COMMENT: Russia is becoming a player in global biopharma

By bne IntelliNews January 29, 2013

Rusnano -

bne: this is a sponsored statement from the state-owned agency to promote high-tech investments in Russia, Rusnano.

The BRIC nation with the fewest people is doing the most to keep them healthy. A biotechnology revolution is gathering steam in Russia, spurred by state investment programs, a host of cross-border partnerships and a domestic market that international investors find highly attractive. The government is modernizing a decaying healthcare system by building new hospitals and introducing innovative technologies. It has also taken a series of measures to stimulate private investment in healthcare. Russia's sovereign investment funds are backing innovative industries and the government is working directly with business leaders to improve the country's attractiveness as an investment destination. These were among the key themes discussed at the inaugural Open Innovations Forum recently in Moscow.

Global biopharma leaders convene in Moscow

The heads of Russian state development agencies met international investors and businesspeople at the first annual Open Innovations Forum in Moscow this past October. The panels at the Forum concerned a range of high-tech sectors, with a particular focus on nanotechnology and biopharmaceuticals. Leading international players in the healthcare sector attended panel discussions on the latest global trends in innovative medicine. Attendees discussed new opportunities in Russia for both R&D and the production and commercialization of advanced biopharmaceuticals. The acclaimed life sciences investor G. Steven Burrill, whose firm Burrill & Company established a Moscow office in November, gave a keynote speech at a panel dedicated to venture investments in the pharmaceutical sector. Burrill notes the Russian government's "significant commitment to invest capital to build an innovation-driven life sciences industry and modernize its healthcare system" as a major factor for his expansion there. Executives from companies such as Pfizer, Sanofi Pasteur, Lentigen Co. and others were also in attendance.

Perceptive international investors have sensed the change in the landscape of healthcare and medicine in Russia. What has changed? When it comes to high-tech, the government is backing its words with billions of dollars in investment. Life sciences and biopharmaceuticals have been central to the Russian government's investment program. Regulations have been pared down to make it easier for foreign companies with advanced technology to establish laboratories and manufacturing centers in Russia. The government has extended its full support, often in the form of co-investment, to foreign high-tech companies seeking entry to the rapidly growing Russian market

The Russian capital Moscow is the educational, economic and political hub of the region. It has a huge academic and scientific establishment and a highly educated workforce: over 241,200 people are employed in research and development. While private medicine is growing in Moscow, the government remains the largest consumer of healthcare products and all major decisions concerning government policy on healthcare are made in the capital. The Moscow City Government has undertaken major projects to transform abandoned and underutilized industrial space in the city into world-class laboratories and manufacturing centers for nanotechnology, biopharmaceuticals and other advanced applications. The City of Moscow is offering foreign companies special customs and tax regimes as well as full connections to infrastructure and fully equipped spaces in an effort to combat the outdated perceptions and stereotypes.

Skolkovo focuses Moscow high-tech community

Perhaps the most prominent government effort in the high-tech arena is the creation of a Russian Silicon Valley in the form of the Skolkovo Innovation Centre, a complex of high-tech clusters where project participants are provided with the assistance necessary for development. More generally, Skolkovo seeks to concentrate international intellectual capital in Russia to create the conditions conducive to technological breakthroughs. Open Innovations, which was organized by Skolkovo along with Rusnano and other state-owned companies, can be seen as an effort to collect some intellectual capital by bringing some of the top figures in the biotechnology field together to share their expectations on future global trends.

Skolkovo resident companies include OncoMax, a developer of new diagnostic and therapeutic anti-cancer agents; TheraMAB, which is researching an innovative immunotherapeutic antibody for personalized medicine; and

Innovative Technologies, a maker of neural prosthetic devices. These are just a few examples of the many Russian innovative ventures that have already taken root at Skolkovo. Another major investment in intellectual capital was Skolkovo's partnership with the Massachusetts Institute of Technology (MIT) to found a university and life sciences incubator. The MIT Skoltech Initiative aims to integrate education and research and establish a culture of innovation and entrepreneurship within Skolkovo. Biotechnology will be a central research area of the institute, which will help attract and retain world-class talent in Moscow.

Rusnano brings US biopharm to Russia

Skolkovo is not the only Russian government-backed vehicle taking the lead in the future of the life sciences industry. Rusnano, a five-year-old sovereign wealth fund also capitalized at $10 billion, has a mandate to make Russia a leader in nanotechnology. Rusnano has recently been actively drawing some of the brightest American biopharmaceutical firms to Russia and helped them establish R&D centers outside Moscow.

In November, the Russian subsidiary of US drug developer Selecta Biosciences, Inc. became Rusnano's first foreign portfolio company in the pharmaceutical sector to open a research center in Russia. Selecta is developing biopharmaceutical products based on the tSVP™ nanotechnology platform, which was invented at MIT and Harvard Medical School. It is currently pursuing a first-in-class vaccine for smoking cessation and relapse prevention. Selecta's research center is located in Khimki, just outside of Moscow, at the ChemRar High Tech Center.

