Monthly Archives: May 2011

RIPCO, FIPCO, NRDO, FIPNET, VIPCO

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The above image summarizes some of the common business models in the biotech sector – showing which parts of the value chain the firms participate in and discussing very briefly the usual types of transaction mechanisms they use. Using the lingo of my previous posts (here, here and here), we are looking at the “when” and “how” of interacting with the value chain in these typical business models.

With limited financial resources, the vast majority of biotech firms start out life as RIPCOs – research intensive (or royalty income) pharmaceutical companies. They focus on the earlier stages in the value chain, such as discovery and preclinical development. The RIPCO model covers platform and tool-based companies seeking to commercialise drug targets, services and technologies that can be sold or licensed to other companies. At some point in the product development process, a RIPCO will plug into the value chain by contracting with one or more alliance partners who have the resources and/or capabilities to move the product development project further along the value chain. A RIPCO may not necessarily earn revenues the moment they plug into the value chain, as revenues may be contingent on achievements being made by the alliance partner as work progresses.

In the FIDDO (Fully Integrated Drug Discovery and Development Organization) model, platform companies extend their existing capabilities in order to take an innovation further along the product development process. The expectation is to enter an alliance or licensing agreement on more favourable terms than can be achievable under the RIPCO model.

We also have NRDO (No Research, Development Only) model, whereby a company in-licenses product from others that is already in preclinical or clinical testing. An example is The Medicines Company; that firm does not engage in drug discovery.

With the FIPCO/FIBCO (Fully Integrated Pharmaceutical/Biopharmaceutical Company) model, the strategy is to build and fully integrate most parts of the drug discovery and development chain. Given the large amount of capital required, few biotech firms attain this model, although many dream of it.

More recent concepts are the FIPNET (Fully Integrated Pharmaceutical Network) or VIPCO (Virtually Integrated Pharmaceutical Company Organisation) business model, whereby companies may outsource/contract extensively for services at any point(s) in the value chain, providing access to complementary assets outside the firm. This allows a company to maintain control of the product development process and defer the point at which they plug into the value chain.

Hybrid business models are sometimes used, particularly by platform or tool-based companies that enjoy stable revenues from licensing or sales, which allows for attracting investors or using their own income stream to develop products.

The ultimate goal for many biotech companies is still to pursue a traditional FIPCO structure controlling the value chain for their product offering. This may be a strategy driven by the promise of long-term return to investors and possibly naïve to the cumulative risks along the way. In any case, this seems to have become very difficult to do for biotech firms, due to the significant costs involved in bringing a product through the entire drug development and marketing chain. Therefore, the basic options seem to be to either find a niche in the value chain or control a relatively narrow slice of the market.

My next post will look at how and why the above business models tend to align with different classes of technology.

Janette Dixon

Would Graham and Dodd have avoided small cap biotech?

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Benjamin Graham and David Dodd are synonymous with an investing strategy called “value investing.” As outlined in their classic 1934 book Security Analysis, value investing involves investing only in securities that the stock market has significantly undervalued. Warren Buffett is the most famous practitioner of this approach, and millions of other investors apply aspects of value investing to their own portfolios. Graham died in 1976, the year Genentech was founded. Would he have applied his methodology to the biotech industry? I doubt it.

In essence, value investing asks two fundamental questions: How much does it cost? And what is it worth? If something is worth more than it costs, it’s a good buy; this is the proverbial “buying a dollar for fifty cents.” As applied to investing, to know the current cost is easy: the market value of a company’s stock is simply the price at which the securities are trading. Estimating a company’s intrinsic value, or what it should be worth, is much more difficult. In most industries, investors analyze a wide variety of financial metrics to assess the value of a company’s assets and performance. Two simple examples would be ascribing a monetary value to an inventory’s worth of unsold merchandise or determining the yearly growth in product revenues.

The problem with biotechnology companies, especially small cap companies involved in drug development, is that the common financial metrics are imperfect or misleading, making a standard value approach nearly impossible. These companies usually have irregular or no revenues, can be unprofitable for many years, and may have few tangible assets. Rather, intrinsic value for many biotech companies must be derived largely from a mix of a body of qualitative metrics (such as strength of clinical data, management team, intellectual property and competitive positioning) with a few essential quantitative measures (such as cash balance and cash burn rate). Analysts flesh out financial valuation models using additional industry data and scenario testing, which definitely helps, but in my experience, the substantial qualitative component inherent in a company’s overall valuation can create real world price fluctuations that deviate substantially from the models.

