It’s more than an offer on a swanky-looking website. Ethical Bioscience is appearing in new-age Instagram feeds and Facebook pages, in online advertisements including in The Australian Financial Review, and in promotions for investment newsletters for subscribers to the Switzer Financial Group of Peter Switzer.
But Ethical Bioscience’s actual investments are unclear.
Glossy advertising only refers to selecting “late-discovery or pre-clinical stage life science companies, with assets that have potential for significant value appreciation”. This advertising offers reassurance about risk, saying “investments are carefully vetted and validated by our scientific and investment committees”.
But biotechnology is traditionally a highly speculative sector where products can take more than a decade to reach markets.
Multiple industry sources also say such debt notes – this investment offers quarterly returns – are almost unheard of.
Still, it’s enticing. That’s because in this day and age, government-guaranteed bank deposits pay next to zero interest. And Ethical Bioscience knows it.
“As we enter historically low interest rate environments, there’s never been a better time to achieve consistent, high-yield financial returns while positively impacting the future of global healthcare,” it advertises.
It’s part of a spool of offers coming out as people – especially retirees – chase fatter investment returns. Some might come good. Some prove disastrous.
Take Mayfair 101, which was behind plans to turn Dunk Island into a tourism haven – it had almost $210 million in investor funds frozen.
It’s this pursuit of juiced-up returns nationwide that alarms even the Reserve Bank of Australia.
“Another area we will be watching carefully is how people adjust their portfolios as they search for yield in a low interest rate environment. Some people will no doubt move out along the risk spectrum. As they do so, the additional investment risks will need to be understood and managed,” RBA governor Philip Lowe said in a speech this week.
Risk is not the highlight in Ethical Bioscience’s marketing material. The first mention that there is no guarantee your money will be repaid comes in fine print on the bottom of the website’s home page, for instance.
In theory, there is some protection. The fund cannot take money from people unless they are classed as a “sophisticated” or “wholesale” investors.
That means they must meet thresholds such as having net assets of $2.5 million or more, or can stump in more than $500,000 in one go. An iQ spokeswoman tells AFR Weekend that Ethical Bioscience’s level of disclosure is appropriate for sophisticated investors.
But, with investing in general, alarm bells have been raised that some investors might qualify as “sophisticated” without being necessarily financially savvy. It could be as simple as retirees becoming cash-flush due to selling the family home.
Sulieman Ravell, a financial adviser from Wealth Focus, says that, generally speaking, fixed income products provide income and anticipation of a return of capital. “It’s important to assess whether the borrower can repay the debt,” he says.
iQ is the brainchild of George Syrmalis, 56, who lists his address in a $1.55 million home in beautiful bushland acreage northwest of Sydney. iQ is the umbrella outfit for a web of companies and has an entity of the same name listed on the small National Stock Exchange, as is its sister company, investment funds management group iQx.
Two other main associated ASX-listed entities are Farmaforce, which offers a contract sales organisation, and corporate finance advisory business iQ3 Corp.
Their common chief executive is Syrmalis. Accounts show he earned at least $2.35 million in the past year alone from the entities, mostly in cash.
Their valuation on sharemarkets is almost $200 million and are losing money, although that is common in the life-sciences sector.
On the positive side is positive press, including iQ being ranked No 6 in this year’s AFR BOSS Most Innovative health companies list thanks to its backing a potential cancer treatment.
That start-up is spun out of the University of Texas, as is another hopeful device operation from the University of Newcastle.
Syrmalis, who declined an interview request, boasts a background in nuclear medicine and created his own biotechnology outfit in Europe in the 1990s, working in areas including cancer compounds. “I help the daring build legendary companies,” his Facebook page says.
But questions emerged about parts of his resume. In various official profiles, Syrmalis says he is a “Fellow” – a prestigious designation – of organisations including the American College of Nuclear Physicians. But the Society of Nuclear Medicine and Molecular Imaging, which oversees the college’s successor organisation – the American College of Nuclear Medicine – tells AFR Weekend he “is not listed as a Fellow”.
