HimRar: the success story is not over

How do you manage to take your place in the XXI century?
i-Russia.ru

Interview with Andrey Ivashchenko, Chairman of the Board of Directors of the HimRar Group of Companies, about the main trends in the global pharmaceutical industry, how to preserve scientific potential and convert it into a successful business, and what problems stand in this way.

Andrey, today more and more often in the news we hear about new technologies in pharmaceuticals and about your company. And how did your business and your company come about in general?Let's start with the fact that we are far from new to the market – this year we celebrate the 20th anniversary of our company.

In 1990, the Contact-Service company was founded, which was engaged in fine organic synthesis on order for Aldrich, Fluka, Acros, Merck, etc. For the USSR, this was a new business, but in the world it is a common practice when a scientist who needs some non–standard reagent does not synthesize it himself, but orders it from a specialized catalog company. The company has a certain number of synthetic suppliers who synthesize the necessary reagents for it.

We had a very strong trump card. We took on those orders that, due to their exceptional complexity, other suppliers refused. The number of organic chemists of the highest class in the USSR was greater than in the rest of the world, so our scientists managed to take a place in the international distribution of labor for commissioned research in the field of organic chemistry. This was our primary business.

The decoding of the human genome changed the paradigm of the development of new drugs: automated complexes appeared, mass screening; a huge number of various chemicals were needed – it was a period of rapid growth of our company. From 1992 to 2000, the entire segment of the development of innovative drugs and, in particular, contract research at preclinical stages was growing. That is, starting with chemistry, we added biology, animal experiments – the entire line of research that Western clients needed. At the same time, all growth was carried out organically, without any investments, at the expense of own funds and the growth of demand in the market.

If you look at the geography of customers, about half of our customers are American firms, the other half are Western Europe and Japan. The geography corresponds to those countries where innovative drugs are made. In Russia, the demand is negligible. Alas, our economy allowed only companies that traded in foreign drugs to survive, not production. With a refinancing rate of 15-20%, production projects are unprofitable, as a rule. Only now, with the reduction of the refinancing rate, it becomes possible to develop production projects. But this does not mean that the domestic pharmaceutical market will immediately require innovation. To do this, manufacturers first need to start competing with each other, only then they will have an interest in innovation. In the next five years, it is possible to live and develop due to import substitution and the fast-growing market of the Russian Federation, without developing real innovations. As a child grows in stages, so here: first trade, then production, then scientific research and innovation.

Having achieved success in these services, we did not stop there and began our own development of innovative medicines. Therefore, when international competition in the market of contract research and outsourcing began to increase, and the profit margin on services became very small, we began to invest our own funds and our own profits in the development of our drugs. This was the second phase of the company's development.

Today in the center of business there is a business incubator of high-tech innovative organizations – the Center of high Technologies "HimRar" and its "anchor" research organization - "Research Institute of Chemical Diversity". There are three types of organizations in our group of firms. The first is contract research organizations, which we have already talked about. The second type is developers of new molecules (innovative biotech startups). This direction has been growing since 2005. Today we already have several molecules in clinical trials.

"A few molecules" doesn't sound very impressive.Each of these molecules is the result of a lot of work and testing of thousands of variants.

These molecules have an exportable potential, and if they "shoot", it will be very interesting.

The third group of firms in our structure began to organize later. These are various production projects. We saw the current situation on the Russian market and realized that our expertise in creating innovative products can be very easily used to solve a simpler task – the creation of import-substituting products. Import substitution is much easier to find new molecules; you already know exactly what you need to reproduce. We have started a whole series of production projects, mainly high-tech ones.

That's how we developed. We started with contract research, which is still the main source of existence. They are now the most low-profit, but their constant flow allows us to maintain the entire infrastructure. Their own developments of exportable drugs were added to them. And then they also added the production of drugs.

Your business started at the most difficult time, and you immediately set a very high bar – the most difficult orders and work with Western partners. In general, is it a plus – the ability to work "in the Western way"?