Certainly, value investing as Graham, Dodd, and Buffett practice it involves qualitative judgments; the brand value of Coca-Cola was an important factor in Buffett’s investment. But Coca-Cola also has profit margins, earnings growth, and real bottling factories that you can touch, which can be ascribed present and future value. If Biotech X is on its seventh unprofitable year, with a year’s worth of cash, developing a small molecule oncology drug in Phase 2 after having achieved a partial response and five instances of stable disease in a Phase 1 trial – what’s that worth? This is not your father’s discounted cash flow (DCF) analysis of an appliance manufacturer.

Yet, the pricing inefficiencies that occur in biotech are exactly what a value investor needs to find great investments. If a market is perfectly efficient, all securities are accurately valued and there are no bargains for investors to seize. And one does see generalist value investors like Seth Klarman, occasionally take positions in small cap biotech companies, but these seems to be in opportunistic cases in which companies are trading below cash value. But a value investor’s mindset, if not the traditional tools, can be a successful approach to biotech investing.

Adam Bristol

Money from US government

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Our new Bioentrepreneur article went live on the site last week. It’s an informative piece on the SBIR/STTR grant process at NIH, written by insiders at the National Cancer Institute. There is a section on similar programs in other countries, but we’d like to hear more about those programs from any readers with experience. You can do that directly in the comments section, or send an email to bioentrepreneur@us.nature.com. If the information is helpful, we’ll see if we can’t shape it into a blog post of its own.

You can read the current article here. It will also be published in the July issue of Nature Biotechnology.

Brady Huggett

Thinking about entering China now? Consider Why, How and Who

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My first blog post noted that an increasing number of foreign bio-entrepreneurs are visiting China with the hope of finding money, and my follow-up explained why most of them are likely to be disappointed. But I also commented that if you want to understand the Chinese market, then it makes sense to start getting familiar with it now.

China will soon become the world’s second largest healthcare market, and in the long run, you simply cannot ignore it. But before jumping on the next flight to China, make sure that you can convince yourself why and how it’s crucial to act on your China plan now instead of later.

And I really do mean convince “yourself” — not just some potential investor — that it really makes sense to get involved in China now. For the reasons mentioned previously, if you are an early-stage biotech company, you may not be able to gain much money by visiting China. So you should have some other reason to think about getting into China now. And you should be very confident that you have the capability to actually execute your plan.

1. Don’t go just for the sake of finding money; go when it can actually give you a good current advantage or a strong anchor point.

I explained in my previous blogs that most early bio-ventures are unlikely to be able to gain much funding in China right now. So if you plan to be in China, you should have a compelling reason that goes far beyond just money. I have come across many business plans from overseas which contain a China angle — which isn’t surprising, because bio-entrepreneurs are well aware that this is essential in order to attract interest from China-based funds.

Of course, it’s not difficult to devise reasons why your long-term business case may involve China. At a minimum, multiplying the incidence rate of your target disease by the Chinese population base, you can probably derive a huge number of potential patients, which may get the VC very excited. However, trying to convince the VC is one thing — but making sure that you are convinced yourself is a completely different matter.

A good reason to begin investigating China now would be if this can give you a strong current advantage. For example, if your company makes medical devices that involve large volumes of labor-intensive manufacturing, then you might consider having this portion of the manufacturing process implemented in China — providing that you can do so without sacrificing on quality.

But even if you cannot find an immediate advantage to be in China, I think it may still be worth spending a year or two to explore the country, to learn about the market, and to see if you can find potential partnership or collaboration opportunities. These partnerships do not have to be commercial in nature —they can involve research collaboration with leading hospitals, or perhaps outsourcing some of your R&D work to an academic institution. China now boasts many clinical resources, including patient samples and very experienced doctors. If you can find a way to work with them, then you may gather valuable insights for your R&D, and you may also make friends and build relationships with key opinion leaders who will be able to help you navigate the complexities of the local market, when you do come to China for real sometime in the future.

2. Make sure you have strong local execution capability: hiring Chinese returnees may not be sufficient to guarantee that you can achieve your goals.

