A model pharma

By Vincent Heeringa

Thursday 1st August 2002

A New Zealand biotechnologist hits a $US21 million venture capital jackpot, but in the process loses his Kiwi soul

Companies set up by New Zealanders but headquartered in the US and financed by American capital - could this be a sign of things to come in New Zealand biotech? Take endocrinologist Ross Clark. When Clark returned to New Zealand from the US in 1997 he left a bunch of breakthrough work into human growth hormone IGF-1 with his former employer, biotech firm Genentech. The company had been winding down work in Clark's former area and his research languished. Now, thanks to some delicate negotiation and pressure from friends from Genentech, Clark's new company Tercica Medica has secured exclusive rights to his old work - and last month raised $US21.5 million in US venture capital. Clark's hope is to take the work all the way through the US drug approval process to commercial release.

But Clark's company is only nominally a New Zealand concern. Auckland-based Clark is chief scientist and chairman, and another Kiwi, Howard Moore - a founding executive of Fonterra's biotech firm ViaLactia - is now a vice-president in San Francisco. They and a few New Zealand angel investors have small shareholdings. But Tercica Medica is San Francisco-based, with a mostly US-born executive team and board. Its ownership is almost exclusively in US hands and its product is destined for the US market only.

Could this be as good as it gets? For pharmaceuticals, maybe. The high cost and the competition for drug company support means drug development is perhaps too pricey for New Zealand firms, say experts like John Kernohan, head of UniServices, Auckland University's commercial arm.

Still, at least leading-edge biotechnology research is happening in New Zealand. Other Kiwi firms such as Genesis and Virionix are succeeding on the US drug scene, and the size and nature of Clark's VC deal has got his peers excited, he says. "I've had quite a few calls from people around the world asking how we did it."

A good team helps: Tercica Medica is made up of Clark, Moore and three other world-class IGF-1 scientists. While Clark and Moore secured some seed funding from local angel investors, Clark assembled a star cast and successfully pitched to Genentech and venture capitalists, including MPM Capital and Prospect Venture Partners, two of the most respected US biotech investors.

IGF-1 is a fascinating hormone, abused by body builders and athletes who use it for bulking muscle and seen by many as a potential treatment for diabetes. Tercica Medica, however, hopes to commercialise an IGF-1 drug to treat dwarfism. Genentech has already done most of the pre-clinical work and has a manufacturing process established, including late-stage human trials under the Food and Drug Administration, meaning approval is not far off.

The $US21 million funding might seem a lot of money, but it's actually just "series A", or round one, in a typically multistage funding round that ultimately could cost investors up to tens of millions of dollars more should the drug finally get to market. Clark is hopeful. "There are some clear benchmarks we have to meet, but once these guys invest this much, they must really like you."

Kernohan says Clark's success could be a good model for New Zealand drug developers to follow. "New Zealand may come up with ideas for new drugs, but we can't fund them nor develop them here. I think we have to accept that companies like this just have to go offshore."

Vincent Heeringa
vincent@unlimited.net.nz

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