The Garvan Institute of Medical Research

The Garvan Institute of Medical Research became an autonomous research institute in 1984. Sponsored research accounts for one-quarter of Garvan's $14 million 1998 operating income. Going forward, it expects its income to derive approximately one-third from grants, one-third from donations, and one third from commercial activities. The bulk of current revenues from commercial activities come from Eli Lilly, Bristol-Myers, and Merck & Co.

• Address: 384 Victoria Street

• Darlinghurst - Sydney NSW 2010 Australia

• Phone: (61) (2) 9295-8118

• Fax: (61) (2) 9295-8101

• E-mail: [email protected]

• Contact: Jonathan G. Izant, PhD, Director of Business Development

• Website: http://gimr.garvan.unsw.edu.au

The Garvan Institute of Medical Research in Sydney was founded in 1963, at which time it functioned as St. Vincent's Hospital's endocrine research department. The Garvan became an autonomous research institute in 1984 and maintains formal affiliations with St. Vincent's and the University of New South Wales . Its 210 scientists, of whom 50 are MDs or PhDs, focus on understanding the genetic basis of cancer, osteoporosis, arthritis, and mental illness.

Sponsored research funding and tech transfer fees generated $3.9 million (Australian) for the Institute in 1997 and $3.4 million in 1998—solid if unspectacular figures in line with many comparable independent laboratories and smaller universities. Yet this income source accounts for a much higher percentage of total revenues than for most not-for-profits, comprising roughly one-quarter of Garvan's $14 million total 1998 operating income. With only a small endowment, going forward, the Garvan expects its income to derive approximately one-third from grants, one-third from donations, and one-third from commercial activities, according to Jonathan Izant, PhD, director of the office of business development.

The bulk of current revenues from commercialization activities consists of research support from pharmaceutical collaborators Eli Lilly & Co. , Bristol-Myers Squibb Co. , and Merck & Co.Inc. In 1994, Lilly and the Garvan established a joint venture, Aza Research Pty. Ltd. [See Deal], initiated in 1996, centers on neuropeptide research and feeding disorders.

Merck began its research and development partnership, on the genomics and biology of bipolar disorder, in 1998 through PsyGene Pty. Ltd. [See Deal]. Astra AB, Novo Nordisk AS , SmithKline Beecham , Boehringer Ingelheim GMBH , and Johnson & Johnson each fund smaller, focused projects with Garvan investigators.

Jon Izant, a former J&J research manager and Yale Medical School geneticist, benchmarks the start of the Garvan's current growth period, as well as its emphasis on gene-based discovery research, to the arrival in 1990 of executive director Prof. John Shine, AO FAA. "The push has been constant since the early '90s," he says; however, the nature of business development at the Institute now is different than it was a few years ago.

Support from government programs fueled the first phase of Garvan's growth in the '90s. But some programs are ending or are being phased out; in particular, R&D syndicates—financing vehicles for investors to offset risk by getting an early tax advantage instead of having to wait for a distribution. The Garvan had established two R&D syndicates: one as part of its osteoporosis program, to develop osteoporosis prognostics and to extend an ongoing 2,000-person epidemiology study in Dubbo, New South Wales; the other for developing anti-inflammatory therapeutics.

The Australian government terminated the program after realizing that syndicates were abusing the tax privilege, and the sudden decline in syndicate revenues dragged down total income for 1998.

A core of the Institute's public support remains direct government funding via a five-year grant from the National Health and Medical Research Council. The Commonwealth also indirectly funds the Garvan through Cooperative Research Centres (CRCs), which are government-subsidized technology- or expertise-based development partnerships, usually lasting seven years, between academia and industry. The CRC for Biopharmaceuticals is an incorporated joint venture with the Garvan, the University of New South Wales, and several commercial partners that taps the Garvan's expertise in the development of anti-cancer monoclonal antibodies and the university's experience in high-level expression of biomolecules, among other things. Although the term of that CRC is concluding, the Garvan anticipates a favorable review in the near future from the Department of Industry, Science and Resources for the establishment of a new CRC for asthma that will integrate molecular research on the cause of the disease with research to advance clinical management.

Izant sees the CRCs as a useful tool for generating new partnerships more than as the means for validating technology before handing it off. "It's a way for companies to make a relatively small investment and either get a peek at a technology or directly invest in an R&D program," he explains. On the other hand, some potential partners complain that the CRCs can be hamstrung by government red tape.

