Queensland Life Sciences Industry Report 2012 (PDF, 3.5MB)

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Queensland Life Sciences Industry Report 2012 08 1. EXECUTIVE SUMMARY VenturePro is pleased to present the Queensland Life Sciences Industry Report 2012 conducted on behalf of the Queensland Government. The report, based on a survey conducted in early 2012, presents a profile of the Life Sciences Industry in Queensland in the 2011 year. The report builds on findings from our previous analyses of the industry in 2007 and 2009 and it is intended to inform industry, public sector organisations and government in their efforts to support industry growth and increase international competitiveness. The traditional life sciences business model is reliant on the availability of investment capital to support a costly and often lengthy research and development (R&D) timeline. Given this, the global financial crisis (GFC) severely affected Life Sciences industries. Access to capital was significantly reduced worldwide from 2009/2010, and for Life Sciences Industry, the option to undertake an initial public offering (IPO) remains effectively unavailable in Australia. Our survey of 139 Life Sciences organisations in Queensland suggests that the GFC and the resulting economic environment negatively affected the performance of the industry, and in particular the private sector, in 2011. In the 2009 survey, industry expectations for the subsequent year were for lower R&D and capital expenditure, and limited access to capital. These negative expectations appear to have been well founded. Employment, income and expenditure estimates for the whole industry in Queensland 1 were all lower than those determined in our previous survey in 2009. The change in total expenditure by companies was driven largely by a significant fall in estimated R&D expenditure (down by 43%). Business owners and managers will have made difficult decisions in an attempt to see out adverse economic conditions in the short-term, and position their businesses for growth as the market recovers. However, the survey also revealed a maturing private sector and one in which executives expressed a positive sentiment for the future. For research organisations in Queensland, the story, in some respects, was ‘business-as-usual’ with estimates for employment and income down only marginally or at the same level compared to 2009, whilst expenditure estimates were actually higher. Research organisations may have been insulated from the worst effects of the GFC in the two years to 2011, as 75% of the reported income was sourced from grants and there were increases in funding allocations to both the National Health and Medical Research Council (NHMRC) and the Australian Research Council (ARC) over the past two years. It remains to be seen whether there will be a lag period for research organisations with lower industry investment in R&D and the potential for reduced grant funding translating into reduced income in 2012-2013. Access to capital as a barrier to growth The survey confirmed that access to capital remained limited in 2011, and thus a challenging operating environment will likely persist for Life Sciences companies in the near future. In 2009, venture capital and debt instruments accounted for 82% of capital reported by survey participants. In the current survey they accounted for only 3.3% of funds raised. Secondary data showed that new funding commitments to Australian venture capital (VC) funds continued to decline in 2011 with three VC funds raising $120 million, down 42% from 2010 and 60% from 2009. Moreover, in both 2010 and 2011, the majority of VC commitments drew upon Government-backed innovation funding programs such as the Innovation Investment Fund. Exit options for VC investors in Australian Life Sciences companies are limited with an IPO effectively no longer a realistic prospect. Over 70% of survey respondents agreed that limited access to capital was having a material impact on their operations. A lack of accessibility to government grant funding was identified by companies as the second most significant barrier to future income growth (companies reported only 1.5% of their income arising from grants). Other barriers, risks or challenges cited by companies included the high Australian dollar, regulatory risk/ compliance issues and increasing international competition. 1 The raw survey data was statistically analysed in order to generate estimates for the whole Queensland industry across the key measures of income, expenditure and employment. Such estimates are subject to error and they are based on a number of assumptions outlined in this report, which may or may not hold true.