Sure. Western customers constantly keep us and our laboratories in good shape – you can't spoil them here. If you said there would be a result in a quarter, then there should be a result in a quarter. I delayed the report for 5 days, – then you will explain for 5 years why this happened. The style of work in this business is very different from work in public science, university, for example.

These are generally two different worlds: industrial applied science and public university or academic science. There, in universities, the process is valuable in itself, but here, in business, the process does not matter – the result is important. No matter what an outstanding experiment you have turned out, if it is not in line with the result you are going to, you stop it. Therefore, many scientists who come to us from academic science, at first it is very difficult, they have to step on the throat of their song all the time. But this is a feature of industrial science. It is result-oriented. It's not good, it's not bad, it's her property.

The fact that we have been coached by our Western clients and partners all these years is of great importance. They outsourced to us what they themselves could not do. We grew up on the most difficult tasks. Therefore, we compete at the highest level with California, English, and Japanese organizations. Now, for example, the Chinese are trying to enter this market. Unlike us, the Chinese take on just the most routine procedures. There are many routine procedures in industrial science, and the Chinese take such work on themselves. They don't know how to do what we do, for example, in terms of the complexity of the work or its diversity, but they still put pressure on the market in general, and, as a result, on our market segment. As a result, prices drop everywhere, and profits become very low. Approximately, if a Chinese research firm sells one "ucheno / year" for 60 thousand dollars, we – for 100 thousand, and in Europe – 150, in America – 250-300 thousand. Anyway, no matter how outstanding we are, if we give a price significantly more than the Chinese, we will lose the market. Therefore, we have to constantly maneuver: and keep the price, and not be at a loss. One skill is not enough here, but we successfully differentiate ourselves in relation to the Chinese by doing more integrated things. You can order individual items from them in different places, and we do everything together. If you want, here's chemistry for you, here's biology for you, here's a pre–clinic, here are pilot batches, here's a clinic. In this regard, our center is unique even in the world. When Western clients come to us (the same Big Pharma) and see that all the elements are assembled in one place and in working condition, this motivates them quite strongly to conclude contracts with us.

Russian outsourcing companies in the field of information technology had similar problems. And even they got a similar solution.Outsourcing is not a panacea.

When a company gives a production function to an external contractor, everything is clear and simple there, and we cannot overtake the Chinese here: China is such a big world copy machine. But when there are innovations in outsourcing, the most interesting thing begins here – because innovations are difficult to outsource, and here we have a chance. What does it look like at the business level? Suppose an order is given to a Chinese laboratory: "Here's a scientific article for you, here's a synthesis scheme, do it for us." They do, but it doesn't work out. They inform the client, he offers them a new option. They try – it doesn't work. And so many times. And how is the work going with us? We are told: "Here's a scientific article for you, make a synthesis, a synthesis scheme." We do, – we don't succeed, we write in response: "It doesn't work, but you can do it, then it will be so, and if you go here, it will be so, and it will have such additional properties. In general, you can still do this and that, you will immediately experience it, and we will immediately see whether or not to follow this path." And the scientist, who is the manager of our contract on the client's side, immediately receives a range of solutions and says: "Yes, let's do as you suggested." And they certainly appreciate this very much, it is our competitive advantage.

We have now begun to agree on this: you pay us as Chinese scientists (that is, initially two times less than is accepted by our standards), but if as a result of work we get a biologically active substance with such activity on such a target and with such toxicity, you still pay us the same amount. This model is convenient for both sides. The price is formally the same for them, and if we find something interesting, then the question of additional remuneration does not arise. This is called the risk-sharing model, and this is how we effectively differentiate from the Chinese, while retaining market share.

And what is going on in the pharmaceutical world anyway? In which direction is this industry developing?As you know, not so long ago the human genome and microorganisms were decoded, and this gave rise to a huge number of innovative processes and related discoveries.

