5 January 2004
By international standards, South Africa’s budding biotechnology industry is small. But a national audit has found that the industry has “enormous potential” for growth and investment.
The audit, funded by the department of science and technology and the Egoli BIO Life Sciences Incubator, indicates that South Africa has a “pipeline of potential new products and processes in the research and development stage”.
It identifies 106 companies participating in biotechnology activities, 47 of which are classified as “core” biotechnology companies solely involved in biotech enterprises.
“The fact that there are already 47 biotech companies that have established themselves with very little support gives SA the basis on which to build a much bigger industry”, Bioventures chief executive Heather Sherwin told Business Day newspaper. Bioventures is South Africa’s only biotechnology venture capital fund.
The audit found that total spending on biotechnology research and development exceeded R290-million during 2002, while revenues for 48% of products and services in the local biotechnology industry came to R368-million during the same period.
A global audit by Ernst & Young found that there were about 600 publicly traded biotechnology companies worldwide at the end of 2002, with a research and development expenditure of US$22-billion. The firms reported revenues of $41.3-billion.
Sherwin says it is likely to be some time before local biotech firms start listing on the AltX exchange – SA’s new parallel market for small- and medium-sized companies – let alone on the JSE Securities Exchange main board. According to Sherwin, biotech companies need to have an operating profit greater than R8-million before they can list on AltX. She says only 20% of SA biotech firms have revenue in excess of R10-million.
One successful biotech venture is Cape Town-based Synexa Life Sciences. The company specialises in the production of complex “molecular tools that help elucidate the cellular mechanisms that cause disease, enabling the development of new therapeutics.”
Synexa chief executive Justin Devine says the creation of a successful biotech company is driven by passion, planned convergence of a world-class team, and products/services that hold a sustainable competitive advantage. “In the right combination, these factors will attract funding at the right time”, he says.
Paul Abrahams, chief executive of eGoli BIO, says early stage financing opportunities for local biotech companies are available but are extremely limited because biotechnology is “one of the most difficult industries to understand and therefore perhaps the riskiest”.
South Africa also does not currently have a network of “angel investors” – like in the United States – who have deep pockets and are prepared for high-risk and potentially high returns.
The challenge, according to the audit, is to take advantage of the opportunities for the development of niche markets in which South African stakeholders can compete on a global scale.
This can be facilitated by creating an “enabling environment” that allows stakeholders to maximise the benefit derived from the potential of biotechnology, while minimising the possible risks to the environment and human health.
Abrahams advises biotech start-ups to:
- Understand the perceptions of seed capitalists.
- Be prepared for scepticism – SA investors are conservative.
- Explain the biotechnology venture fully to potential investors.
- Have outstanding management capabilities within the company – not only as scientists.
- Secure a large and growing market.
- Have products/services that can be bought to market to generate some income.
- Have technological backup to give the project a sustainable competitive advantage.
- Protect intellectual property.
South Africa’s bid to commercialise biotechnology recently received a shot in the arm when the government allocated R250-million over two years towards the Biotechnology Partnership for Africa’s Development (Biopad).
In addition, the department of science and technology allocated R400-million for the establishment of three regional Biopad biotechnology innovation centres, in accordance with its national biotechnology strategy. The first centre was launched in Johannesburg in March this year. The others will be in the Western Cape and KwaZulu-Natal.
Biopad was initiated earlier this year as a collective response, by a community of biotechnologists and other professionals, to the challenges posed by the varied needs of the region and the continent.
According to the Biopad website, the aim of the initiative is to put South Africa among the world leaders in the application of biotechnology, in so doing “stimulating economic development, contributing to job creation, and building world-class skills and technology platforms to sustain and continue development”.
Through a close relationship created between the eGoli BIO incubator, small, medium and micro enterprises (SMMEs) are nurtured and prepared for commercialisation. External professionals with expertise in finances, marketing, management and business are used to assist the SMMEs.
The centres will serve as nuclei for the development of biotechnology platforms, from which a range of businesses offering new products and services can be developed. The centres will promote research and development, entrepreneurial services, technology, intellectual property management and business incubation.