Having convinced yourself of the “why”, you must also convince of the “how and who” for carrying out your plan in China. From the outside, China may look like a relatively homogenous market; but in reality, there is considerable diversity across the country in terms of market conditions, the policy environment, and the characteristic local working styles. There are over thirty provinces and provincial-level cities, and most of them have similar populations and cultural complexities to a medium-to-large European country.

As a consequence, entering China is a big task. There are plenty of global-scale biotech companies who still do not have much presence in the country, such as Celgene or Gilead. So you should ask yourself, What are your goals, and how do you think you can maximize your chances of achieving them?

In my opinion, one of the key requirements for success in the China market is to have a strong execution team in place locally, and a firm commitment from headquarters to support the local management with considerable on-the-ground decision making. My experience has been that having “remote control” from headquarters, or “fly- in management” with periodic visits, simply does not work. You should plan to hire experienced local managers with strong execution capabilities and track records. Typically, such people have been in the China market doing a similar job in a relevant sector for several years.

Some bio-entrepreneurs have tried to short-circuit the challenges of identifying and hiring a strong local execution team by instead hiring a “returnee” — someone who is ethnically Chinese but who has lived and been educated abroad, so that they speak fluent Chinese and English, and are able to communicate easily with the firm’s headquarters back in North America or Europe. Admittedly, such people don’t suffer from the language barrier, which would affect a westerner arriving in China for the first time. But someone returning to China after more than five or six years outside the country are unlikely to be familiar with all the nuances of evolving local conditions.

My view is that if you really want to build up your capabilities in China, then you will need to invest time and energy into finding good people who can help you achieve your goals. You shouldn’t expect that you will be able to find them right away just by relying on help from headhunters. Instead, you should start exploring and learning about the market at a relatively early stage, so that you can begin to make contacts in your particular market niche —and by doing so, you will naturally get to know people who might become great recruits when you do start to build out your China capabilities.

(Karen Liu is a healthcare investor at a leading China based PE and VC fund. The views and opinions expressed here are entirely personal and may not represent those of her firm.)

Karen Liu

Academic-Pharma Deals: A threat or opportunity for VC?

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Academic-industry partnerships are popping up all over the place these days to fund early stage programs as part of ‘“open innovation” initiatives and “external sourcing” of new pipeline projects. Here’s a non-exhaustive list of a few such deals this year alone:

  • Sanofi announced a deal with the Bio-X program to fund five programs a year at Stanford University (April 2011)
  • UCB and Harvard are collaborating on programs in neurology and immunology, and are already funding their first program (Feb 2011)
  • GSK is going direct to a handful of “academic superstars” to fund their translational work (Feb 2011)
  • Gilead and Yale announced a four-year, $40M partnership to work together on a set of cancer programs (Mar 2011)
  • Bayer has now inked a “10-year master R&D agreement” with UCSF (Jan 2011)
  • Even regional pharma is in the mix: Italy-based Zambon is funding a lab at UCSF to do drug delivery work (Feb 2011)

Late last year, several big ones were anounced: Pfizer-UCSF announced an $85M deal over 5 years, Sanofi-Harvard will be working on multiple programs, Pfizer-Wash Univ will collaborate on indications discovery, and the Sanford-Burham Institute tied up with both J&J and Takeda in Alzheimer’s and obesity, respectively. And there are probably others I missed.

The big question I always get about these: are these a threat to the early stage venture capital model?

Perhaps I’m biased to say this, but I don’t think they are at all. Here are a few reasons:

1. Early stage VC isn’t about market share. No one will ever “buy up” all the exciting early stage concepts coming out of top tier academic labs. The NIH funds some $50B worth of research alone, most of which gets done in academia. There’s an enormous amount of exciting substrate for startup formation. Most of these deals don’t even scratch the surface on the supply side: let’s take the Sanofi deal announced with Stanford earlier this week that “supports, organizes, and facilitates interdisciplinary, collaborative and innovative research projects in the early phases of development”. That sounds significant, and is. But importantly, its not a monopoly on access to the Bio-X program or Stanford. Its only five programs per year, while Stanford’s Bio-X program has 450 affiliated faculty from 50 departments and its Interdisciplinary Initiatives Program seed program has funded 113 projects involving hundreds of faculty. So put in context, hard to see this as fundamentally restricting access away from novel discoveries.

