Around thirty of Australia’s leading medical research organisations have joined forces with a team of expert venture capital investors to set up a fund to support the commercialisation of Australian research.
The Medical Research Commercialisation Fund (MRCF) Collaboration, set up in 2007, is supported by a range of superannuation and government funds and provides seed funding and management advice to help commercialise Australian medical technologies developed by its member organisations.
The fund has over $50 million under investment, has around 32 institutional members and invests between $200,000 and $2 million for each project that is accepted following a fairly rigorous approval process.
The fund is already playing a critical role in bringing Australian innovation to the global market – something Australians have not historically been very good at doing.
Despite producing 3% of the world’s published biomedical research, Australia holds less than 0.8% of the world’s biomedical triadic patents (a patent registered in the USA, Europe and Japan).
The Association of Australian Medical Research Institutes (AAMRI) last year reported that Australia has 39 universities, 42 medical research institutes and more than 100 hospitals that are engaged in some kind of medical research; and most of them don’t have a dedicated commercialisation division.
Paul Cheever is an investment consultant who has been involved with venture capital funding in Australia and overseas for decades, and at one stage was responsible for Australia’s largest institutional investment capital portfolio, through WestScheme.
He says that part of the problem medical researchers have traditionally faced is that investment funds follow the advice of venture capital managers, whose brief is to make a profit for the investor.
“It’s not always a satisfactory way of investing, typically you allocate money to a manager who gives you a strong story about how great they are and how much money they have in investments – and once they get their money, they see you about ten years later.”
Cheever says that, to some extent, the system operates at the whim of a small number of venture managers who only look at a few transactions at a time and become biased about a particular market.
“At the moment, most of the venture capital around is all about online, social media-based customer facing businesses and software-based marketing.”
The traditional venture fund financial structures are also not conducive to the development of medical research, Cheever says.
“In a typical venture fund structure, you put up some capital and there’s an operating budget based around an annual management fee, typically 2 ½ percent of the capital.”
In a ten-year fund, about 20 percent of the investment goes to management fees, he says.
“We set up this commercialisation fund to develop a different arrangement, informed by Australia’s population of only 23 million, which has some great innovations and research that tends to all work in little silos; we think that collaboration is the key to getting a lot of this up and running.”
Typically, the sort of venture capital investment required for scientific research is more complex and requires more money than other technologies that compete for venture funding project.
“When you’re talking about nano-materials, new delivery systems, new manufacturing technologies, you are talking about investment that takes longer and requires more money.”
Cheever says that another challenge for investors has been getting through the typical university technology transfer process.
He says that universities had the idea that the best deal was about getting the best price– but that hinders technology transfer.
“If you want the process to be about getting things started well and getting technology into the market, you need an investor that will bring money to the table to get the thing to work.”
The Medical Research Commercialisation Fund started with seven medical research institutes, including the Garvan Institute and the Walter and Eliza Hall Institute.
“The Institutes pay a small annual participation fee and technically, they get their share of profits out of that as well,” he says.
“But the really interesting thing is the way that it works. Instead of a venture fund with a manager who has no accountability for anything, except ostensibly making money, you have a manager who has got a service level agreement,” Cheever says.
“The trustee of the investment is the institutes themselves, who employ the manager. The manager still gets paid venture capital performance fees, and is paid a decent salary but they have to set and agree a budget with the trustee about how that management fee goes towards running the fund and how they are going to get paid.”
Member institutes have a representative on the advisory committee, giving the fund manager a huge wealth of experience around the table and the ability to tap into the expertise of 32 medical research institutes, Cheever says.
“Typically, the commercialisation people at the institutes understand the science, they understand IT, they are out in the market anyway, they are networking and they understand what Pfizer is looking for as opposed to what Sanofis is looking for – plus they have a wealth of clinical experience.”
That wealth of experience translates into good, solid, informed commercial decisions, he adds.
“A manager can take a new product, say a new molecule going through testing that looks like it might be a good insulin sensitiser, look around the room and ask, in four years time, what kind of patient recruitment troubles will we have in phase 2 clinical trials?”
The responses are current, specific and useful, he says.
“We get answers like, yes we’ve been doing that down in Geelong, you can do that for phase 1 but you won’t be able to do that for phase 2A. That informs them, do we even start the process.”
He says that some innovations can’t get beyond the clinical trial stage. “Trials are so subjective and you can’t get endpoints, therefore you have to spend so much money to get to an endpoint, there is no point in Australia even trying to start that.”
That’s mostly population-driven, he adds.
There’s a second, significant advantage to the process for all of the research institutes too.
“All these participants in medical research institutes are all learning from each other, sharing ideas – and these medical people, who had no experience with the venture capital process before, are now sitting in a room every other month, watching several pitches from new presentations coming forward, updates on what is happening, how companies have developed, with the issues have been across the whole portfolio, other things that are going on out of the marketplace.”
Finally, the member institutes have a guarantee that the fund manager will look at every pitch for each piece of research they submit.
“The manager can’t say – I just don’t like pain products – they must look at it.”
Decisions on what might be able to be commercialised and what might not, are made by representatives of each member organisation.
“Most of the time things get declined by the peer group. In the process of discussion about this technology, the IT, the science, the market, with this group of more than 25 people around the table – if there are flaws, they will find it.”
Cheever says that the MCRF is a far more informed process than most investment funds – and also provides an opportunity for good Australian research to make it to market.