Establishing market-oriented ventures rather than start-ups focused solely on development of early-stage research is an important component of the Garvan's strategy and dovetails nicely with government initiatives such as the CRCs. Traditional venture capital has been "moribund" in Australia, Izant explains, and capital gains taxation punishes high-tech investments, including those made by overseas investors. Success stories, he says, tend to be through US affiliates or foreign company IPOs. Moreover, the small population and Commonwealth pharmaceutical controls make Australia a challenging place for marketing pharmaceuticals. The way to attract investment, he contends, is to blend funded discovery and near-term revenue opportunities in an appropriate niche.

The Aza joint venture, for example, focuses both on research and marketed products. When the Garvan opted for the more usual start-up route in establishing PsyGene, it did so with corporate support virtually at Day One. Izant expects PsyGene will now diversify by leveraging other Garvan research and relationships through corporate collaboration. He also expects the Garvan to reduce its financial stake in PsyGene, adding that the Institute currently is exploring opportunities to offer investors a minority share.

The formation of its current industry partnerships heralded the beginning of the second stage of Garvan's growth. But while Izant thinks revenues from tech transfer will continue to feed the Institute's coffers, committed revenues from its existing relationships with Bristol-Myers and Lilly are scheduled to expire next year. Over all, current partners are slated to provide at least $10 million over the next three years; nonetheless, Izant knows that maintaining the current productivity and efficiency of the Garvan's business development activities will become more challenging in the future.

Lilly, its JV partner in Aza, remains interested in a long-term commitment, Izant says. He is less sanguine about the prospects for extending the Bristol agreement. Mindful of the potential drop-off in revenues after next year, Izant anticipates that new income from partnerships, as well as increased fees from intellectual property licenses, will pick up the slack. To those ends, discussions are in place with three multinational pharmaceutical companies on projects ranging "from small to large."

In keeping with the character of the Garvan, Izant has adopted a targeted, proactive approach to tech transfer—identifying a company's needs in advance and going after those with a likely existing interest in a Garvan research program. "They're not looking to spend a lot for these relationships," he observes, "but for a program already in place, companies are driven to pick up every resource they can to build it up."

For its part, the Garvan, a relatively small research institution, is looking to leverage the scientific resources of partners. "While we cannot always compete with larger institutions, says Izant, "what we have done is sought out synergistic relationships." An essential element driving the Merck agreement was Garvan's recognition of its limitations: one reason it chose to partner early, once its genomics researchers had identified a disease locus, was to bring more resources to bear on isolating specific genes and their function and lessen the chance of coming in second to another group.

In part, Izant thinks the Garvan, despite its size, can snare the partnerships because its programs are disease-focused, including translational research (moving from bench science to applied research) and a clinical research interface. The institute "already is closer to the interests of industry," he says. Being small can also work to its advantage, he points out, because investigators can more easily conduct bench science while at the same time studying disease in vivo. In the metabolism program studying diabetes, for example, the investigator studying growth hormone and growth hormone deficiency can study isoforms and look clinically at protein turnover in patients. And while many medical research institutions have similar capabilities, often on a larger scale, Izant thinks the Garvan is particularly good at making the transition from bench thinking to therapy. Thus, although it only has a few programs to match to industry's needs, the Garvan can generally work mutually beneficial partnerships around them.

Izant also says he's "more visible within the institution than many tech transfer officers elsewhere," both because the Institute is small and because commercial activities constitute a high proportion of its revenues. His goal is to create a culture within the Garvan where scientists approach his office to discuss issues such as whether a gene is sufficiently novel to warrant filing a provisional patent application. Of the dozen or so annual disclosures, Izant says, seven or eight may form the basis for provisional patent applications.

The ease of filing a provisional patent application in Australia lessens the burden of pursuing intellectual property protection: about $1,300 buys you a priority date, which is respected in most foreign jurisdictions and gives the inventors a year in which to "make the case," Izant explains, perhaps by elucidating the role of a specific gene within a family. He anticipates that five or so commercially significant patents will issue to the Garvan in the next five years, and another half-dozen or so in the five years after that. Although he doesn't foresee any blockbusters in that time, he hopes to establish a floor of approximately $2 million in annual revenues from patent licenses.

The Garvan distributes any otherwise unencumbered research funding it receives according to a formula. After taking out an administrative fee and covering any related patenting expenses, investigators and the Institute split the first $100,000 50/50, the next $900,000 70/30 (70% to the Institute), and monies above $1 million 90/10. As an incentive, the Institute is considering a program to match dollar-for-dollar any funds the investigators funnel back into their research projects.—MLR