Hugh Alsop

CEO, Hatchech


“What we have done is unique and it's a classic example of how Australian life sciences can compete on a global stage.” Hugh Alsop, CEO, Hatchtech Embed video  

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Venture capital debugs hair treatment.  

Head lice are the bane of every parent’s life, so mums and dads at the school gate will warmly welcome a new treatment that venture capital firms are helping bring to the market.  

It’s hard not to scratch your head as Hatchtech CEO Hugh Alsop talks about what the company has developed. That’s because its technology is about eradicating head lice.  

Alsop smiles ruefully and admits it’s a common reaction. The technology Hatchtech has developed is called DeOvo. It will work against many invertebrate pests, such as worms, ants and spiders, but “we chose head lice because it is the biggest and most commercially valuable market”, he explains.  

There are many head lice treatments available, but the eggs are notoriously difficult to kill. This means the products must be applied repeatedly over a number of weeks. Also, because the pests transfer from one head to another with relative ease, all it takes is one member of a family or class missing the treatment for the whole cycle to start again. In addition, lice have cannily built up a resistance to many over-the-counter options. 

DeOvo’s point of difference is that it kills the eggs along with the lice, streamlining treatment. With this competitive edge, Hatchtech had a head start on getting to market, but it took venture capital's resources and expertise to get it over the line. 

With this competitive edge, Hatchtech had a head start on getting to market, but it took venture capital's resources and expertise to get it over the line.

Hatchtech was the brain child of Dr Vern Bowles, a researcher from Melbourne University. He spun the business out of the university in 2004, although it has remained a significant investor. 

It’s a long road from research to commercialisation of a drug, marked by a series of clinical trials and intermittent funding. Bowles began with angel investors and worked for a number of years developing DeOvo and taking it through its phase 1 and 2 clinical trials. “It has been on and off again because you get drip fed in terms of capital,” Alsop explains. While Alsop is the CEO, Bowles is now the Chief Scientific Officer. 

The two venture capital funds which backed the company in its early days were Uniseed and GBS Venture Partners. “Both brought money but also guidance, in terms of how to develop the program, what kind of trials it would [require] and which markets it should focus on,” Alsop explains. 

Uniseed was the first investor, in 2001. Its chief executive, Peter Devine, recalls that Uniseed gave crucial advice. “When we first saw the Hatchtech pitch, it was targeted at sheep blowflies, which we did not think was a good market for a venture investment”. “We suggested they look at human head lice as a better opportunity.” 

From Uniseed, Hatchtech gained access to other venture capital firms, including GBS. Ben Gust, a director at GBS, recalls that when the firm got involved in 2004 it knew there was a long road ahead. He says venture capital has the ability to look to the long term. “It [has taken] 10 years of steady progress to achieve everything required to ultimately be approved by the [US Food and Drug Administration],” he says. “However, while the path can be long, the rewards can be exceptional.” 

For the next six years, Hatchtech worked though the arduous process of gaining FDA approval through clinical trials and studies. Then, in 2010, another venture capital firm, OneVentures, took a significant stake. Dr Paul Kelly—managing director and partner at OneVentures—took the chairmanship, with a view to providing the company late-stage capital and getting it ready to find a partner to bring its technology to market. 

“At the time we invested, we could see the company needed a restructure at the board level, access to drug development and M&A expertise, along with relationships that could drive business development,” Kelly explains. 

Kelly used his network to find new board members and a new CEO in 2013, finding Alsop through his connections. It would be Alsop’s first experience working with venture capital. His background was in bio-technology and pharmaceuticals. He had worked at Sigma Pharmaceutical in a commercial role before moving to Australian bio-tech Acrux, where he worked on what was then the largest product-licensing deal by an Australian biotech company, between Acrux and Eli Lilly. He then moved to Phosphagenics, before joining Hatchtech. 

It was, he says, “a steep learning curve but I have learned a lot, in particular from Paul.” 

He arrived at Hatchtech when it had powered through a phase 2 study and consultation for DeOvo with the US FDA, and had also just completed a $6 million fund raising to start the final stage of development for the treatment. It needed a delicate balance of financial and regulatory skills to get DeOvo through the phase 3 stage for FDA approval. Then it needed to look into how to get the product to market. 

First, Alsop looked to secure more funding, via a $12.6 million capital raising, with half coming from existing investors and the rest from new ones, including Brisbane-based Blue Sky Alternative Investments. Elaine Stead, investment director at Blue Sky, understood the market from a previous investment in another lice treatment. “I knew that if Hatchtech could prove the competitive advantage that it proposed—killing both lice and eggs—it would be a compelling differentiator in the market,” Stead explains. 

In 2014, Hatchtech completed DeOvo’s phase 3 trials, the last of 11 human clinical tests on the product. It submitted the treatment—now renamed Xeglyze—for FDA approval in September 2015. At that time, Alsop also signed a partnership deal for getting the product into pharmacies. Hatchtech inked a deal with Dr Reddy’s, a global pharmaceutical company that will manufacture and distribute the product in Australia, the US, Canada, New Zealand, Russia and the Commonwealth of Independent States. The deal was structured over three milestones—an upfront payment, a payment on FDA approval and a payment based on sales. If all three milestones are met, it will be worth $279 million. 

“This is a great story for the local biotechnology scene,” Alsop says. “It is very rare for an Australian company to get a drug all the way through phase 3 and filed with the FDA for approval.” 

Much of Hatchtech’s success, he says, is down to its funding model and the combination of capital, expertise and networks that steered the company to this point. He says each investor brought its full complement of venture capital skills. 

“What we have done is unique and it’s a classic example of how Australian life sciences can compete on the global stage if you bring in expert management and the right advisers, who [offer] more than just a chequebook,” he says. “This shows how venture capital backing can make these deals work.”  
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