Mikhail Getman: Biotech development determines the level of the economy

At the end of 2018, a biopharmaceutical cluster was created in the Technopolis Moscow special economic zone – 21 of its resident companies working in medical technology, equipment and biopharma are now part of the cluster and can count on serious investment support from the cluster partners. On February 12, Technopolis Moscow signed an agreement with ATEM Capital (US) and TPP Healthcare (China), providing for financial support for export-import operations of the cluster members in the markets of China, Canada and the United States. It is expected that by 2023, they will receive up to $500 mio for development. Mikhail Getman, Chairman of the Board of the Biopharmaceutical Cluster, has shared with Invest Foresight the specifics of the cluster’s operation, how to become a participant, and most importantly, what tools and support options the residents are entitled to.

– Mr Getman, how did you come up with the idea to create a biopharmaceutical cluster? How is it different from those that already exist?

– The idea itself belongs to director of the special economic zone Igor Ishchenko, which was logical. For the past five or six years, the management company has been developing an ecosystem for the development of hi-tech industries at Technopolis Moscow. He already asked me to join the project because I have been in the pharmaceutical industry for 30 years. We decided to organize the cluster in a different way than it happens in other regions. Almost every region today has a pharmaceutical or a medical cluster. However, we believe that their concept is stalled. Most clusters usually attempt to first develop an administrative system – a non-profit partnership, an association, a contribution system or a permanent body that has to be funded. As a result, the associations are often out of touch with the actual needs of their participants. We also noticed that Moscow basically doesn’t have a pharmaceutical cluster. Yes, there is the Severny cluster at the Moscow Institute of Physics and Technology; there is the Skolkovo cluster but they are focused on startups. Here in Technopolis, all the facilities are down-to-earth production facilities.

– What are these facilities?

– We started with enterprises that are located at the Technopolis. We also expanded the list and included companies of all fields related to the Life Science category: pharmaceuticals, biotechnology, manufacturing of medical products, functional foods and rehabilitation devices, and all kinds of services related to these industries. That is, all companies that deal with the needs of a patient. For instance, Academy-T produces sports foods, Bright Way Industries is going to launch the production of medicines, and Orthomoda is changing the orthopedic footwear market.

– What can the cluster offer these companies?

– Production facilities of the Life Science sector need common things such as utility networks, gas, water, sewage, clean rooms, ventilation, etc. We found out that even on the Moscow market such services are either hard to get or are of poor quality. So why not creating an investment process that would meet the demands of these enterprises at Technopolis and beyond?

How difficult is it to become a cluster participant?

– Any company in Moscow can become a member of the cluster. All it takes is to sign the Declaration. There are no contributions or obligations. The company can delegate its representative to the Cluster Council. There are no obstacles to that. We established the council to determine needs and correct investment decisions that would meet the existing demands. Currently, the council includes seven representatives who are helping a lot in developing an appropriate policy. The Cluster Member Declaration is a one-page document that contains seven statements that, we believe, every responsible company should agree with. Afterwards, we extend our support instruments to the company.

Do you compete with other clusters?

– No, we don’t. We have nothing to compete for. We are open for cooperation with other clusters and associations. Other territorial and industry-specific clusters can join the open agreement that we all signed. We filter companies according to the seventh principles in the Declaration that I just mentioned. For example, a company must be a producer rather than a startup with a bunch of ideas. There are certain RND requirements. A company must have an internal budget for innovation and development. A company must also encourage employees’ professional development and engage young people. Of course, it must be interested in developing production in Russia. Finally, it must be involved in a constructive cooperation with the officials.

Which support instruments are available to cluster participants?

– We started with identifying the shortages that exist in the segment of supplies for companies’ operation needs. They are very simple. There are logistics problems, a lack of mechanical workshops and microbiology labs as well as problems with waste disposal. So we started with that. Also, we have absolutely no expectations to use participants’ money. There is a group of private investors and funds that are willing to invest in facilities.

ATEM Capital and TPP Healthcare have become the cluster’s partners. How will they help the residents?

– The agreement with ATEM Capital and TPP Healthcare aims to structure export and import deals of the cluster members. For example, a company wants to purchase equipment from China and agreed on the price of $10 mio with the supplier. Thanks to the partnership, we can provide export support mechanisms that are available in China. If we manage to structure the deal, the resident will pay, for example, $9.5 mio instead of $10 mio. Or, for instance, a company has no current assets for a deal but it is willing to sell a share in its chartered capital. Somebody has to structure this deal. Here is another example. Chinese funds are extensively buying global rights to medical technology, pharmaceutical and biotech solutions around the world at early stages. Supposing a company wants to buy rights only for Russia directly from the developer, the bill will be inadequately high. But from the composition of the global rights bought by the Chinese, rights can be singled out only for the Russian market, at a completely different price. The Russian company that will go through with it will receive a patent and rights. This is the ideal picture as we see it.

– Are investors already considering specific cases involving residents?

– Every deal will be considered on a case-by-case basis. Not all demands can be met but at any rate the cluster residents already have this option. ATEM Capital and TPP Healthcare are beginning to test the waters to understand where they should move, who to involve and what needs they have. Of course, it is a big commitment for these companies. This commitment amounts to $500 mio. I don’t think Technopolis residents have enough business projects to use all the money. So other companies can also join the cluster. And, once again, there is no fee, no entrance tickets.

– Why are ATEM Capital and TPP Healthcare interested in a partnership with the pharmaceutical cluster?

– Naturally, they will get a commission on deals. Perhaps they will want to become co-owners of some of the companies. They have their own quota on direct investment, therefore, they can structure these deals. Both companies deal with global transfer of rights and technology and the

y can make money on that. They may provide support in terms of product exports. For example, there is a proposal from Canada where they created extraordinary conditions for innovative companies. We could try to localize with some of the projects and thus enter the markets regulated by the North American Free Trade Agrement (NAFTA). But this is only a hypothesis so far. As concerns China, there are dozens of techno parks and various clusters in each of the provinces. We could also engage in horizontal, industry-specific and bilateral cooperation projects with China.

– How important is the development of the biopharmaceutical industry for the country’s economy?

– Of course, it is extremely important. In the 1960s and 1970s they said that the car industry is indicative of the country’s economic development. Now they say that it is about the pharmaceutical and biotech industries. If they are underdeveloped, the economy also lags behind. Of course, we are still behind America, Europe, Japan and perhaps China. But it is impossible to achieve everything at once. Let’s look back on the IT. Fifteen years ago we all used foreign software. Now Russia’s IT exports are bigger than arms exports. In 2018 it was worth $20 bln.

– So is it possible to develop in this area too?

– Of course. The federal government has paid particular attention to the development of the Russian pharmaceutical industry for many years. First the Pharma 2020 program was developed, then Pharma 2030. The programs turned out to be big success and solved many problems, first of all those related to our dependence on the imports. They allowed for creating a whole new series of companies such as Biocad, R-Pharm and others. These companies aim to expand the market and create new products. Each of them has a venture fund. In terms of production capacity, we have become almost completely self-sufficient. The next move would be the development and production of active ingredients, molecules and innovative medicines instead of producing generics. We need to have our production of strategic substances for security reasons, among other things.

– Can the cluster play a role here?

– We do not have any chemical facility yet, but why not? Maybe it will happen sooner or later. We want everything to develop in an evolutional manner because the conditions of an ecosystem change the development of its parts. Technopolis is an example of this. And it depends on what kind of ecosystem was created by the managing company and the Moscow Government.

By Olga Blinova

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