Bioscience Enterprise Forum – A2 Corporation

The first UoA Bioscience Enterprise forum this year was held last Friday 2nd May at the School of Biological Sciences, UoA. It embodied everything these forums were set up to create and everyone left the room with a similar impressed opinion. Congrats to Joerg, Claire and the MBEs for a great event. I strongly recommend these events to all interested industry members and students. Keep an eye out on graemefielder.com or NZBio’s publications and calendars for the next forums to come.

The forum kicked off with 4 teaser presentations by the MBE students to advertise their full length presentations for BIOENT 722: Current Issues in Bioscience Enterprise. Topics included biotech clusters in NZ, exit strategies, business models and biofuels. They will be held on the 8th and 15th May, UoA Business School Room 223 5:30pm. On the 16th the same class will conduct a debate on whether NZ is capable of having a Genentech.

The forum was conducted in a very effective and novel interview format between A2’s CEO Anthony Lawler (interviewee) and Julian from JML Communication’s (interviewer and A2’s marketing agent).

Background:

A2 corporation is responsible for the commercialisation of A2 milk, the milk that contains the A2 beta-casein protein as opposed to the traditional A1 variant currently dominating the milk market. A2 milk has been described as having long term health benefits, but has been subjected to considerable media fuelled controversies surrounding the theory/claim that A1 is in fact detrimental to ones health. A2 Corp is currently in the process of globalising its sales.

Notes from presentation:

· A2 is a functional foods company – see them selves in the middle between a consumer food and biotech company

· Aim to license out tech to partners and get a royalty for each litre sold

· A2 has been in controversy in the media since the day it was formed

“Queries over safety of milk prompt independent review” – Herald LINK

“Milk disease link needs study: expert” – Herald LINK

“A2 milk licensee fined in Australia over therapeutic claim” – Herald LINK

· Corry MacLaclan was the founder and partnered up with Howard Patterson VC in 1993

· A1 milk correlates with certain health conditions – type 1 diabetes and heart disease potentially due to the release of beta-casomorphin-7 when A1 is digested.

· A2 Corporation has NZ$15million market cap

· “A discovery can push industry knowledge” – this can be unwanted and cause the controversy as was the case with A2. Early on the company tried to attack the very industry they were acting in.

· In terms of the scientific backing of the A2 milk – they have strong correlations with diseases/disorders but not have scientific evidence in the form of a direct link.

· Anthony pointed out the need to think how to commercialised and market the science at an early stage in the product’s development.

· He saw infant formula as a large prospective market for the companies milk. Help prevent childhood diabetes and those with stomach/digestion problems related to milk.

· Highlighted the need for the cash poor scientists to understand the commercialisation process. For example they need to bring in a VC to fund it, which results in a loss of share holdings for the scientists who are very protective over their breakthrough.

· A2 realises it is not going to take over the world

  • Question: If you don’t want to take over the world market, what happens if all farms are converted over to the A2 type?
    • Obviously A2 would be happy due to increased revenue. But Fonterra owns half of the A2 patent.
    • Lactose intolerant people are able to drink A2 milk fine – this may allow people previously harboured to come back to milk

· Always a challenge to decide how much to invest into R&D and Marketing – especially in their case where marketing is more of a driver than the scientific backing

· What are the challenges/requirements for A2 in order to enter world markets – distance, need to partner with the large players, they initially annoyed the industry which had halted progress

· What patents does A2 Corp surrounding (not applied for in the UK)

1:DNA testing of herds to determine if they are A2 – test uses a single hair of the cattle – The audience had concern (a brilliant comment by an MBE student) over whether this patent can be devalued through a test administered directly to the milk rather than the cow.

2:The herding of A2 cattle

3:The milking of A2 cattle

4:The marketing of A2 milk

5:Trademark – A2 Milk – Audience comment – What is to stop some one promoting a A1 Free or Non A1 brand ?

  • Question – is A2 in under threat of losing their trademark (similar to how LEGO did) – because what else can you call the milk, will it become common language?
  • If A2 starts talking about the implications its milk has on diabetes/ heart disease then it needs to be regulated as a drug (another way to look at it is that A2 doesn’t promote the health conditions that A1 potentially does)
    • In this case, like that of cosmoceuticals, marketing strategies becomes the most powerful tool for establishing credibility. For example using key opinion leaders to recommend the milk
    • Promote it by saying high A2 cows are good milk cows etc
  • Question – What is the chance of being snapped up by a bigger company and the technology not being commercialised
    • Typically a clause the agreement to ensure that the product reaches the market
    • The major shareholder 54%. A number of small groups of shares held by many people – this means the stock has low liquidity – hard to bulk purchase
  • Question – Vision for the company
    • to be profitable
    • Make clear decisions for partnering – Question related: looking to partner with science companies of universities to investigate the science of the milk to generate a scientific backing. With companies they can set it up in the form of milestone research where at the completion they are able to sell the milk themselves.
    • Switching farmers to A2 – is just a matter of paying them a higher premium
    • Work with Fonterra to allow a complete switch? Hard to change the big machine in the industry
    • Memorable saying – the science can’t be commercialised until all of the current scientists have retired
    • Memorable saying – discovery is just the beginning
    • Question – what’s to stop Fonterra doing their own trials or science on A2 and then commercialising A2 down the drug regulatory pathway – Nothing

My Comments

I have concerns over whether they have a strong enough patent portfolio. But does a company like this need one in order to get a product to market and be successful? It certainly helps and will make the company and its product alot more valuable, but in this case it may not be neccesarry and as stated by Anthony, the most important task is to reach the market first. By doing so through a majour partner, should be enough to ensure early market dominance and restrict new players from entering. However if I was Fonterra I would be doing a little research of my own. 1: To possibly research the potential link between beta caseins and disease, develop a strong IP strategy and commercialise a competing brand with scientific backing 2:To cover my arse. Do they want to be the company who has been selling ‘unhealthy’ milk over the past several decades? It will be interesting to see how A2 goes over the next 12 month sand whether Fonterra decides to make their own move. It would be great to see A2 collaborating with the Uni to work on the disease links with beta casein proteins.

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