2. More industrial engagement in academia will help build a translational mindset. The beneficial presence of having seasoned Pharma R&D managers engaging with academics in these alliances will undoubtedly help foster an appreciation for challenges of drug development, the key questions to be asking beyond the “Science or Nature” paper questions, the importance of general reproducibility, what a lead optimization campaign really looks like, the attributes of a development candidate, etc… This sharing of knowledge can only be helpful.

3. There’s an academic funding gap and its great to see Pharma stepping in to fill it. In addition to providing valuable support to specific labs and programs, these Pharma alliances support the academic institution via overheads – which support core translational facilities at academic institutions that are of benefit to the whole ecosystem. Many top tier academics have Indirect Cost Reimbursement rates north of 60%; not sure how Pharma negotiated, but I’d be surprised if universities didn’t extract their pound of flesh here. Academic funding is only likely to be tighter over time with the budget challenges on the US government: will the 80% grant failure rate for federal research funding move to 95+%? If so, it’ll be great to have “Daddy” Pfizer-Warbucks and his Uncles around to help support these labs.

4. There’s also an early stage venture funding gap. With less and less venture firms playing in the early stage biomedical arena, its good to see Pharma helping to move promising projects forward, both for society and for future opportunities. I’m sure many of these won’t be licensed in by their funding partner for a variety of non-program reasons (e.g., strategic portfolio rationalizations, shifting therapeutic area priorities), and VCs in the future will be able to jump in and fund them. How many programs did J&J or Pfizer ever get from their Scripps collaborations in the 1990s?

Several comments from the protagonists of these deals make it seem like it’s attempting to replace or offer an alternative to venture investing.

– GSK’s Patrick Vallance says GSK’s approach with academic superstars will “provide an alternative to the often arduous task of developing a drug via a biotech spin-out. Biotech entrepreneurs spend much of their time raising funding for their research, but this has become increasingly difficult in the last few years.” It may be true that its tough to raise money for startups today and this could be a good alternative, but ceding downstream rights to GSK in exchange for funding might not solve all their problems. Many of the pharma incubators in recent years have attempted to do this but have largely strugggled.

– Some of the lessons from early stage VC are being used here. As Pfizer’s Anthony Coyle says ”It’s almost like VC-based funding… ” where the deals have small upfronts and “and then projects are funded as they are successful. If there’s no success or a project didn’t meet the appropriate milestone, then there’s no additional funding.” Couldn’t agree more with Tony that milestone-driven funding is a good thing.

Lastly, its worth noting that once an academic project from one of these collaborations enters a Big Pharma R&D organization, it will be one of literally hundreds of projects in the pipeline. Will academics be able to influence and shape those projects the same way they can in biotech? Will these newly minted programs get the mindshare of seasoned, creative R&D managers to push them forward? Will those programs succeed against the tyranny of big bureaucracy better than others? I’m sure in some cases the answers will be positive on these questions, but academic labs should certainly consider them when they strike these deals.

At the end of the day, I think there’s a (mostly) healthy vetting process conducted by early stage VCs in evaluating, co-creating, funding, and helping govern new startups out of academic labs. When done well, Pharma benefits from this, as does academia. I don’t see these broader partnerships as threatening or significantly reshaping this important role of VC and their startups in the process of translating discoveries into clinical innovations.

Bruce Booth

The market for ideas vs. the market for products

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Financial returns on an innovation may be earned through the “product market” or the “market for ideas.” The product market we are all familiar with – it describes the way in which we buy and sell physical products (medicines or diagnostic kits, for example) or services (laboratory tests or surgery).

The market for ideas, on the other hand, is a notional market in which innovations are sold or licensed before they are a final product (or service). In essence the innovation is still an idea, or intellectual property – it is a collection of intangibles. Choosing between these two options is a key element in commercialisation strategy. The innovator can try and take a product to market themselves (including manufacturing, marketing and distribution) or they can sell the idea to another firm – one with the appropriate infrastructure to launch the innovation.

In the first instance, the innovator will use or pioneer its own value chain, meaning the firm integrates internally or contracts for the value-added activities. (For more on value chains, read my last post.) In the second, the innovator will use an already-existent value chain. The majority of biotech firms commercialise their innovations in the market for ideas – after all, manufacturing, marketing and distribution all bring additional costs – but there are times when this may not be the best strategy.

