Is the commercialisation of nanotechnology different? A case study approach.

SUMMARY

Nanotechnology is the latest in a series of general purpose technologies (GPT), earlier examples of which, have transformed household life, industry structure and firm performance. This paper traces the development to date of one of the first uses of nanotechnology to synthesise a new drug. Using an innovation systems framework, the paper compares the commercialisation process of this drug with that typically employed by a biotechnology company, to explore differences arising from the novel nature of the underlying technology.

The study finds that the commercialisation process, followed by the company developing the drug, conforms substantially to the empirical literature on biotechnology commercialisation. However it departs in two important ways. One is the absence of venture capital involvement and the second is the failure to date to form an alliance with a major pharmaceutical company. The evidence suggests that while both reflect factors that relate to conditions in the Australian market, the novel nature of the technology may be an issue in the latter.

KEYWORDS

nanotechnology; biotechnology; innovation systems; intellectual property

INTRODUCTION

Nanotechnology is the latest in a series of general purpose technologies (GPT) (Helpman 1998), earlier examples of which, have transformed household life, industry structure and firm performance (Jovanovic & Rousseau 2003). They are characterised by their economic pervasiveness and technological dynamism (Bresnahan & Trajtenberg 1995). Earlier examples include electricity, information technology and biotechnology. The application of nanotechnology is expected to be similarly transformative (The Royal Society 2004; European Commission 2004; Roco & Bainbridge 2005). It has been suggested that the convergence of nanotechnology with other general purpose technologies such as biotechnology will be particularly synergistic (NSF 2002).

This paper traces the development to date of one of the first uses of nanotechnology to synthesise a new drug, a microbicide for the treatment of HIV and genital herpes. The development has attracted substantial financial support from the US National Institute of Health (NIH) and the approval process has been 'fast tracked' by the US Food and Drug Administration (FDA). The drug is under development by the Australian biotechnology company, Starpharma. (1)

The paper adopts an innovation systems approach as the theoretical and conceptual lens through which this case study is viewed. This provides a comprehensive framework in which to consider the key aspects of the innovation process in which the development of Starpharma takes place. As a basis of comparison, the paper refers to an extensive literature of empirical work on the main features of biotechnology innovation and commercialisation. This provides what might be called a 'standard model' of biotechnology innovation with which the commercialisation of Starpharma's technology and products might be compared.

While it is acknowledged that it is not possible to generalise from a single company case study, this paper seeks to shed light on differences that have emerged between the 'standard model' and the Starpharma experience. Two issues are of particular importance. One is what differences have arisen in the commercialisation process of a nanotechnology drug compared with other biotechnology drugs. A secondary issue is how an Australian company, remote from the centre of R&D in nanotechnology and biotechnology, has been able to achieve a position of dominance in the intellectual property (IP) for the pharmaceutical application of one of five fundamental nanomaterial platforms? (2) Prior to seeking answers to these questions it is important to understand Starpharma's history, especially its choice of particular strategies in its path towards commercialisation.

STARPHARMA DEVELOPMENT HISTORY

Relationship with BRI

Starpharma grew out of the Biomedical Research Institute (BRI), a joint venture established at the initiative of the Strategic Research Foundation (SRF), (3) with CSIRO, Australia's largest public research organisation. The SRF was formed by the Australian state government of Victoria to establish large-scale collaborative research initiatives in economically strategic areas of technology (SRF 1991).

BRI was established as a company limited by guarantee in 1990. Dr Peter Colman from CSIRO was appointed to the executive role of Director in 1991. Importantly SRF contributed both money and technology management skills. Dr John Raff previously SRF Biotechnology Project Manager became BRI's General Manager. Money from SRF was used by BRI to purchase a super computer and an extensive suite of molecular analysis equipment. CSIRO made in-kind contributions of staff and accommodation (CSIRO 1994).

