterised by some people, I think unfairly, as unsafe and untried. It is probably a useful point to note in passing that consumer research suggests that Australians have more confidence in their food supply, regulatory processes and, interestingly, the benefits from new technology, than the rest of the world. Australians are more confident than Americans and certainly much more than the Europeans.
However, as a developer of new technology, this means not only do you have to pass the regulatory examination and prove that your products are safe and effective, but you also have to convince the rest of the population that not only are the products safe but they have been extensively assessed and found to be so.
Investment Risk Analysis
The process of development cannot be considered without considering the funding involved. In our case, if I were to ask investors or the shareholders to invest in a project and to cover the costs for 12 to 15 years with no certainty of ever seeing their money back, or even a modest interest payment, I would need to be very positive about the eventual commercial success of the venture. The barriers and difficulties I have described are many and complex and require a very considerable potential return to encourage anyone to have the patience and courage to continue. So, it is not unexpected that there are only a few independent new companies venturing down what is still a difficult and uncertain path.
Market Entry - presenting the new
Finally, after many years when a company is able to enter the market with its new development, as we have, it should not be imagined that customers will beat a path to the door. Only a few will initially be interested and it will take many months and a great deal of effort
before a substantial number of the customers adopt the new technology. That will not be because it does not deliver the benefits, or because the price is too high.There is a natural reluctance for the majority to experiment with new things - the conservative preference is to watch someone else try first. When that someone else is successful there is more confidence in trying also. It is a social process and it is almost impossible to expedite. SCB is today in the midst of this process.
The time and effort required to bring a novel development to a successful commercial conclusion is going to be weighed against the value that it brings to its developers. One of the factors that needs consideration is the size and value of the market for the development. Many times the potential Australian market alone will not be large enough to provide the necessary revenue to justify the effort. This adds a further level of uncertainty since, for each new country there is a further requirement for market assessment and a clearance from the local regulatory authorities.
All of which suggests the point I made at the start - that large ambitions are essential in new technology industries such as biotechnology since without large ambition there will be little in the way of other encouragement to sustain the company team through the difficult process from the first beginnings to becoming a successful operation.