Queensland’s listed Life Sciences sector Secondary data suggests that the listed biotechnology sectors in Australia and countries such as the USA, Europe and Canada are showing some signs of a recovery from the effects of the GFC. Capital flows are returning to the ASX-listed Australian Life Sciences sector, several members of which have recently begun to generate revenue, conclude significant deals and progress products to market. Positive trends are apparent for listed Life Sciences firms based in Queensland with the average market capitalisation increasing from $26.2 million to $60.2 million between 2009 and 2011. Only three out of eight listed Life Sciences companies in Queensland were considered microcap (market capitalisation ‹$50 million) in 2011, compared to seven out of ten in 2009. Industry profile and maturity The total number of commercial enterprises that comprise the Queensland industry grew from 235 in 2009 to 252 in 2011. This occurred despite several companies exiting the industry over the past two years due to closure, relocation or a change in operational focus away from life sciences. The emergence of new ventures, particularly in industrial biotechnology (e.g. biofuels), suggests a positive sentiment in some subsectors. Survey responses in relation to the product pipeline suggest that the industry is continuing to mature. In 2009, 34% of organisations developing therapeutics and 42% of organisations developing non therapeutics had lead products at market. For the 2011 year, the proportion of companies reporting therapeutic products at market was 69% and for those with non-therapeutic products it was 56%. Assuming the commercial success of these products, the industry should see new revenues and additional employment arising from this pipeline over the next few years. The commitment of companies to scientific research and innovation was evident despite reduced overall expenditure on R&D. The industry has a highly qualified workforce with an average of 19% of employees in the private sector holding a PhD, and the majority of companies (64%) confirming that the Queensland public sector research base was important to their future operations. Moreover, almost 40% of companies had some form of interaction with a Queensland research organisation in 2011. Business sentiment While the industry has been hit hard over the past two years by the prevailing economic environment, there was positive business sentiment and signs that some sub-sectors are holding up. Approximately 65% and 82% of respondents expected their income to increase over the coming one and three years, respectively. The number of full-time equivalent (FTE) employees was expected to increase by 5.2% over the coming year and 34.3% over the next three years with a compound annual growth rate (CAGR) of 10.3%. Approximately 43% of companies expected R&D expenditure to stay the same and 45% expected the level of R&D expenditure to increase over the next year. Only about 12% of companies expected R&D expenditure to decrease. This suggests that those companies who have weathered the effects of the GFC feel they are positioned for growth should conditions improve in the next year or two. Sentiment was even higher within research organisations with none predicting a drop in income or R&D expenditure over the coming one or three years. Outsourcing R&D and manufacturing A trend toward R&D outsourcing, which has the potential to reduce the overall cost of R&D and the time to market, was more prevalent in 2011. This suggests that investment in R&D was continuing but that less would be undertaken in-house. Australia was the most common location from which contract research organisations and contract manufacturing organisations were engaged. The other top locations included the USA, the UK and China. Comparative performance: Biotechnology versus Therapeutic Medicines and Devices A comparison of 2009 and 2011 estimates for the Biotechnology sector suggested decreases in income (-23.8%), employment (-19.3%) and R&D expenditure (-2.3%). However, total expenditure was estimated to have increased by 3.8% with higher figures for wages and salary expenditure (121%) and capital expenditure (27.2%). The Biotechnology sector, as defined in previous surveys, includes the majority of research organisations, and their generally positive figures masked the more negative performance of Biotechnology companies. When research organisations were excluded from the analysis, estimates for Biotechnology companies suggested substantial declines, with income estimates down by 45%, expenditure estimates down by 65%, and employment estimates down by over 40% compared to 2009. Companies in the Biotechnology sector appear to have fewer advanced products than the therapeutic medicine and devices sector (TMD). Estimates for the TMD sector in 2011 suggest a relatively modest fall in income and total expenditure (both down by under 3%). Estimates for employment and specifically R&D expenditure, were down sharply though (38% and 42% respectively) possibly reflecting cuts necessary to support the balance between total income and expenditure. The TMD sector includes several large or later-stage companies in complementary medicines, functional food/nutraceuticals and animal health, many with multiple products at market. 09
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10.2 Finance 10.2.1 Debt and Equity
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By Anne-Marie Birkill, Partner at O
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11.1.2 Contract Manufacturing Half
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Figure 43: Importance of Queensland
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Queensland Life Sciences Industry Report 2012 (PDF, 3.5MB)

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