From its commencement, BRI was established on a significant scale in Australian terms. By 1992 its labs housed a complement of 55 CSIRO staff scientists (SIRF 1992). This contribution was of particular significance because it gave BRI access to a long intellectual tradition as well as access to essential equipment and laboratory space. CSIRO in-kind payments for these staff amounted to about $3.3m per annum. Initially at least, this was matched in cash by SIRF (SIRF 1992) but over the course of the decade this fell away. By 2000 CSIRO's beneficial interest in BRI had increased to 60% (CSIRO 2000).

BRI's research program focused on the design of pharmaceuticals to counteract viruses particularly influenza and AIDS (SIRF 1991). In 1992 the BRI Synthetic Chemistry Group embarked on a research program to develop pharmaceuticals utilising the principle of polyvalency. Key staff members were organic chemists with a greater interest in pharmaceuticals than polymer chemists. (4) This led to research into large polyvalent single entity molecules called dendrimers. These have the advantage of multi-simultaneous contacts with disease targets over a larger area than most pharmaceuticals (Starpharma 2000a).

BRI filed for and obtained a number of dendrimer patents. A filing was first made in Australia in 1993 and subsequently in the US in 1996 with the patent being granted in 2001. There were further filings in the US over the period from 1997 to 2001 with three patents being granted between 2001 and 2004. These patents secured BRI's IP in dendrimers.

Starpharma was spun off from BRI in 1997. It was initially established as a Pooled Development Fund (PDF), a vehicle designed by the Federal Government to attract venture capital investment through a range of tax concessions on dividends and capital gains. The PDF acted as a holding company for three wholly owned subsidiaries including Starpharma Ltd, which held the IP portfolio for the dendrimers. The PDF structure proved to be more trouble than it was worth and in 2005 the operations of the PDF were converted to a conventional holding company (Starpharma 2004).

Following its establishment, Starpharma entered into a Technology Agreement with BRI under which it licensed the commercialisation rights to the dendrimer technology on an exclusive basis. It agreed to pay a royalty of 25% of the future net earnings received by Starpharma through its exploitation of the technology (Starpharma 2000a). It also entered into research contracts with a number of Australian and overseas research organisations to further develop the technology. Starpharma's stated intention was to 'fund and develop these projects to the point of proving efficacy in humans (phase II clinical trials) prior to licensing to a pharmaceutical company' (Starpharma 2000a: 16).

The relationship with BRI during this period was particularly close. BRI was retained under contract from 1997 to provide a range of R&D services at a cost of $1 million per annum (Starpharma 1999). Dr Peter Colman was both a director of Starpharma and Managing Director of BRI. Dr John Raff in September 1996 left BRI to become CEO of Starpharma (Starpharma 2000a) and was appointed to the Board in April 2000 (Starpharma 2000b). Other key BRI/CSIRO staff members to join Starpharma during this foundation period included the co-inventors of the BRI technology Dr Barry Matthews and Dr George Holan, who became Research Director and Senior Scientific Consultant respectively at Starpharma (Starpharma 2000a).

Fund raising

Much of Starpharma's funding in the period to 2000 was from government grants. Under the Federal Government's START program it received two grants totalling $5.65m (Starpharma 1999) and it was also successful in obtaining a small grant from the US National Institute of Health (NIH).

From 1997 however a series of capital raisings provided an increasing share of Starpharma's funds for its development program. As shown in Table 1, Starpharma has raised a total of $47.1m in equity capital raisings and received government grants of $7.1 to fund R&D expenditure of $31.3m.

An initial private placement of $5m was undertaken in 1997 to establish the company. At the same time founders' shares representing 60% of the company's equity were issued to directors and management. Despite dilution to about 2025%, this has allowed a group of initial stakeholders to retain practical control over the affairs of the enterprise helping achieve a consistent business strategy. The largest single shareholder is Acorn Capital Ltd, a passive microcap manager with about 8% (Jackson 2005).