How do we know which is best, and what are the drivers for this decision?

Intellectual property protection and access to complementary assets (regulatory knowledge, manufacturing ability, sales and distribution teams) both play a part. Strong intellectual property protection and a lack of in-house complementary assets usually means a company commercialises in the market for ideas – selling or licensing to a party with the skills and infrastructure to bring it to market. This is typical for small biotech firms.

However, when a firm does not have strong intellectual property protection, then it’s at risk of having a larger partner appropriate (steal) its ideas, or take a much greater share of the value than the smaller firm thinks is fair. In this case, that firm might be better off keeping its intellectual property protected as a trade secret, which means it takes the innovation to market itself. If resource constraints means self-commercialization is not possible, then a small firm will need to rely on the reputation of the larger company to not be taken advantage of. If this occurs, it’s best to use a trusted intermediary (such as a prominent venture capitalist or licensing lawyer) to act as a go between in negotiations that will not include full disclosure of the trade secrets until after deal completion.

A second situation is when there is no existing full value chain for a product, and the biotech start-up is forced to pioneer the development of new complementary assets. An example would be the xenotransplantation of alginate encapsulated neonatal porcine islet cells to produce insulin in the host. That’s what "Living Cell Technologies ":https://www.lctglobal.com/ (LCT), a New Zealand based biotech firm, is doing, and it has had to develop its own specialised manufacturing facilities. To bring the firm’s products to market it may eventually pioneer the development of specialised clinics that can handle the transplants in large numbers. LCT has no choice but to commercialise its technology in the product market.

Sometimes an evaluation of the risks and rewards of using an existing value chain vs. building one will show the latter to be more rewarding, though building one requires access to sufficient capital. Products targeted at high-paying and/or highly centralised or niche market opportunities may lead to the development of downstream infrastructure for manufacturing, sales and marketing and distribution, even though existing channels could be used (e.g. orphan drugs, products sold to specialists or hospitals).

Once a startup has made the decision to commercialise in the market for ideas, the next questions are “when” and “how” to plug into the value chain. Cooperation might occur via research partnerships, arms-length licensing agreements or cozy joint ventures among other alternatives. Further, a company might find help at many points along the value chain, from discovery to preclinical testing or clinical testing to marketing. Still, a bioentrepreneur might not know how to make these types of decisions, and I’ll explore that in future posts. First, though, we’ll look at typical business models in the biotech sector (that’s coming up next).

Janette Dixon

The Business Model of Biotechnology Incubators

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Biotechnology incubators support entrepreneurs and early stage start-up companies by either competing or cooperating with other companies in the search of the most interesting, valuable and viable start-ups. Along with venture capitalists, business angels, consulting companies and institutional investors, incubators provide financial and managerial support. The incubation of technology-based start-up ventures has been dependent on the nature of R&D projects. Incubators constantly face high uncertainties regarding future technologies, potential markets, and team development. Returns on investments in specific start-ups could be generated through equity shares in the start-ups and to some extent by providing training and services to the desired clients. Therefore, an incubator is both a service firm and risk investor that supports early-stage technology start-up companies through strategic business guidance and direct equity investment. Ultimately, the effective risk management across the innovation pipeline becomes the biotechnology incubator’s business model.

These biotechnology incubators have differentiated themselves by the source of their evolvement, competitive scope, strategic objective, and the service models. The main purpose of these incubators is to speed up the business development by providing the start-up risk capital, reducing the uncertainty in the early phases of development, and shortening the ‘time-to-market.’ Entrepreneurs have varied reasons for starting up with an incubator, based on the type of an investor, region, profit-making strategy or strategic partner. There are several kinds.

University-based incubators

Typically, the university-based incubators are sponsored by academic institutions and give preference to faculty and student entrepreneurs from their same university or institutes. Others establish close relationships with universities and colleges. These incubators use universities as a technology source and as a means to provide opportunities for their client firms to leverage university research in their commercialization efforts.

