Just as a savvy startup founder would position her novel product offering against a market unmet need, confirmed with objective market data, so we in Australia’s healthcare innovation ecosystem can improve our run rate of success if we tether our thinking to the realities, and opportunities, of the dynamic global healthcare marketplace.
Australia’s international reputation in healthcare innovation is a home to a strong foundation of fundamental research, a strong hospital system and for being a great location for early-stage clinical trials.
Australia’s clinical trials are performed to a high quality delivering bankable data, on time and at a competitive price. Around 600 early-stage trials are performed in Australia each year, in an industry worth more than $1 billion a year mostly from foreign sponsors, reaping significant export revenue and marking arguably our most significant contribution to the global healthcare innovation ecosystem.
Ian Frazer’s Gardasil, the Walter and Eliza Hall Institute’s Venetoclax, Lions Eye Institute’s XEN:Gelatin microfistula for glaucoma treatment, our five medical Nobel laureates, and many other inventions are well-known examples of patients benefitting, and some commercial returns, from our nation’s strong healthcare R&D.
Most of our ecosystem’s activity however, and most of our 150-plus individual support programs, still focus on R&D, translation, incubation, accelerators and commercialisation. Further, many of our wealthy families support local medical philanthropy.
These programs represent a genuine attempt, and an annual multi-billion-dollar investment, to achieve some patient benefit and economic value from our outstanding fundamental medical research.
These programs spruik commercialisation activities from the pool of technologies in our universities, and medical research institutes (MRIs). But they often overlap across states and emphasise ecosystem KPIs like patents applied for and granted to protect our novel IP, publications and citations, license agreements and spinout companies.
And therein lies a disconnect: Inadvertently, Australia’s focus is often on commercialising the technologies we have, and finding markets for our inventions, not necessarily knowing we are solving unmet patient needs with best-in-class solutions.
Often, we think we have a commercial healthcare opportunity, but as one ‘peels back the onion’ there emerges competition previously unknown, regulatory headwinds, clinical trial complexities, manufacturing or supply chain logistics, business model opacity, and other factors that, until conquered, devalue that commercial opportunity.
The successes we have, as a result, seem somewhat inconsistent and random. Despite the challenges in the domestic ecosystem some Australian startups do achieve key market approvals and do become revenue-generating and highly valuable.
A good example is Neuren Pharmaceuticals with its FDA-approved product for the rare Rhett’s disease and its global collaboration with US-based Acadia Pharmaceuticals.
These successful companies have typically found unique and highly creative ways to build. But, unfortunately, the rate of value monetisation and realisation (exits) in Australia is low, about a deal or two per year delivering positive returns across both the private landscape and ASX companies.
In many ways this is understandable. Australia is a small country – our 26 million people representing just 0.3 per cent of the world’s population (certainly not qualifying as a catalytic domestic market), with large distances and usually many time zones from major healthcare markets.
In most healthcare segments, Australia usually represents just 1 per cent of global market revenue.
By the very nature of their origin from universities and MRIs, the current reality is that the vast majority (more than 80 per cent) of Australia’s homegrown healthcare innovation is at the pre- clinical stage (that is, innovation that has not yet undertaken a first-in-man trial).
The result is that Australia is not regarded internationally as consistently producing investible healthcare startups. It’s a reason we currently do not host a single North American healthcare-dedicated venture capital firm with a fund or operations. This is telling.
Unfortunately, as a result, we are not internationally renowned for consistently successfully translating our strong fundamental innovation into transformative companies that deliver transformative products that address the unmet needs of patients and the pipeline gaps in the portfolios of the leading pharma and MedTech companies globally.
Our investment community is more comfortable investing in the resources, infrastructure, services and property sectors than in healthcare.
Healthcare’s investing expertise is highly specialised – even most North American pension funds wishing to engage in the sector do so via several outsourced domain-specific VC managers, and most dedicated public markets investors in the sector have deep teams of specialists.
The few specialist healthcare investors we have in Australia lament of the sector’s dearth of commercial management and experienced functional experts. And our founders and local investors lament the ‘valleys of death’ at which companies fail to raise funds, and for which government is urged to plug funding gaps.
The knock-on effect is Australia’s ecosystem does not favourably compare against its peers for the truly relevant global healthcare innovation KPIs. These are the syndicated rounds of investment involving healthcare specialist investors, foreign capital invested, leverage on Australian capital from healthcare-dedicated investors, patients treated, products approved in major markets, revenue from product sales, annual exits and returns to investors.
