Big ideas buried in innovation graveyard

OPINION: Just north of the rolling waves at Malibu Beach in California lies the regional town of Thousand Oaks. In 1980, a few scientists had an idea to start a biotechnology company there, calling it Amgen.

"It was sort of a non-event," recalls Bill Watkins, academic and long-time resident of Thousand Oaks.

"Nobody paid much attention."

Today that idea has grown to be the world's largest biotech company, hiring nearly 7000 high-paid workers amid a sprawling 45 building campus fitted out with soccer fields, libraries, health clubs, dry cleaners and shoe repair services.

"Amgen's impact on Thousand Oaks has been huge," says Watkins. Some now call the town Amgenville.

Like BHP to Wollongong or Ford to Geelong, Amgen has built Thousand Oaks. But the rapid prosperity Amgen has brought to this region of California didn't come from cashing in on established ideas like steel or car manufacturing, it came from a revolutionary scientific idea.

It's a difficult concept to grasp; that a new scientific idea could grow a company to be the size of the National Australia Bank or Qantas in a couple of decades. What's even harder to comprehend is that the idea that built Amgen came from a laboratory in Melbourne.

In 1965, a humble, but brilliant, scientist named Donald Metcalf made a discovery in his laboratory at the Walter and Eliza Hall Institute of Medical Research in Melbourne that revolutionised the treatment for cancer.

Instead of that discovery building Amgenville somewhere in Australia, it was lost to California. The importance of innovation is that it not only helps solve some of the world's biggest challenges, but that it's also a prosperity engine for those who pursue it.

But no matter how brilliant a new idea or discovery is, it can never flourish unless someone takes a bet on it.

The reason why Thousand Oaks isn't in suburban Australia is not because we lack the brilliant ideas of Australian researchers such as Metcalf, but the stubborn persistence of how Australia has become the place where great ideas are born, but can never survive.

IN the early 1960s, Metcalf and colleague Ray Bradley had been trying to grow leukemia cells in mice. For years nothing seemed to work, then one day in June 1965 they noticed something odd in their samples.

They peered into the microscope to take a closer look at one of their experiments and, sure enough, there were no leukemia 2 cells.

What they saw instead was an explosion of milky-white bone marrow cells. White blood cells (or leukocytes) produced in the bone marrow are prominent in the body's defences against infectious diseases. Clustered around mouse tissue fragments in their sample, they concluded something special had caused such a spectacular growth of bone marrow cells. They called the mystery compound a "colony stimulating factor".

It was the first time a group had artificially stimulated any type of cell growth in blood.

This discovery would lay the foundation of a new field of science called molecular haematology which would produce EPO (Erythropoietin), the protein that boosts red-blood cells for kidney disease, which was hijacked by drug cheats in sport to gain an unfair advantage.

The discovery would revolutionise the treatment of patients with low immunity.

The problem was that only one molecule in a million was a CSF, so producing enough for testing would prove to be a long, painstaking task. They first tried purifying CSFs by synthesising huge barrels of human urine collected from buckets in the institute's toilets.

When that didn't work they used 250,000 mice lungs to eventually end up with purified CSF.

"It took 15 years to end up with a little tube of purified CSF," said Metcalf. "We were the only people in the world who had pure CSFs, but the amounts we had were too small to do anything apart from use it carefully in cultures."

Gus Nossal became the director of the Hall Institute in 1965, the same year as the big CSF discovery. After seeing the results, Nossal took the idea to a number of Australian biomedical companies, none of which would entertain the prospect of developing the idea further. Metcalf kept going with his research.

Working with molecular biologists in the Ludwig Institute for Cancer Research next door, they found the gene in mice that coded the natural production of CSFs. They could then insert this genetic code into simple bacteria and grow as much CSF as they wanted through large-scale, genetically engineered fermentation. When they finally tested CSF in mice, the results were wonderful. The animals' blood exploded with white blood cells.

By 1984 they had stitched together the human genetic sequence for one of the four CSF proteins. The problem was that by publishing their results along the way, they were inadvertently unleashing a global scientific race to find all of the human CSF genes. By 1985 other research groups had already beaten Metcalf's group to the three other CSF genes.

"With G-CSF, we let our patent position go," said Nossal, "and that was a bad mistake".

IN the 1970s, a junior researcher from Britain named Malcolm Moore was attracted to Metcalf's group in Melbourne after its big CSF discovery. After a few productive years, he moved to the US and decided to see what American biotech companies thought of Metcalf's idea.

"I decided to look for a biotech company that was interested in developing what I thought would have potential in human cancer therapy in particular," Moore said.

"I found a small company with about four or five employees, called Amgen and they were quite enthusiastic. One person had just started there after his post-doctoral work and he said they could produce that (G-CSF) in bacteria in no time. And they did."

At the time, Amgen was a start-up thanks to a $US19 million investment from a venture capital fund. With the help of Malcolm Moore, Amgen's scientists inserted the human genetic sequence into simple bacteria, thereby mass-producing G-CSF for human use.

