The Australian biotechnology industry may have reached a milestone this year with market capitalisation passing $30 billion, but we are just a drop in the ocean compared with the frightening potential of Asia.

Those in the know are predicting an equatorial gravity shift in the global biotech and pharma industries to occur sooner rather than later.

The milestone of $30 billion in market capitalisation passed in the third quarter of 2007 (ended 31 March) is certainly something to be proud of for a relatively small country like Australia, but it is of course tempered by the fact that our big three - CSL, Cochlear and Resmed - make up the vast bulk of that market.

In fact, excluding the well-known trio, Australian biotech comes in at a much more realistic $7.5 billion market cap, according to PricewaterhouseCoopers' (PwC) latest BioForum report.

And despite extreme volatility in the market recently due to the overwrought drama that was the American subprime lending fiasco, PwC gives a restrained thumbs-up to the overall situation in the life sciences sector as a whole.

Activity in the whole sector was "promising" based on initial public offerings and secondary capital raisings activity, the report states. For the quarter ended 30 June 2007, there were five listings with a value of $216 million and 64 secondary capital raisings valued at $282 million, up 50 per cent on last year.

"There was an upswing in the market in the past 12 months and activity has remained consistent in the quarter ended 30 June 2007," PwC life sciences partner Tony Stephen says. While the sector was hit hard as a result of those volatile global markets, recent movement has seen strong support for quality stocks, he says.

"This is a positive sign reflecting the recovery of the NASDAQ life science market and strong underlying fundamentals."

Rhenu Bhuller, the Singapore-based global vice president for pharma and biotech at Frost & Sullivan, also values the industry at around $30 billion, and expects growth to come in at around 10 per cent per annum for the next three years.

We do well for a small sized country, she says, and have clear advantages for international investors in terms of costs and skilled labour compared to other OECD member countries like the US, the UK, Germany and Japan.

However, that $30 billion pales in comparison to the staggering achievement of India, for example, which has a total market cap estimated at 10 times that amount. According to Bhuller, India is a far more mature market than ours with strong capabilities from pre-clinical up to manufacturing.

Bhuller, like PwC, is urging the local industry to look much more closely at Asia for alliances and deals rather than setting its sights on the US and Europe.

"The US is still the focus of many Australian biotech companies in terms of alliances, and this is clearly due to the population that they hope to reach by commercialisation in the world's largest market," she says.

"One of the disadvantages of this is that it is highly competitive, as every biotech company globally hopes to strike an alliance in the US and often it is a long road to get noticed and have a successful deal.

"Japan and China should have a stronger focus than it currently has. Some larger Australian companies see its potential and have specific positions looking at collaborations with Japan and China - however, most still focus on the US and Europe.

"Singapore is an upcoming area in terms of collaborations. It has similar strong government backing, and good ties with Australia, so Frost & Sullivan sees that as one of the potential countries for research collaboration."

Global gravity shift

PwC recently released a survey of 185 global pharmaceutical companies that it says points to an industry "gearing up for a global gravity shift". While activity in the North American markets will continue to have a strong influence on Australia, it says, there will soon be felt an increasing effect from the pharmaceutical industry in Asia.

"The centre of gravity of the global pharmaceutical industry is shifting," the survey found. "Not only is Asia set to be the largest pharmaceutical market in the world but many Asian territories will be powerhouses of the industry.

"The shift started as economies grew and low cost manufacturing in the region expanded. Now, companies are, increasingly, also seeking to site research, development and clinical trial activity in Asian territories."

The survey found that multinational pharmaceutical companies are building up their presence in the region and, in parallel, many Asian pharmaceutical companies are looking outward and extending their own international reach.

It found that 55 per cent of multinational companies and 62 per cent of domestic companies in the survey believe the centre of gravity of the global pharmaceutical market will be in Asia rather than North America and Europe in the near future. "China, India and Singapore will be key countries."

PwC's Tony Stephen says India and China are emerging as major suppliers of several bulk drugs at lower prices than other producers, and that Malaysia, Thailand, Taiwan and Hong Kong are also building a strong domestic pharmaceutical market.

The survey found some interesting contrasts between domestic companies in India, China and Singapore. "Indian companies had the strongest appetite for acquisitions and the least appetite for divestments," it says. "Forty eight per cent of Indian pharmaceutical companies were considering acquisitions compared to 31 per cent in Singapore and just 17 per cent of Chinese companies.

"In turn, 46 per cent of Chinese companies and 44 per cent of Singaporean companies were open to foreign investment in their companies compared to just 20 per cent of the Indian companies surveyed."

Australia, Stephens says, is well positioned to benefit from this growth. "All this regional activity and the prediction that the shift will happen sooner rather than later is good long term news for the Australian life science sector," he says.