These are the KPIs that matter in transforming a national healthcare innovation ecosystem, just as has happened in Israel, the nordic countries and Canada in the past 20 years to 30 years.
As occurred in these countries, Australia too can, in a 6-year to 10-year period, make meaningful steps to transform our healthcare innovation ecosystem if we acknowledge global healthcare market truths and pay attention to three key elements: (1) identify and nurture best-in-class healthcare opportunities, (2) actionable connectivity to key players in the global healthcare ecosystem, and (3) syndication.
Ironically, and encouragingly, many of the policy goals behind our innovation support programs – increased high-paying sustainable employment, sovereign capability, advanced manufacturing, foreign investment, export dollars – will be achieved if we succeed in securing a commercially viable, self-sustaining (ultimately powered via private activity) healthcare innovation ecosystem.
Acknowledging global healthcare market truths
These truths are evident. These truths are interrelated. Whether we recognise them or not, these truths permeate all of Australia’s healthcare innovation and all our patient impact-motivated medical philanthropy.
Truth #1: The market for healthcare innovation is truly global.
This results in significant opportunities (large total addressable market and billions of dollars of unmet need) with the US, Europe and Japan still dominating value, but China and India being fast emergers as their middle class grows.
Each has quite distinct and critical market dynamics such as hospital purchasing, administration and economics; reimbursement; and methods of medical practice (workflow). Knowing these dynamics is critical.
Consequence of Truth #1: Only best-in-class and first-in-class win. Any new health technology must be positioned to compete at a global scale to be commercially successful – hence it must be ‘best-in-class’ or ‘first-in-class’. Better than its peers in Boston, and Palo Alto, Oxford, and Tel Aviv, Stockholm, Minneapolis, Toronto, Singapore, and Shanghai, and so on.
‘Best-in-class’ is defined not just by reference to novel science and clinical application, but also (critically) by how does the product fit into the strategies of healthcare multinationals, the interests of the global healthcare specialist investors, the unmet needs of patients, the approval pathways of regulators, the value metrics of payers, and so on.
Focusing on ‘best-in-region’ and on starting versus scaling, has inadvertently created many early-stage companies that are not built to address global market needs and therefore not positioned to attract the global resources (people and capital) required to support growth.
Those Australian founders who seek to validate, as early as possible in their company’s lifecycle, that their technology and solution is ‘best-in-class’ or first-in-class, will be more successful.
Truth #2: Global healthcare decisions are influenced by key players, and most of them are not in Australia.
The key players comprise C-suite teams in leading healthcare multinationals and hospital service providers, key regulators, top-tier healthcare institutional investors and investment bankers, key opinion leading physicians, eminent scientists and functional experts.
Consequence of Truth #2: Actionable networks with these players are critical to success for healthcare innovators.
‘Actionable’ means these players know us, respect us and want to collaborate and invest with us. That recognition and trust is only earned by working with key players. It is not sufficient to attend conferences, connect on LinkedIn or simply espouse our capabilities to the global healthcare community.
Any pitches we make to key players will resonate only if we are sure they are tethered to the strategies or unmet needs of these players. Our connectivity efforts must reap the crucial meaningful collaboration necessary to nurture our healthcare inventions to global markets.
For more than 20 years, Lumira Ventures has transacted or co-invested with 70 different healthcare multinationals, coinvested and sat on boards with more than 200 healthcare-dedicated institutional investors across more than 110 companies, has formally reviewed (and actively tracks) more than 14,000 companies and commercially prospective R&D projects, and actively engages with around 2,000 functional experts.
Constant connectivity to create and now manage this global network allows Lumira to benchmark best-in-class opportunities and pool the required resources to resource portfolio companies to commercial fruition.
Connectivity with these players at every level is critical for our ecosystem. They help us define ‘best-in-class’, they are collaborators and resources to advance our best companies – bringing global healthcare-specific commercialisation expertise to ensure smooth passage of our startups’ development, launch, then growth and exit – they are investors and, ultimately, they are our ecosystem’s customers.
We could have a discussion about how to demonstrate a collaboration ethos.
Perhaps we could more often share our connections, our experiences and applaud each other’s successes, as any success in Australia helps us all to transform the ecosystem and our commercial reputation.
We might ask ourselves how do we seek out and embrace our own expats living overseas who actively participate in the global healthcare and investment communities, many of whom are employed inside these key players?
Truth #3: Global healthcare is a highly regulated market.
