Beyond Borders: Global biotechnology report 2010

New Zealand year in review
A new pragmatism
The biotechnology industry in New Zealand
has long faced some stiff challenges,
including geographic isolation, a small
domestic market and relatively sparse
venture capital. Those challenges have been
exacerbated by the global recession. As
capital for the industry has shrunk around
the world in the new normal, the New
Zealand companies are often responding
with pragmatic approaches to overcome
obstacles. Investors are more focused
than ever on achieving short-term returns.
Meanwhile, biotech companies are exploring
creative ways to develop new products,
increased partnering at earlier stages,
faster paths to commercialization and
new ways to grow exports. The increased
focus on pragmatic approaches has also
been accompanied by some supportive
Government initiatives.
Venture capital
Venture capital funding, which had fallen
sharply in 2008, declined even further
in 2009. Pragmatism forced venture
firms — many of which are coming to the
end of their first vintage — to allocate
resources to sustaining existing portfolio
companies. In 2009, only 16% of the total
venture and mid-market private equity
investment went to the health/biosciences
segment — a sharp decline from the 52%
share that the sector attracted in the
previous five years.
This fall in venture funding, combined
with a weak capital market, has motivated
New Zealand biotech companies to seek
funding and alliance partners beyond their
national borders, in Australia, the US and
other markets.
Angel investment
While local fund managers have had
difficulty demonstrating adequate returns,
a significant market has emerged for angel
investment. According to the February
2010 issue of Young Company Finance
published by the New Zealand Trade and
Enterprise Escalator, the New Zealand
Venture Investment Fund Limited, the New
Zealand Private Equity & Venture Capital
Association and Angel Association New
Zealand, angel investors are playing an
increasingly significant role in financing
start-ups, with more than NZ$50 million
(US$31.8 million) invested in 2009, a 72%
increase over the previous 12-month record
of NZ$29 million (US$18.4 million). These
entities, supported by angel investors,
represent part of the biotechnology
company pipeline, but the real challenge
facing the industry is ensuring access to
sufficient investment capital for future
development. Of the NZ$50 million
(US$31.8 million) invested last year, NZ$20
million (US$12.7 million) went to first-round
investments — the highest annual dollar
value of investment into new companies.
Inbound investment
The New Zealand limited partnership (LP)
regime, introduced in 2008, allows foreign
investors to avoid any New Zealand tax
liability from investing in an LP, subject to
the LP’s extent of business activities. (For
details, refer to the New Zealand article in
last year’s Beyond borders.) This, together
with the country’s absence of a capital gains
tax regime, offers an attractive proposition.
However, New Zealand continues to have
difficulty attracting foreign capital, and
this has been exacerbated, in the case of
biotechnology, by the international flight
from higher-risk investments that occurred
following the financial crisis.
Company formation and
commercialization
In February 2010, Statistics New Zealand
issued the results of its 2009 survey of
the New Zealand bioscience industry. This
survey indicated an increase of 25% in
bioscience organizations from the 2007
level. The largest segment was innovative
foods and human nutrition (comprising 44%
of companies), followed closely by human
biomedical science and drug discovery.
Remarkably, 58% of those surveyed plan
to commercialize at least one new or
significantly improved bioscience product
in the next two years. The emphasis on
bringing products to market quickly —
often by focusing more on areas that do
not require lengthy clinical trials or other
regulatory barriers — is another indicator
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