He has similarly noted himself as a Fellow of the American Academy of Pharmaceutical Physicians. But its successor organisation, the Academy of Physicians in Clinical Research, says Syrmalis is “a member of APCR, but not listed as one of our Fellows”.
iQ did not answer resume queries. But iQ’s website was updated this week, following questions, to change Syrmalis’s designation with organisations from “fellow” to “member”.
Syrmalis sounds like a workaholic with one CEO Magazine profile describing him arriving to work at 3.30am and finishing at 10pm. “I wouldn’t have it any other way,” he told the magazine.
But just after midnight on a weekday in June, he showed questionable judgement
AFR Weekend can reveal Syrmalis pleaded guilty to drink driving after blowing a blood-alcohol reading of almost double the legal limit, 0.097, in Sydney while driving a black 2019 AMG Mercedes.
“When speaking with the accused, police noticed a moderate smell of intoxicating liquor on his breath, the accused’s eyes were glazed and bloodshot.
When the accused exited the motor vehicle, he appeared unsteady on his feet and was swaying,” said an NSW police factsheet filed in the Downing Centre Local Court.
iQ did not answer questions about the plea. Nor did it answer many queries including about spending in group entities.
“The iQ Group Global group of companies believes that group companies are in compliance with applicable corporate law and regulations and relevant listing rules,” a spokeswoman says.
Some expenses stick out in the cash-hungry biotechnology sector. That includes iQ backing yacht racing.
Back in 2015, iQ was blasting across social media how the “iQ Komodo” 12-metre yacht was racing in the Sydney-Hobart race, with the organisation’s logo splayed across sails on a vessel once owned by property developer Lang Walker.
That was four years after the first sharemarket listing of a group entity – one eventually also named iQ Group Global. That company has never turned a profit since listing and lost $22.3 million last year.
Almost all revenue logged in that company comes thanks to its 69 per cent holding in ASX-listed sales outfit Farmaforce. The NSX-listed iQ also has clinical research interests and stakes in the two startups.
One startup, from Newcastle, sounds innovative: helping treat diabetes by testing glucose in saliva. Advertising outlines an easy-to-use device, with a woman licking a small strip that diagnoses glucose levels on a smartphone.
Another spin-off, potentially for a Nasdaq listing, is looking at COVID-19 tests. Still, a plan to list saliva-test technology on the Nasdaq was first announced to the market in 2018.
The other startup is a new potential cancer-treatment platform. Its first potential compound aims to be more specific in targeting cancer cells and having less “toxic side effects”. That project has had positive early-stage results on mice, but is yet to move to human trials.
Some group companies also show a large string of deals with each other. That includes iQ3 deriving all revenue from related-party companies, including $6.76 million in capital raising and corporate advisory work last year.
Auditors last year flagged questions about some operations remaining a going concern.
iQx’s latest accounts say it can keep operating as a going concern partly thanks to its model of generating returns. That model sees iQx acquire and develop early-stage life science intellectual property, with the company saying it holds shares worth almost $23 million.
But that’s almost all holdings in unlisted entities, and management estimates their worth.
Almost $22 million of that total is thanks to iQx’s 19 per cent share in the overall biosensor venture, which is yet to sell on markets. iQx management valued the venture at $119 million at June.
Shot across bow
The new Ethical Bioscience offer, a joint venture between iQ and iQx, is promoted enthusiastically but consternation has arisen. Just this month, the NSX market operator asked a critical question: how would Ethical Bioscience pay the interest and capital back to investors when their notes mature?
iQ responded briefly. Ethical Bioscience, it explained, was investing “across the global bioscience sector” in ventures “based on expected growth potential and planned liquidity events to facilitate the payment”.
No detail was published, and iQ refuses to confirm if money is invested with related-party companies.
Perhaps the aims will pay off. It happens occasionally in biotechnology. Spinifex, for instance, was a University of Queensland inflammatory and pain drug developer sold in a deal worth $260 million upfront alone in 2015 – after initial research in 2003.
But not everything is a winner.
Take the team which included the iQ-sponsored car in the 2018 Bathurst endurance race. They did not finish.