Every aspect of developing and commercialising medical therapies and devices is littered with laws, regulations and standards (that can vary by major market) relating to the pre-clinical, clinical trial, for regulatory approval, manufacturing and quality, marketing and promotions functions in a healthcare startup.
Consequence of Truth #3: Significant expertise across many functions, supported by significant risk capital for often over a decade, is required to advance a technology from concept to patient, then to approval and successful launch.
Because of healthcare innovation’s long approval timelines and cost hurdles, effective healthcare startups focus on achieving key milestones efficiently, namely by ensuring, for example –
- Developing well-differentiated and commercially meaningful IP.
- Pursuing clinical development strategies that are validated, that prove patient segmentation or features and benefits differentiation, and support market positioning and lead to adequate product reimbursement.
- Seeking to get proof of concept (POC) in patients ASAP – a key litmus test for safety and efficacy.
- Designing regulatory approval paths that are efficient, in tune with regulatory thinking and ideally provide competitive advantage. Seeking regulatory approval in major markets, especially by the FDA in the US, as it opens up access to that highly valuable market and a number of other markets that follow and adopt FDA approval as their market access standard.
- Ensuring that CMC (third-party contract manufacturing organisation) issues are well-understood and supply chain and manufacturing risk is mitigated.
- Partnering with global market thought leaders.
- Building deeply experienced management and investor syndicates, and actively pursuing non-dilutive capital.
The key to consistent success is to bring to as many of our healthcare startups as possible, experienced healthcare investors (local and international) in syndicates customised to each company’s sub-segment and needs.
Their active global networks, operational experiences and deep pockets to participate in multiple investment rounds, are critical. Their ability to collaborate and pivot to support passionate driven founders and management teams to overcome the countless challenges each company faces, are critical.
Syndication is generally the litmus test for a potential best-in-class healthcare startup.
In the last 12 years, Lumira has invested about $700 million of its own funds, but via collaboration with syndicate partners has raised a further $7 billion of equity for the portfolio companies, and more than $1 billion of non-dilutive capital.
While that’s primarily in North America, less than 20 per cent of those funds have been invested in Boston and the Bay Area – the vast majority has been syndicated to companies in underserved regions of North America. More than 40 exits, worth more than $25 billion, have been achieved by the firm.
The process works – even in underserved geographies.
Summary
Healthcare ecosystem transformation has occurred in Canada, Israel and the Nordic countries. It is possible in Australia, if we can align better to elite international healthcare players.
Otherwise, our ecosystem will remain untethered to those major players and markets and will generate best-in-region only companies.
Australia’s researchers bestow us with so much potential and opportunity.
We should employ our national capital and policies to provide alignment and incentives, to attract meaningful engagement of the best global investors into Australia’s healthcare ecosystem.
They will help us better understand what constitutes ‘best-in-class’, help nurture best-in-class by recruiting from their networks the talent to complement our own driven teams to execute.
They and their peers will bring much-needed capital. Australia should aim to syndicate at least 4:1 on our local funds. One Lumira Fund generally makes 15 investments and includes more than 50 distinct international healthcare-specific institutional investors.
Imagine if that cohort were invested into portfolio companies in Australia’s ecosystem.
Our national policy goals will be achieved by creating successful companies, delivering real and sustainable returns for investors via products that are truly transformative for patients.
Those successes build momentum and transform ecosystems, fuelled by increased private sector investment and changed international recognition of Australia’s place in healthcare innovation.
We should acknowledge that the ‘Valley of Death’ is a consequence, not a cause of our healthcare ecosystem’s challenges and opportunities – and it is reflective of global market dynamics such as the 2020s major healthcare markets’ pricing reset and evacuation of generalist investors.
And for all of us who participate in the Australian healthcare ecosystem, we should truly collaborate and support each other at every level. Among research groups, among VCs and investors, among governments. Sharing experience, networks, strategic feedback. Knowing that any win for one is a win for all.
Because Truth #4 is that no major healthcare player is currently waking up each day wondering what is happening in individual Australian institutes or in our regional ecosystems.
Wouldn’t it be great if they did?
Ben Constable is Managing Director Australia at Lumira Ventures. Ben is a healthcare entrepreneur and investor with experiences founding, working in, on the Boards of and investing in startups in the US and Australia. His deep interests are in improving patients’ lives, and working in teams comprising diverse and smart people to bring novel ideas and technologies to fruition. Ben has been involved not only with companies in the life sciences sector, but also with companies in the technology, consumer and cleantech sectors.
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