Region-specific incubators

The goal of the region-specific incubator is to partner with area leaders in their efforts to diversify the region’s economy by creating a strong high-tech industry base and also to assist them in technology transfer activities to build a strong entrepreneurial culture. Geographical focus is a natural competitive factor for regional business incubators, since their mission is to support new businesses locally. Network access is a crucial element of successful incubation. Since networks are usually limited to certain regions, many incubators strive to establish a good local presence early in their development.

Industry-specific incubators

Some incubators focus on a particular industry because of the past experience, competencies of the incubator managers, preference to other similar entrepreneurs to create a network among incubating entrepreneurs, or due to the need of business facilitation services such as funding, office space, IT infrastructure, and training from the consulting firms.

For-profit or Not-for-profit incubators

Incubators also differ in their strategic objective for supporting start-ups: whether they are offering their products, technologies or services for-profit or not-for-profit purposes. What separates the successful from the unsuccessful incubators? Is success dependant on their being for-profit or not-for-profit type of incubators?

Now, considering the nature of uncertainty in the entrepreneurial life cycle at the early stage of start-up development, there is no guarantee that a particular start-up is going to be successful. Generally, these different types of incubators operate at the highly uncertain stage when business plans are not finalized, markets are uncertain, and technologies are underdeveloped. The inherent complexity and unpredictability of incubation makes it difficult to support all the start-ups. Therefore, it is important to understand that, theses incubators generally make investment decisions across a portfolio of different but ‘ought-to-be-successful’ start-ups in order to maximize operational and investment returns while minimizing portfolio risk.

Viren Konde

Reverse brain drain and the Indian biotech “niche”

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For the past few years, we have received significantly more resumes from native Indian post-doctoral fellows from the US, searching for opportunities in India, which tickled me to explore the phenomenon of “reverse-brain-drain” in India and the biotech field. This phenomenon became popular after the dot-com bubble crisis, which forced many IT professionals from Silicon Valley to return to India.

In my opinion, China has gained a lot with the reverse brain drain phenomenon in biotech, as evident by the number of publications in high impact journals. The “knowledge-hub” creation-oriented governmental policies could be a major contributor.

However, the situation in India is not that encouraging. If India Inc. wants to be successful in achieving gains from a reverse brain drain in biotech, it should create an environment that is conducive for those talented individuals to come back, perform their best, contribute and remain.

Bringing back post-docs and putting them under the “old-time” systems with “red-tape” protocols will kill the spirits of those aspirants who want to do big things back home. I compare this to an in vitro cell culture system where we grow the cells taken from an in vivo environment. Though physiologically the environment or niche is different, we try our best to create the physiologically closest niche in vitro so that the cells will grow outside the body.

Similarly, rather than only bringing those post-docs (the cells) back, we should try to create systems (the niche) like those in developed nations. Some components of the niche could be:

  • Creating performance-based incentives and promotions
  • Maintaining confidentiality of proposals submitted through a single window to all funding agencies to prevent plagiarism
  • Allowing principal investigators to retain intellectual property rights
  • Being open to their entrepreneurship initiatives by establishing appropriate transparent systems
  • Allowing senior faculty from laboratories of accomplished nations to contribute to research projects in India.
  • The hope is that these elements would bring out the best from those talented individuals transplanted back home.

Samuel JK Abraham

No Genes, No Future

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The biotech industry relies strongly on genetic engineering, and on genes being characterized and properly expressed. This was clear to me more than three decades ago, after Herbert Boyer expressed in California the insulin gene in E. coli. I’m a member of the Brazilian Academy of Science, and since the ‘80s, I’ve stated that countries that do not identify genes will never build a competitive pharmaceutical industry, or agbusiness industry, or, more recently, biofuels industry.

Well, Brazil does not have its genes, as they say. And its pharmaceutical industry has accumulated a US$7 billion debt, when comparing sales to importing. The genes coding for the enzymes capable of converting cellulose to ethanol will come from large corporations, such as Novozymes, Amyris and Ceres – all of which are already working in Brazil, benefiting from its sugar cane industry. Monsanto acquired Alellyx and CanaVialis, both related to sugar cane.

Because it’s important for Brazil that the best technology reaches consumers, I do not criticize that. Good partners are of course welcome. The problem is that when we move to agriculture, Brazil does not have a clear strategy to identify and use the genes needed for the plants of the future. Nevertheless Brazil is second in genetically modified organisms (GMOs) cultivated, behind only the US. So what is the problem? The price we have to pay for the genes.

