Trevor Wilkinson (bottom) and his company have benefitted from the clout provided by Andrew Kelly (middle) and Howard Moore (top).
Bacteria and gut function have traditionally been blacklisted from dinner party conversation but that may all change – at least in New Zealand – if the venture capital fund BioPacificVentures makes good on its predictions.
By Melanie Cooper – Courtesy of Unlimited.
FOR MORE than a decade the backbone of the Vital Foods sales pitch for its kiwifruit-based frozen juice boiled down to anecdotal testimonials about its effects on constipated consumers. These days the Vital Foods pitch has more clout: the company develops and sells 100% natural digestive aids that are clinically proven to keep users regular while promoting long-term intestinal health.
The money behind the makeover came from the life sciences fund BioPacificVentures. The fund and the big names attached to it are staking their reputation – and over $100 million of investors’ money – on the idea that New Zealand and Australia can be world leaders in the biotech space where food, health and agriculture overlap.
“We’re well positioned to be incredibly competitive globally in this space because we’ve got such deep experience in the agriculture and food industries,” says BioPacificVentures executive director Andrew Kelly. “We’ve got a big food footprint in the world, meaning big companies, experienced executives, a real knowledge of international markets. All those things are already here and when we add the high-tech to it, we could be better than anyone in the world.”
Championed by one of New Zealand’s best-known venture capital firms, Direct Capital, the fund raising efforts attracted a stable of 11 investors including Nestlé, PGG Wrightson, AgResearch and the New Zealand Government’s Venture Investment Fund.
Apart from Direct Capital’s track record (BioPacificVentures is the firm’s sixth fund), the fund’s pulling power lies largely in the experience of its team. Executive director Howard Moore co-founded drug development company Tercica and was founding executive for ViaLactia Biosciences, while executive director Andrew Kelly was previously general manager of investment at AgResearch and a founding executive for the Crown Research Institute’s commercialisation arm, Celentis.
Former European head of Bristol-Myers Squibb Aki von Roy, who led the $12 million fund raising process for New Zealand biotech company Proacta, is also a partner through the international venture capital manager Inventages. In what Moore describes rather mildly as “fortunate timing”, the life-sciences focused Inventages, which has more than €1 billion under its management, came to New Zealand looking for investments and, on hearing about the new fund, decided to invest through BioPacificVentures.
Three years on from the fund’s official launch in March 2005, it has invested $50 million in nine companies across Australia and New Zealand, and committed an additional $20 million to be delivered once initial plan targets are met. Kelly is predicting another two to three investments with the remaining capital but says, given the 12-year life of the fund and the level of investment to date, they’re in no rush.
According to Kelly, the nine companies that have so far been singled out for funding have been whittled down from about 300 potential investments, which, at a hit-rate of just under 3%, puts it on a par with most venture capital funds.
Where BioPacificVentures differs from some other venture capital funds is in the scope of its portfolio – both in terms of the sectors the companies fit within and in their development stages, which include a listed company and a large contract-research organisation.
The most recent investment is probably the fund’s most unique. Anzamune is a New Zealand startup developing an anti-allergy drug from chitin, a compound found in the exoskeletons of critters like insects, crab, shrimp and lobster. It is a subsidiary of UK-based CMP Therapeutics, which wanted to take its technology (from Oxford University) to a part of the world that not only had high levels of allergies, says Kelly, but experience in allergy R&D and clinical trials. The October 2007 investment brought inbound money, too, through further Inventages capital.
The other investments are home-grown and also looking pretty good.
Auckland-based Vital Foods, which received $4 million in funding from BioPacificVentures and NZX-listed Seeka Kiwifruit in early 2006, launched a new product in New Zealand at the end of last year. Phloe is a targeted nutraceutical that aids digestive function using a protease enzyme complex extracted from kiwifruit using Vital Foods’ patented process. According to Kelly, the product is showing “a very healthy first-year sales curve”, which BioPacificVentures is hoping to see repeated when the product launches in the US later this year. The company is also building on existing relationships in Japan to sell its active ingredient for use in locally manufactured products.
Vital Foods CEO Trevor Wilkinson, who was appointed as part of BioPacificVentures’ investment strategy, says the venture capital has enabled the company to afford the clinical trials and gather proper scientific evidence to support its products.
“In our market [nutraceuticals], the key differentiation from other products depends on the strength of the scientific evidence. We’ve got that now and we’ve also got the additional motivation to stay focused on the core business and not to drift off in other directions.”
Like Vital Foods (founded in 1991), Palmerston North-based New Zealand Pharmaceuticals (NZP) is no startup. NZP was established in 1971 to extract and purify biochemicals from the meat industry’s byproducts. A relatively mature company for a VC, it was BioPacificVentures’ first investment (in November 2005) and was driven by the company’s more recent focus on glycotherapeutics, the building blocks being used in new drugs to improve their efficacy by allowing them to interact more efficiently with cells within the body.
