The Global Startup Ecosystem Report 2021 Life Sciences Edition

Spotlight On Melbourne’s Burgeoning Life Sciences Cluster

"Melbourne is at an inflection point with an opportunity to rise farther"

CEO and MD, Trajan Scientific and Medical

Melbourne, in the Australian state of Victoria, is a small ecosystem with big advantages: among them rapid clinical trials, an excellent product-development and engineering workforce; innovation-centric government investment and tax policies; and exporting muscles bulked — by necessity — in a nation of just 25 million people. For decades Healthtech companies around the world have outsourced everything from design-discovery through manufacturing to this region, where base costs are 30% to 35% lower than in Silicon Valley. Asian companies see in Melbourne a nearby launch pad for products headed back to their home countries or out into the west. Americans and Europeans see an English-speaking talent source abutting the world’s fastest-growing medical market.

While mining dominates the economy in other Australian states, Victoria’s ore is innovation. Medical and Biotech companies — close to 200 of them — represent 20% of startups here. In Startup Genome’s 2021 rankings of Life Sciences ecosystems, Melbourne landed in the top 10% worldwide, with particular strengths in infrastructure and talent.

Melbourne began birthing giants in the late 1990s with the founding of unicorns like PolyNovo, which makes polymers used in treatments for traumatic wounds and deadly infections; and Clinuvel, whose pharmaceutical technology battles genetic and life-threatening disorders. But for many years Victoria emphasized research over commercialization. Successive Labor governments doubled down on R&D investments, targeting existing strengths like cancer, brain science and immunology. Deep veins of research and clinical expertise developed in Parkville and Clayton: neighborhoods centered on schools (University of Melbourne and Monash University, respectively) that score high in global rankings for biomedicine; multiple major hospitals; and independent medical research institutes, including leaders in diabetes and child health.

Success Story: Smileyscope
When Evelyn Chan wanted to test her VR device for alleviating fear of needles, a city was at her side. Melbourne, Australia boasts dozens of hospitals — including two major pediatric centers — enabling the pediatrician-turned-entrepreneur to recruit 100 children to help develop the visualization experience and also to solicit feedback from experts in fields like anesthesiology and nursing. An accelerator program at the University of Melbourne had nurtured Chan’s startup, Smileyscope, with A$20,000 in equity-free-funding, mentoring, and connections that led to a pre-seed round of $200,000 from local angels. A Melbourne digital-design business not only built Chan’s software on a startup’s budget but also helped her hire an in-house technical team. “We’ve had fantastic support from the Melbourne system,” says Chan.

About five years ago, amid growing evidence of startups’ importance to job creation and economic prosperity, Victoria began betting big on entrepreneurship. Recognizing that ecosystems require not just centers of medical excellence but also connective tissue, the state created organizations that support both the Life Sciences sub-sector and the entrepreneurial community at large.

LaunchVic was founded in 2016 as Victoria’s startup agency. Beginning with a $60 million fund, LaunchVic has been arming early-stage founders with the resources, knowledge and networks to build growth companies; then giving them reason to stay in Melbourne once they’ve succeeded. BioMelbourne Network, the industry’s chief connector and dedicated advocate, had launched earlier, in 2004. It brings together businesses, government, investors and other stakeholders.

In the last year, as health-related industries have occupied ever-greater swaths of global attention, the state government established the Breakthrough Victoria Fund, with $2 billion dispersed over 10 years to benefit the health and life-sciences sectors as well as four other industries. (LaunchVic received $110.5 million, which includes $40 million to support services for entrepreneurs; $60.5 million for a startup capital fund; and $10 million to help female founders start and scale businesses.) The goal for Life Sciences beneficiaries is commercialization: translating discoveries from labs to startups and other businesses and, in the process improving global health.

Australia’s relatively accessible regulatory regime makes that easier. Entering a clinical trial here typically takes weeks rather than months elsewhere. In addition, the multiethnic population guarantees a diverse participant pool. Consequently, foreign clients account for up to 70% of the workload for Victorian companies conducting such trials. And data generated here generally is accepted by the FDA and other international regulatory bodies, thanks to the close political and trade ties among Australia, New Zealand, the United States, Canada, the United Kingdom and Europe. “We are seen as very friendly to these countries. There are close relationships between our regulators and European and U.S. regulators,” says Kate Cornick, CEO of LaunchVic.