After investing in the large sums required for human clinical trials, Amgen got US Food and Drug Administration approval in 1991 for its CSF drug called Neupogen. Sales exceeded $US260m in its first year, growing to annual sales of nearly $US1 billion by 1994.

With a lucrative 20-year patent on G-CSF, Neupogen helped make Amgen the world's biggest biotech company.

"(There are) now 16,000 people in a small (Californian) town all based on the money they earn from CSF and Erythropoietin (EPO); two similar drugs," says Metcalf.

And the market for these blood growth factors continues to grow. In 2002, Amgen got approval for Neulasta, another CSF.

In 2011 alone, sales reached $US3bn and with another decade on the patent will probably earn Amgen about $50bn over its entire lifespan.

Australia's research investment into the CSF discovery was also immense.

"By the end of the whole set of experiments there were 300 plus people who had done various studies in our labs," said Metcalf.

But Amgen does not pay a cent to Metcalf's research team or the Walter and Eliza Hall Institute, not even a research scholarship fund. Thirty years and tens of millions of dollars invested in salaries, laboratories and equipment didn't matter; what mattered was the process after the discovery had been made.

"That could have been an Australian triumph, and it wasn't," says Nossal.

Governments, and industry love to cite Cochlear or ResMed as evidence Australia has built an innovative, dynamic technology economy beyond resources.

The reality is sobering. Losing Metcalf's idea offshore seems to be the norm, not an exception. Each year the Global Innovation Index, published by the UN World Intellectual Property Organisation and European business school INSEAD, gives detailed innovation metrics among all nations. It consistently shows Australian researchers are world-class, publishing more quality scientific articles than any of the researchers in larger advanced nations in the world.

"With (Australia having) 0.3 per cent of the world's population and 3 per cent of the world's research output, we do a lot right," said Ian Chubb, Australia's chief scientist. Yet the Global Innovation Index shows time and again the persistent and worrying fact that Australia is a nation that squanders new ideas and knowledge produced from that world-class research. Australia ranks 107th out of 141 nations in innovation efficiency, which is a measure of the innovation outputs, such as patents, licences and new technology businesses that should be coming from the research.

A 2011 study by Deloitte Access Economics found that since 1970, government investment in the National Health and Medical Research Council returned Australia negative 28 per cent in commercial returns. Of the $8.5bn spent on medical research, the economic value of commercial drugs, products and output from that investment was just $6bn. In the US, the economic return on investment from government funding of medical research is 40-70 per cent.

While the negative ROI in medical research doesn't include the much larger health benefits, it still points to an obvious problem in how Australia translates its scientific ideas.

THE question is why? Ideas start with a researcher, so maybe there's something about Australia's academic culture? Publishing research is a core performance metric and, ironically, this can often delay or kill an idea, no matter how groundbreaking.

Kevin Cullen is the director of NewSouth Innovations, the commercialisation unit at the University of NSW. "If you come up with a cure for cancer, the worst thing you can do is publish it, because then no one will ever be cured because the proprietary position that a pharmaceutical company needs to invest the $1bn in taking it to market is gone," Cullen says. He describes the incentives in the publish-or-perish academic culture as "all wrong". "Academics' performances are graded on publications, not on the ability to patent or build a start-up company."

Free and open knowledge without the profit motive sounds like the quickest way to help the world, but this often slows down the ability for knowledge to help.

"The whole country has been on what you might call a learning curve about commercialisation," says Nossal. "Turn the clock back to the early 1980s: the word patent did not exist in our lexicon. Profit was a dirty word. We were going to stun the world with our brilliance and make marvellous discoveries, publish them and move on from there. The realisation gradually dawned that by publishing a discovery with considerable commercial potential you actually delayed its implementation".

To change the world through innovation, having the best academics, researchers and scientists only gets you halfway. It's what we do after we find a discovery or think of a new idea that lets us down. Nobel Laureate Peter Doherty, who has many years of experience in immunology and vaccination research and commercialisation, says: "The perceptions of the academic or basic scientist regarding what can be translated into a product can often be quite wrong. You need people who have been in industry who can assess those ideas for their commercial success."

In the same way a naturally gifted athlete needs great coaches, scientists and technologists need commercial skills and support to make their brilliant ideas flourish.

"The problem we find is that when many academics create something really clever, they think they are also the right person to take it to the market," says Nigel Hennessy, chairman of a technology business accelerator with over 30 years of experience helping various start-up technology companies. "The inventors would rather sit the idea on a shelf than see it become successful from collaborating with someone else."

Funding the development of new ideas and start-up companies in Australia is tough relative to other advanced nations, according to the federal government. "The venture capital market is really thin," says Greg Combet, the previous federal minister for industry and innovation. "It's an area where you could say there is market failure. And that's why over the last decade or so the government has stepped in to bolster the venture capital market."

