From the first broadly shared sequence of SARS‑CoV‑2 to being at the leading edge of developing novel treatments, Australia’s medical research and biotech sector has punched above its weight in handling the disruption wrought by this pandemic. And disruptions haven’t come much bigger than COVID-19!
Tragically, the loss of life and livelihoods we have witnessed globally remind us that the only palatable way to come through this pandemic is to trust and invest in science and innovation, along with the infrastructure that supports the sector. Taking a “glass half full” view, disruption at this scale also offers a once in a generation opportunity to step out of the status quo and rethink our approach.
Both of these perspectives are evident in the MRFF’s decision to announce a national grant scheme to support translation of early-stage biomedical research that underpins the means to detect, treat and prevent diseases generally (i.e. not just COVID). But why do we need a nationally coordinated approach to biomedical innovation and how do we accelerate outcomes? CUREator is the newly established National Biomedical Incubator, supported by $40M in MRFF funding to answer these questions and more.
What do biotech startups need?
At the start of our webinar in November to launch CUREator, we asked over 400 attendees (including some of the nation’s finest biomedical researchers) to vote for the biggest perceived barrier to the commercial progress of their research. An overwhelming majority (65%) of responses identified access to capital, or lack thereof as the largest barrier of four listed.
Why would that be the case? Haven’t we solved for this already? Well, yes and no.
In the tech startup space, barriers to entry for founders building scalable companies have been diminishing over time. Tech founders enjoy flexible and scalable access to essential resources within a thriving ecosystem and can network and learn from a critical mass of successful companies and entrepreneurs. Collectively, these all make it a great time to start a tech company in Australia, and hopefully this trend continues.
Meanwhile in biotech…
However, in the biomedical space, it’s been more challenging. In many ways, the barriers and costs to start a successful biotech business and make initial progress have become more formidable. Simultaneously, access to early-stage funding that supports pre-clinical (and clinical stage) development and can turn research results into promising medical interventions is relatively limited, both in terms of availability and how early it can be invested. To illustrate this point, it is worth remembering that Australia’s largest biotech seed investment fund – the MRCF – is a collaboration with the major biomedical IP generators in the country, and more than 80% of its investments are so early-stage that they involve the MRCF assisting with company formation. This early engagement is also important in preparing such opportunities to engage successfully with other investors, and many MRCF-supported opportunities progress to co-investment by other leading investors in the space, such as OneVentures, UniSeed and, more recently, IP Group.
This stage of investment is incredibly early by biotech standards, and yet, less than 4% of initial projects reviewed manage to secure MRCF funding. These unfunded projects are of high quality, but are often simply 1-2 years away from achieving key milestones that will make them investable. Unfortunately, most investors lack the mandate to support that period of incubation due to the added risk (and time) for a return on their investment.
Moreover, finding strategic and commercial expertise and networks to guide projects in that 1-2 year period can be challenging. As a research project, there is little to offer prospective advisors, other than a promise of equity in a pre-incorporated project, and this often leads to the generators of biomedical IP struggling to raise capital, and/or tapping into public markets long before companies can realistically achieve a commercial inflection that would make this an effective strategy.
Has COVID changed anything?
This contrast between Tech and Biotech in Australia is perhaps even more jarring because it comes at a time of record focus and investment in healthcare and economic responses to the pandemic, both domestically and globally. So perhaps, in the midst of our response to COVID, it pays to reflect on what CUREator should do to succeed as the National Biotech Incubator?
What does CUREator need to do as a National Biotech Incubator?
The experiences of the MRCF team and CUREator in helping to build an ecosystem of research entrepreneurship, indicate that the first priority has to be bringing likeminded researchers together with experts that can guide them. Whether virtually or physically, building a community that shares knowledge and experience is essential to building critical mass and speed of execution. The second priority is to find and back high potential, high risk projects led by great teams to cross the “valley of death”, and get to the point of investability. This two-pronged approach should come as no surprise as these are two key traits of successful incubators more generally.
Further, and in contrast to Tech, there are unfortunately significant and perhaps unavoidable challenges at the earliest stages of bringing biomedical innovation to market (including the scale of capital and timelines required). In this regard, the $40M over 3 years in MRFF financial support is crucial, along with sufficient time to accelerate projects to investment inflection points.
But why MRCF?
So why leverage MRCF rather than start from scratch? In short, track record and a proven national model. In selecting MRCF to lead this essential national approach, the MRFF has recognised that the MRCF is able to address both challenges for incubators: collection of expertise through 13 years of working in the Australian Biotech industry, and now, by leveraging this $40M in commercial grant funding, the opportunity to work at a national level through the CUREator incubation model.
In contrast to conventional VC equity-based investments, the MRCF model for CUREator funding provides investor expertise, coupled to a (non-dilutive) commercial grant to SMEs (providing $0.5-1M for preclinical and $1.5M for clinical stage projects). This is a crucial point as this funding has different requirements to those put on MRCF’s funds. The metrics for success are linked to the number of ideas tested for viability of translation, education of a large cohort of ‘entrepreneurs’, or more correctly ‘innovators’, and ultimately measures of success that include the number of companies established and follow-on investment attracted.
A key element of success embedded in CUREator’s (non-dilutive) commercial funding approach is that it links research to investability generally, not just to MRCF. Crucially, this model means that MRCF and startup objectives are aligned around commercial relevance and traction, and also ensures researchers benefit from an investor lens being applied to the design, direction and discipline of their activities from the outset.
Unfortunately, the harsh reality of any investment process is that there will always be more good opportunities than funding available. Accordingly, initial success for CUREator needs to look like a scalable, repeatable program that supports biomedical researchers and SMEs across the country to catalyse their great projects into venture investments.
We are moving fast (the EOI process for our first funding round closed in early December 2021) and so, to begin with, this search is being done through the CUREator evaluation process, using sector-experienced reviewers. However, our hope is that this program will continue to build through and beyond the initial funding period from MRFF, such that we have the opportunity to teach inventors, researchers and commercialisation teams to select and refine their own ideas and convert them into investible propositions.
Successful biotech companies have the ability to transform lives for the better, but through CUREator’s strategic investment in the next generation of biomedical innovation, we will have the opportunity to transform the sector itself.
Successful applicants for CUREator Round One funding will be announced in mid-2022. The CUREator Round Two EOI process will open in mid-2022.