In February 2007 the company opened a new $10 million production facility, allowing it to manufacture a variety of glycotherapeutic ingredients and other synthetic products. NZP has also entered a partnership with the glycotherapeutics research team at Industrial Research Limited.
“They are going very well in terms of meeting all our hopes or objectives,” says Kelly. “NZP is one of our favourite investments, possibly because as our first investment it’s also the investment that has had the most time.”
Another Kiwi company to attract backing from BioPacificVentures is Wool Equities and its 100%-owned subsidiary Keratec. As a listed company, Wool Equities made an unusual choice for a venture capital investment but the late-2006 move was driven by the company’s success in extracting keratin – a structural protein that is the main building block in skin and hair – and the potential applications. The company was the first to figure out how to extract the natural protein without destroying its structure, enabling sheeps’ wool-derived keratin to be used as a natural restorative additive in skin and hair products.
More exciting than the health and beauty product applications, though, are possible biomedical applications. Because keratin is the same in animal species, it is unlikely to cause an immune reaction when introduced into the body, and Wool Equities has been working on structural keratin bone pins that could replace those made of titanium. The compressed keratin bone pins could be left in the body permanently under the hypothesis they would ultimately integrate into the bone. Bony deficits caused by major trauma or congenital defects could also potentially be remedied with compressed keratin. Kelly says while the biomedical applications are a lot further out, US multinationals are already interested in the product concepts.
A recent investment, made in July 2007, has also caught the attention of multinationals, this time within the food industry. EnCoate, a spinoff from AgResearch, was initially trying to solve the dilemma of how to keep biopesticides alive. It has since adapted the science and used it to create proprietary, food-grade biopolymer technologies to extend the shelf life of food.
A primary application, and the one that has the multinationals salivating, is around probiotics. Often dubbed ‘good bacteria’, probiotics help with gut health and are used in food products like yoghurt. Until now the sensitivity of the bacteria has largely restricted probiotics to refrigerated products but with EnCoate’s technology food manufacturers could introduce them into products like cereals and snack bars.
CEO Simon Yarrow says the investment from BioPacificVentures is vital in terms of allowing EnCoate to keep ahead of competitors.
“BioPacificVentures’ investment has allowed EnCoate to make the business decisions it needs to be successful rather than being limited by lack of funds,” says Yarrow. “It has advanced our product development process by at least five years, which is absolutely critical given that other companies are trying to develop competing products.”
Also in 2007, BioPacificVentures invested in Rissington Breedline, a high-tech sheep and cattle genetics company. Rissington built up a client base of New Zealand farms that were farming the company’s own high quality breeds and then negotiated a deal with UK-based Marks and Spencer to supply premium, branded lamb meat. To ensure year-round supply Rissington is now selling its Highlander-Primera breeds to be reared on UK farms.
In late 2006, Melbourne-based Horizon Science became the fund’s first Australian investment and may reap some of its most significant returns. By studying the chemical makeup of sugar, the company’s two founders were able to identify naturally occurring substances within sugar that had the effect of lowering the absorption of carbohydrate (or creating a lower-GI sugar) and, at higher doses, increasing the ratio of lean muscle mass to fat tissue.
Even with the natural bioactives added back into the sugar, the sugar’s taste, texture and cooking qualities are unchanged. In other words, the food industry is able to swap the sugar out of existing food products for healthier, value-added alternatives.
Horizon is currently in the pilot phase and still at the tonne scale of production – small business in the sugar industry – but has begun supplying the sugar to research kitchens. Feedback from food manufacturers has been very positive. Projections of similar production costs to traditional sugar are the icing on the cake, so to speak.
The other Australian investment – in Sydney-based Novotech in June 2007 – was a strategic move for BioPacificVentures. Having Novotech, the largest contract research organisation in Australasia, in the portfolio is like “having a plumber in the family” according to Kelly.
Although Kelly says first and foremost it was a good financial investment. With a portfolio of companies all involved in clinical trials one way or another, they thought it was also pretty useful to have an expert in clinical trials on board.
Finishing up the list of nine, BioPacificVentures also invested in Brisbane-based Cleveland Biosensors , but is no longer a shareholder in the company.
A second fund is being mooted but it is likely to hinge on financial markets. For perception reasons, Kelly says they’d ideally like to have independently validated uplifts in value before entering another round of fund raising.
The pair is cautious in giving the fund’s report card. “So far we have met our expectations,” says Moore. “As to what’s ahead, New Zealand and industry globally are going to face some trying times, so we’ll have to see what that brings.”
“Although it is still early days, we’re very happy with our portfolio,” says Kelly. “Of course the real proof, the acid-test or whatever the cliché is, will only come when we see our companies grow – or not.”