Tim Gosling in Moscow -
A final deal on SynBio - the first Russian-led international joint venture in the biotechnology sector - was sealed in September, with a €30m investment from Rusnano as a cornerstone. With Synbio planning to launch innovative drugs on international markets by 2015, is Rusnano, one of the Kremlin's giant modernisation venture capital funds, finally about to start delivering concrete results?
The pharmaceutical sector has often been cited as a potential driver to modernise the economy, but there are numerous barriers for Russian companies trying to develop innovative drugs. In a bid to overcome them, SynBio - led by Human Stem Cells Institute (HSCI), the first company from Russia's pharmaceutics sector to go public in 2009 - and a consortium of international partners are launching a bid to take Russian hi-tech pharmaceutical global, leveraging Kremlin cash along the way.
Bringing together biotech companies from Russia, the UK and Germany to develop nine new drugs based on cell-based, gene and post-genome technologies for both the Russian and international markets, SynBio is almost the perfect poster boy for the government's drive to modernise its economy and diversify exports away from oil and gas through innovation.
The involvement of Rusnano - one of a pair of giant state corporations-cum-venture capital funds tasked with leading the modernisation charge - is a significant positive. Thus far, just like its industrial cousin Rostekhnologii, Rusnano has struggled to produce much of anything in return for the billions of dollars that the Kremlin has pumped in the hi-tech incubator, and cynicism over its capabilities abounds.
Artur Isayev, who heads HSCI, SynBio's largest private investor, tells bne he used to share that view, but claims he finds it hard to maintain his doubts since Rusnano committed to invest RUB1.3bn (€30m) in SynBio in return for a 41.4% stake. "I've always been sceptical about government policy, especially when they're talking about modernisation," Isayev says. "But it's hard to be sceptical now that I have a real example of what they're doing to try to develop the pharmaceutical industry."
The private partners in Synbio - HSCI, Russia's Pharmsynthez, Germany's SymbioTec and British-based Lipoxen - will contribute the remainder of the RUB3.2bn investment into the joint venture over the next four years, via a combination of cash, intellectual property and stock. The venture is targeting revenue of RUB700m in 2015, when it launches its first drugs around the globe. "Right now, SynBio is a result produced by Rusnano," Isayev asserts. "It's giving us the opportunity to perform second-stage clinical trials on these new drugs. Of course, we could have found an investor ourselves, but it would have taken perhaps four years. Now we can go forwards immediately."
Overcoming the barriers
On top of the cash, Rusnano also helped with the "complicated legal deal" and the business model, which sit behind a JV spread across Russia and two EU countries, Isayev points out. This is also vital, as it's SynBio's international profile that's key to overcoming the barriers to the Russian biotech industry.
On the one hand, running clinical trials outside Russia will free SynBio from "insufficiently developed legislation," states Isayev. "Sometimes it's easier for the ministry of health to simply stop a project than approve new tests," he laments. "The bureaucrats are scared of anything new."
However, the key point is that SynBio will overcome the barriers to international markets that are the result of the under-developed Russian biotech sector. "In the US, pharmaceutical consumption is $900 per person, in Russia it's $90," Isayev says. "Russian biotech companies simply can't work for just the domestic market."
That sets up a vicious cycle, with Russian biotech drugs struggling to meet the standards demanded for entry to developed markets because the domestic sector is so underdeveloped. For instance, there's a severe lack of companies that can perform outsourced services, and "even if you're lucky enough to find one," explains Isayev, "it's unlikely to meet the GMP [good manufacturing practices] guidelines required."
At the same time, Russia's weak intellectual property protection puts companies that can find a third party to perform manufacturing or other outsourced services at "high risk" of having the project stolen, he adds.
All these issues are holding back development of the Russian biotech market in general, which only compounds the problem. Without large Russian biotech players, small and innovative companies struggle to find buyers for their technologies, forcing them to "provide huge amounts of investment and expertise," Isayev says. "Russian biotech is left to do all the things that big pharma does in other countries - taking on the full process from R&D, through manufacturing and on into sales."
SynBio's international profile will help here also, the director claims, by easing access to capital markets. "We're not looking for funding right now," states Isayev, "but we do expect SynBio to go public."
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