And that is why they say that the XXI century will become the century of living systems. New technologies and their commercialization come only after humanity makes some serious fundamental discovery. If you look at all the fundamental discoveries of physics of the XX century, they, in the sense of technologization, have already been exhausted. Humanity has not discovered anything serious for a long time. The only major discovery that has been made is the decoding of the genome. And that is not a discovery, but a prerequisite for discoveries. Therefore, the whole wave of technologization of the XXI century will be built around this one way or another.

What does this mean in our work? If earlier, when creating a drug, it was possible to understand its effect, by force, on some organ or tissue, now it is possible to understand the effect of the drug to the cellular level, and sometimes even to the molecular level. Due to this, it turns out to select drugs more accurately. Like a key to a lock. Figuratively speaking, if earlier you had to open the door and you fired a guided projectile at the building, now you can pick up the keys and open the door. Previously, in order to act on the disease, it was necessary to eat a bunch of pills, now a very small amount of the active substance is enough to modify the disease. That's what the drugs are called – a new, targeted type, with a proven mechanism of action. When you come to the FDA (Food and Drug Administration), then without this proven mechanism, you will not receive an application now and will not be given permission to test on humans. You need to show how your molecule acts on a protein, what this protein does in the cell or outside the cell, how the cell as a whole acts in the tissue, how it all works. That is, you should have a correlation of the action at all these levels. This means that you know the mechanism of action of the drug. It's funny, but many of those drugs that we are actively using now, for example, aspirin – if they were invented now, they would not have been registered under the new rules, because the mechanism of action is still unknown there. Understanding the mechanisms of action of drugs to the cellular and molecular levels leads to the fact that medicine and pharmacy are becoming more focused. The wave of personalization of medicine is connected with this. It turns out that these targets are different for different people. People begin to be divided by genotype, phenotype, etc.…

Now the steam – drug plus biomarker is entering the steel market. The biomarker first determines whether this particular drug will help this particular patient, and then the biomarker objectively controls the recovery process. It is not necessary to wait until the whole body is poisoned if the medicine was missed. You can immediately see the dynamics of healing by blood tests. So, speaking of personal medicine, I think it will develop in this direction. Now Vid Pharma and Biotech have hundreds of such pairs in development. One can imagine a situation that in 10-15 years a person will come to the hospital with some kind of cancer, they will take blood from him, test it on a panel of biomarkers, look at the profile. For those biomarkers who responded, they will take the appropriate medications and make a "cocktail" right in the hospital, give it and immediately watch on the same panel how the recovery is going.

Big Pharma's business today is built in such a way that, having developed drugs for a billion dollars, the company must sell it for another ten years, earning a billion a year. If we switch to personal medicine, the concept of mass sales will disappear. And since there are no mass sales that pay for scientific developments, the treatment should cost hundreds of thousands of dollars. But this treatment will really help. Therefore, now the general insurance model of medicine is shifting towards the fact that insurance companies will pay for a cure, not for treatment. Now this billion is collected from the population, and it helps 20%, the remaining 80% gave money, but this treatment was not needed. The new model will result in the same amount of money remaining, but they themselves will be more discrete and will really help. But in order to implement this scheme, the paradigm of insurance medicine itself must change. Biomarkers will become a factor of objective control of the effectiveness of treatment. Insurance companies will pay for this result.

According to the description, today's situation is very similar to the one that was in IT when the personal computer appeared. Can a small startup appear today that, like Microsoft once did, will push IBM (Big Pharma) and gain a significant market share? It seems to me that it is possible.

Powerful biotech firms have grown out of such startups, and have grown just in the wake of biotech drugs. I think something similar can happen in the history of personal medicine. For example, some startup will make a very successful "medicine-marker" pair, showing the effect in the second phase and using venture money. And instead of looking for a strategic investor, he will go and place himself on a Russian exchange like NASDAQ, get money, enter the Russian market, then enter the European market, then jump into the American market… Theoretically, this is possible. Big Pharma currently reserves the only competence – intellectual property management and market access. Everything else is given to biotechs (if it is the development of new drugs), contract research organizations (if it is clinical trials), venture capitalists (so that they co-finance), etc. That is, it is a strong distribution of competencies in the concept of open innovation. With such decentralization, it may turn out that some elements will suddenly become separate players, having received at some point some key competence, or product, or money.