Selecta clearly has seen Russia's promise for the biopharmaceutical industry. Its President and CEO, Dr. Werner Cautreels, has left Massachusetts to live in Moscow and run the Russian subsidiary. Dr. Cautreels said Selecta RUS LLC will "incorporate the needs of patients in emerging markets into our product profiles." Russia is clearly not ancillary to Selecta's plans, but rather a major trajectory for the future growth of the company. Selecta is further supported by a financial commitment from Rusnano, which co-invested $25 million in Selecta in October. Rusnano committed the same amount to BIND Biosciences, Inc., another US company, in rounds of financing $94.5 million for the two biopharmaceutical developers. BIND and Selecta will use the funds to create innovative drugs based on nanomedicine platforms from MIT and Harvard Medical School. Both companies established subsidiaries in Russia to access its scientific and clinical expertise and position themselves in the domestic market.

Life sciences partnerships with Domain

Russia is generating excitement among international investors in life sciences and pharmaceuticals. In December, Rusnano joined Domain Associates, a US venture capital firm with an exclusive focus on life sciences, to invest $93m in three advanced pharmaceutical developers, Marinus Pharmaceuticals, Inc., Lithera, Inc., and Regado Biosciences, Inc. Marinus is developing a drug for the treatment of epilepsy on the basis of a patented form of the advanced medication ganaxolone. Lithera is the developer of a pharmaceutical to combat thyroid-related exophthalmia, a chronic disease that can result in loss of vision and presently can be treated only through surgery. Regado Biosciences is pioneering a new anticoagulant system that will drastically reduce the time needed to conduct heart surgery, including such procedures as coronary revascularization and implantation of the aortic valve. These companies - and a pipeline of others that are expected to benefit from Rusnano-Domain funding - are awarding intellectual property rights to their technologies in Russia and the CIS to NovaMedica, a new Domain- and Rusnano-backed Russian pharmaceutical company.

Rusnano first entered into an investment partnership with Domain Associates in March 2012. They agreed to jointly invest in emerging life sciences technology companies with the aims of fostering the transfer of technology into Russia and establishing manufacturing facilities there. The first beneficiary of the $760-million investment project was CoDa Therapeutics, the developer of Nexagon, a pharmaceutical for the treatment of venous leg ulcers. Rusnano, Domain other investors committed nearly $40 million to CoDa, which will eventually establish production operations in Russia.

Brian Dovey, Partner at Domain, said that around 80% of pharmaceutical products in Russia are currently imported. "Most countries go from a cycle of importing products, to buying generic products, to creating unique products," he said. This deal leapfrogs that cycle and means Russia will be able to produce its own unique products, he said. Rusnano intends to "spur modernization of the Russian healthcare market" by providing Russia, along with Eastern European and the Commonwealth of Independent States countries, with next-generation pharmaceuticals, medical devices and diagnostic products.

Soviet auto plant transformed to high-tech hub

The former Moskvitch automobile factory in southeastern Moscow is associated with Soviet-era cars that went out of production in the 1990s and most would prefer not to remember. The grounds and buildings are owned by the City of Moscow, which has decided to revitalize the facilities as the new center of innovative industry in Russia. The location, renamed Technopolis Moscow, is intended as a business base with optimal institutional, organizational, legal and technological conditions. Moscow Mayor Sergei Sobyanin is personally overseeing the development of Technopolis Moscow and is striving to make it one of the most attractive locations globally both for Russian innovative projects and for international companies engaged in technology transfer.

Over 220,000 square meters of industrial space has been fully renovated and modernized. Another 200,000 square meters of industrial, office and retail space will be opened by 2014. The Technopolis offers comprehensive technical infrastructure and a dedicated customs post, eliminating major bureaucratic headaches faced by foreign industries operating in Russia. Later this year, it plans to introduce special tax privileges for resident companies in target sectors.

Pharma reconsiders Russia

With the weak global financial environment leading investors to seek havens from risk, younger companies in need of funding are beginning to look outside traditional sources. New players in emerging markets are filling the gap by supporting forward-looking enterprises. Unlike its emerging market peers, Russia has a long and distinguished tradition of advanced scientific research, especially in the theoretical sciences.

Western observers are increasingly recognizing that the Russian government is serious about developing its domestic high-technology and science-related industries, both by retaining entrepreneurial and scientific talent in the country and by bringing foreign companies to produce advanced products and establish research centers in Russia. It has already committed millions of dollars to biopharmaceutical companies and has billions set aside for further investment. Government institutions have been established to make things easier for foreign technology companies. For a riddle, wrapped in a mystery, inside an enigma, that is quite clear.

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