The RR gene from Monsanto, for making plants tolerant to glyphosate, last year cost Brazil US$200 million for our soybean farmers. That weakens Brazilian competitiveness. Other necessary plant genes are in the hands of the large corporations. We can imagine that Brazil won’t be able to compete with China in the cotton business unless Brazil does not need to pay for the genes to the Bt technology. China has its own Bt genes, after all.

Fortunately for Brazil, we have a unique Bt gene toxic to Boll weevil, coming from Embrapa, the Brazilian Agriculture Research Corporation. Boll weevil costs to the cotton farmer $150 per hectare. EMBRAPA has a rich Bt collection with 4,000 mutants, and other Bt genes may be there. But it begs the question: Why doesn’t Brazil have the genes to build the pharmaceutical industry?

Laws, in effect prevent scientists from finding these genes in our own biodiversity – a problem that has existed since 2000 and controlled by the Ministry of Environment. There is a council called CGEN, but it does not operate. It is so prohibitive, it prevents The Butanta Institute from working with its own snakes (which they have being doing for more than a century), unless authorized by this law. Institutes like Vital Brasil, in business for more than century, suffer from the same fate. More than a hundred cases are suing scientists and institutions for collecting plants without authorization from the Brazilian Institute for the Environment and Renewable Natural Resources (IBAMA) – the right arm for the law. Even though he was authorized, researcher Elibio Rech, from EMBRAPA, was fined 100,000 reais (US$45,000) because he developed a technology from a spider web coding gene. He’s allowed to do the science, but not develop a technology. Then what is Brazil’s famous biodiversity good for?

This never happened, of course, with the Canadian Air Force, which has used this spider gene for more than a decade. The law (called a provisional measure) has been a disaster for the Brazilian biotech industry. We tried to get a new law passed for the past 10 years, but never succeeded. Brazil cannot waste more time. Will we develop the Bt genes? Who knows. The matter should move from the hands of the Ministry of the Environment, to the hands of the Ministry of Science and Technology, which previously had control of such matters through the National Council of Research – all of which was before the Biodiversity Convention and before the passing of the provisional measure just mentioned.

What do I think should happen to the provisional measure? It should disappear, legally. It is judicially possible for this to happen.

Luiz Antonio Barreto de Castro

Chinese Bureaucracy

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Nine months into my enterprise I remain optimistic about China’s future in the global pharmaceutical community, which has lead some of my friends to think I am naïve or just plain mad. The country says they have the resources, the will and the vision to build this nation into a world-class leader in manufacturing, innovation and citizenship. As a reminder, I am part of a founding team that is in a cooperative joint venture with the China Medical City (CMC) government to build and manage a globally compliant biologics manufacturing facility in Taizhou, Jiangsu, China. (Read more about that here)

Today’s post may be a bit discouraging, because it’s not what people and governments say that indicates their intentions, but it is what people and governments do that reflects the real driving forces and motivation behind their behavior. For those of you considering China as a place to start a business, I don’t discourage it, but please go in with your eyes open and a healthy amount of skepticism. Sometimes one gets bogged down in the day-to-day, which is what is needed to push new enterprises forward, and I have to continually remind myself that the ultimate goal is what matters, and there are a variety of way to achieve it.

Now for some specific negatives about doing business in China. This joint venture was registered with the provincial and central government in October, and the Chinese partner, China Medical City, has yet to make the 20% minimum investment to finalize the joint venture (JV). They admit to having over-committed themselves to fund more than they have the resources for. Consequently every invoice and paycheck has to go through government processing so it can juggle its books to keep everything running, which is more bureaucratic and byzantine than you can imagine. Talking about bureaucracy, this country has had 5,000 years to perfect it and like anywhere in the world, it is self-perpetuating. One has to become the perpetual “squeaky wheel” to get what they need, and it can be exhausting and distracting.

In closing, I knew trying to build a GMP biobusiness in China, or anywhere for that matter, wouldn’t be easy. I didn’t expect the government, with all that trade surplus money, would renege on their contractual obligations, so everyone, be advised. I just read Chloe Liu’s post and it sounds quite the opposite of what I’ve just described, so it’s apparent that different people have different experiences, or they are at a different stage where their circumstances are dramatically different. I will give it about a month….

David Wilson