The idea cemetery isn't a government problem. Over the years, both sides of politics have tried to boost commercialisation and venture capital funding, from the Co-operative Research Program in 1991, to the Innovation Investment Fund in 1997 to Commercialisation Australia in 2009. For ideas to flourish and survive, the world's best policies can only do so much. Without a wider culture for backing discoveries and innovation, Australia will continue to shelve or lose our brilliant ideas. Many Australian investors see innovation as too risky since for every success like Cochlear, there are probably nine failures we never hear about. The innovation business model is like no other, since it is built around failure being the dominant modus operandi. Consider the Californian-based venture capital group Kleiner, Perkins, Caufield & Byers which has backed thousands of technology start-ups from Google to Amazon. When they started in the mid-1970s the firm raised and invested $US7.5m in 17 ideas. Fifteen of those went bankrupt or broke even. The two companies that survived, however, were massive successes. Tandem Computers and Genentech (the world's first biotechnology company) returned them $325m. For Australia, embracing that simple but difficult idea of allowing failure, is not part of our culture, yet it holds the key to innovation.

"It's about being comfortable with potentially losing the money," says Martin Bliemel, head of the Centre for Innovation and Entrepreneurship at the Australian School of Business at UNSW. "If an investor is not willing to lose the money, then don't do it." In Australia the investor class is so attuned to success in recent times, there is no need to back innovative future-changing ideas or technologies. "I've heard stories of people who made a lot of money in mining or finance and invested in start-up companies, but then required personal assurances that if the business failed, they could go after the individual and ask for their money back," says Bliemel.

"There's a big difference between a business investment and a personal loan."

When Cullen came to Australia after working in Europe and the US for more than 15 years, he experienced a culture shock. "I've been astonished at just how little funding there is to support the development of ideas," he says. "Unfortunately, there might be a lot of good ideas being generated but investors are reluctant to recognise it being a good idea until someone in US has recognised it".

Top US universities can feed off the confident culture of innovation. "They just have to wait for companies in Silicon Valley and elsewhere to phone them up," says Cullen." 'Hi, I'm looking for a technology in this space, do you have anything?' Here we spend our life looking for companies to take our technologies."

Some cultures embrace innovation because they have to. Lacking any resources, fertile land with scarce water along with a hostile, oil-rich neighbourhood forces Israel to embrace innovation. It also invests eight times the amount Australia does in innovative ventures despite having an economy the size of Sydney. But Britain, Canada and the US have all invested between three and 10 times the amount Australia has into innovative ventures over the past decade, according to the Australian Private Equity and Venture Capital Association.

Investors seem to require guaranteed returns and the venture capital pool has crawled to a virtual standstill. Just $122m was invested in new ventures last year, making it the worst year in a decade, say AVCAL. "The battle is for the hearts and minds of the people in the big boardrooms," says Nossal. "Because, in fact, they have no first-hand knowledge of true wealth generation through high technology. There's no Bill Gates in this country. There is no Sony, no IBM, and not yet a Merck manufacturing drugs.

"The people who have generated wealth in this country have done it out of much, much lower-tech endeavours, and until first-hand experience comes they're going to be sceptical. But in the longer term I am absolutely certain that science and technology; knowledge, innovation; and entrepreneurship are going to drive the country to a more prosperous future, and not just the food and the fibre and the minerals."

IN 1987, Jose Carreras was diagnosed with acute lymphoblastic leukemia. After his bone marrow was extracted and cleansed of the cancerous white blood cells, the Spanish opera star had no immune system, making the slightest infection fatal.

"I had reached a dead end in the tunnel, and was poised on the edge of an abyss," he wrote in his autobiography. At a cancer clinic in Seattle, Carreras was one of the first people to be given the new, experimental treatment of Colony Stimulating Factors, pioneered by Metcalf in Melbourne. His immune system was given a massive boost. Carreras fully recovered, went on to start a leukemia foundation and he has been healthy ever since.

Carreras calls Metcalf "a wonderful, wonderful man" and has visited him regularly. Carreras sang "Happy Birthday" at Metcalf's 70th birthday and gave him and his team a dozen front-row tickets for the MCG concert of the Three Tenors.

Metcalf has received virtually every science award available, including the Prime Minister's Prize for Science and has come close to the Nobel Prize a few times.

Although he officially retired in 1996 at the age of 65, he went straight back to his laboratory at 7am the following day for his customary 12-hour shift. Now in his 80s, he is still driven by the addiction of scientific discovery. Metcalf doesn't like the fanfare and is unfazed by the missed commercial opportunity from his CSF discovery..

Benjamin Franklin said: "An investment in knowledge always pays the best interest". For any nation, however, that's only true if the new knowledge is developed and converted to something meaningful for the world.

Without a culture that makes big, bold bets on new ideas, it's difficult to see how Australia can move from being an idea cemetery to an idea launcher.

Ben McNeil is an ARC QEII Research Fellow in the Climate Change Research Centre at UNSW. 

This opinion piece was first published in The Australian.