That broad acceptance is critical: Australia’s small domestic market means almost every startup is international from the get-go. Because virtually everything is developed for global markets, “the daily work here is understanding those different regulatory schemes,” says Jeff Malone, CEO of BioMelbourne Network, which runs master classes taught by experts in larger countries. The Victorian government also has offices in 23 cities — from San Francisco to Tel Aviv — that help local businesses connect with potential clients and partners.

Tax policy, meanwhile, recognizes the outsize upfront investments required by companies that painstakingly develop innovations over years of lab work. The federal government already offered a 43.5% tax rebate for R&D, which is competitive by global standards. But recently the Victorian government went one better: allowing companies to apply for those rebates at the start rather than the end of the tax year. “That really helps companies that are cash-strapped and bootstrapping to leverage the capital they do have,” says Malone.

And Melbourne’s venture capital industry “has grown very dramatically, on a hockey-stick curve over the last six years,” says Cornick. Melbourne’s Life Sciences startups are landing seed and Series A and B funding in less time than the global average. Firms like Brandon Capital Partners, One Ventures, BioScience Managers, and Main Sequence target Life Sciences and Healthtech startups. In addition to the Breakthrough Victoria Fund, the Victorian Government has launched a $25.8m Venture Growth Fund for later stage startups.

Without a history of serial entrepreneurship, Melbourne is weaker on company-building skills than on science. MedTech Actuator, with Australia’s largest portfolio of medical startups, is among the 7 to 10 industry-focused accelerators here that are trying to change that. Applications to MedTech have risen 10-fold since its launch in 2018, says co-founder and CEO Buzz Palmer. About half of participants are local startups; the rest comprise businesses attracted to Melbourne from other parts of Australia and beyond. “We have 12 startups that just raised really good, chunky Series A’s,” says Palmer. Companies start the program valued at $1 million. After three years, the market cap of MedTech’s portfolio has reached $320 million.

Founders start companies but employees grow them. Victoria produces more engineering students than anywhere else in Australia and also has a large IT workforce. “The technical colleges are training a lot more people in emerging technologies. It is very problem-solving-based training,” says Smileyscope’s Chan, who hopes her own talented software engineer never learns the salary she could command in San Francisco.

The physical infrastructure, too, is improving. Melbourne is home to around 180 co-working spaces; but those are chiefly offices. Now at least five companies are developing spaces with lab facilities, says Palmer, with the first one scheduled to open this year. Meanwhile, hospitals and universities increasingly are making lab space and equipment available to founders. “Three or four years ago they were not opening up these capabilities to the outside world,” says Palmer. “But now they are open to the innovators.”
Even companies in the best-established, highest-profile ecosystems find Victoria’s advantages attractive. Recently Praxis Precision Medicines, a public Biotech firm based in Cambridge, Massachusetts, established its Asia-Pacific headquarters in Melbourne as well as an R&D center to develop therapies for such disorders as epilepsy, autism, and mental illness. Many Singaporean companies have turned to Victoria for product development and commercialization services, as Biorithm did recently with its wearable fetal monitor for women with at-risk pregnancies.

“Melbourne is at an inflection point with an opportunity to rise farther,” says Stephen Tomisich, who with his wife, Angela, in 2011 acquired Grale Scientific, a Melbourne-based supplier of products like specimen containers and microscope slides. Through a combination of acquisition and organic growth, the couple built up Trajan, a global analytical science and device company that in June raised $90 million in an IPO on the Australian Securities Exchange. (The stock listed at $1.70 per share and five weeks later was trading at $2.90.) Tomisich says the success of companies like Trajan and Lumos Diagnostics, a Melbourne developer of point-of-care diagnostics that went public in July, is helping Victoria’s investment community “get more savvy about propositions that they can see have substance, a market, a real product platform and a strategic plan.”

And Melbourne is among the best places to build a life as well as a business. Between 2011 and 2017 it was named the world’s most livable city by the Economist Intelligence Unit. (It remains in the top 10 today.) There’s a vibrant arts and cultural scene; a lovely coastline; a slew of inexpensive restaurants, and a year-round sports schedule with something for every kind of fan: from football and cricket to tennis and auto racing.

The startup community itself is welcoming and collegial, with a small-town everyone-knows-everyone feel. Unlike such ecosystems as Silicon Valley and New York, there is respect for personal time: proof that entrepreneurial life can be intense without being insane. “There is an enormous amount of support and inclusivity,” says Kate. “Also, being such a multicultural city we haven’t had the issues other ecosystems have had with bro culture.”

“It’s an early-stage, evolving but passionate community,” says Evelyn. “I think it has all the ingredients for a world-class ecosystem.”