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It's no small task getting the money together to start up a business in Australia's pharmaceutical sector. In fact, you're looking at between $50-100 million just to get going, according to industry insider Michael Panaccio – "that's a huge amount of money for Australia."
And he should know, as the investment principal of Starfish Ventures it's Michael Panaccio's business to help come up with the cash. And he's not doing too badly at it.
The Melbourne-based venture capital company he helped to found has raised $150 million of a $250 million life sciences technology fund, adding to a growing recognition of Victoria’s strength in the development of innovation and technology in the industry.
Victorian Minister for Industry and Trade, Theo Theophanous, said the company “has paved the way for Victoria to be a leader in generating opportunities for industry through venture capital.”
Announcing the news at the 2008 Melbourne International Venture Capital Conference in Melbourne on Wednesday, Theophanous said the state had a strong commitment to venture capital.
“Victorian companies led the major states in securing pre-seed and seed investment last year and accounted for $360 million of the overall national venture capital invested,” he said.
Starfish currently manages $200 million in investments across information technology, life sciences and materials. Dr Panaccio says Victoria is leading the way by reforming the State Partnership Act and developing an entrepreneurial culture in the state.
“Programs like VicStart have contributed to increasing the global reach of Victorian VC firms,” he says.
Yet despite the state’s support for venture capital and a competitive “ecosystem” for the industry, built on research-friendly regulations and world-class universities, money is a big issue for the commercialisation of technologies, especially pharmaceutical technologies, Dr Panaccio told Business Spectator in an interview.
"If you have a look at pharmaceuticals, between $50-100 million is needed to trial, to start a company. That's a huge amount of money for Australia," says Dr Panaccio.
Syndication of funds with other investors, within Australia and overseas, is usually a solution for Australian venture capitalists, but the relatively small size of the funding market is a limit to deals.
Brigitte Smith, managing director of Melbourne-based fund GBS Venture Partners, told Business Spectator that "more money and bigger funds," are what the industry needs.
But Smith says public markets in Australia have provided funds for larger deals and companies that have grown through venture capital investment. While global equity market conditions may have some effect on the this path to venture capital exit, Melbourne and Australia still enjoy world-class competitive strengths and the local industry is well positioned against other centres in the Asia Pacific for venture capital-backed opportunities.
Although there has been a big focus by US venture capital firms on China, and to a lesser extent India, Dr Panaccio says Starfish has found the quality of deals in Asia to be “fairly poor compared to Australian deals.”
Brigitte Smith agrees. “We’ve got a bit more scale, people have been doing it for a bit longer because of the government programs that were set up more than a decade ago now.”
“Our funds are 10 year funds so... it takes 10 years for the industry to work out what’s going on,” she says.
“The number and quality of PhD-level researchers is also a factor. When you look at medicine, we’re [Melbourne] in the top three in the world,” says Dr Panaccio.
He says the quality of research in medicine and life sciences explained why Australia’s venture capital sector was sustainable and competitive. While the ability and willingness for local doctors to conduct medical trials is also a key factor, says Smith.
For the quality of deals and the environment of commercialisation, Australia is the “bright star of Asia,” says Dr Panaccio.
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