What areas of modernization of the Russian economy do you consider the most effective?

There are several thoughts about the most "fashionable" directions today.

First, about supercomputers. Since I am a former IT specialist myself, I have little faith in computers in the field of living systems. I believe that humanity should work for another 50 years to have computer tools that could adequately simulate what is happening in a living organism. 5-7 years ago there was a very strong boom associated with the so-called In silico screening, when protein models were made on large computers, vector machines. Many biotechs and venture capitalists then said that now we will pass In silico tests, we will determine all the molecules that should be (keys to locks), we will synthesize them, and we will have medicines. It didn't work out. A huge number of biotechs and venture capital firms and funds that invested in it have burst, and now computer technologies have taken their instrumental place along with other technologies. It's just a tool for some operations. Imagine that you are assembling cars. If you used to have only a hand drill, and now an electric one has appeared, then this is very good for work, but it will not lead to a revolution in the automotive industry. The problem today is not only and not so much in productivity, but in the absence of the necessary level of understanding of processes in a living organism.

The computer is not useless. Our work is structured as follows. We are coming up with a scheme for synthesizing a new library. Theoretically, it is possible to synthesize several tens of thousands of substances around one such idea. No one needs these tens of thousands. It is necessary to synthesize 500 compounds that will represent those 10 thousand in the most diverse way. A computer is indispensable here, but a regular PC is enough for this work.

Another topic "on everyone's lips" is pharmaceutical clusters. I agree that this is a breakthrough thing, but let's agree on the terms. In our country, when they talk about pharmaceutical clusters, for some reason they always mean production. Perhaps everyone remembers the "industrialization of the 30s" with its smoking pipes and large-tonnage chemistry. But production, today, is not a competitive advantage at all. Our understanding of pharmaceutical clusters, which, by the way, coincides with the understanding of the Ministry of Industry and Trade and the Ministry of Health, is, first of all, a belt of small innovative enterprises around universities. In a market economy, the interface between public science and industry is always carried out through small innovative enterprises. They take some kind of patented development, start implementing it, someone dies along the way, and someone survives. Those who survive are capitalized, bought up, but for normal operation this swarm of small innovative enterprises around universities must exist. Inside each of these enterprises there should be a "crazy" young entrepreneur who graduated from university. He has a good natural science education, he wants to achieve something in this life, but all the sweet spots, such as gas pipes and mines, are busy, and he wants to live as well as some of his peers. These are the kind of people who start doing something. This entrepreneurial energy generates those success stories, which then grow into the world's largest companies.

And naturally, such clusters can only be around universities, where there is an influx of energetic young people. If we aim to create production and jobs in some depressed area, this will not give us an innovative impulse. Together with Phystech, Protec, and Akrikhin, we have now begun practical testing of this model of innovative development within the framework of the Severny Biopharmaceutical Cluster. I think there will be a lot of news in the coming year about the creation of startups in the field of "living systems" based on Phys.Tech. By the way, I would like to focus on one interesting question – many people ask us, why is Phys Tech and what does it have to do with innovative pharmaceuticals? The fact is that this is not a random strategic choice, since biology has become an engineering science in the XXI century, and Phys Tech has always trained the best engineers in the country. And the percentage of technological entrepreneurs in this university was increased…

You said about young leaders with their ambitions and desires – is it all about them?Look at our business.

Do you know what our bottleneck is? We have enough developments that we want to move forward. We have methods, research methods, specialists, infrastructure… There is no shortage of development institutions in Russia that are ready to provide finance to move this forward. But there are no people, technological entrepreneurs. Or rather, they are there, but they are not enough. If I had 20 such "fighters", I would give each of them a development, send them to Bortnik, to Agamirzyan, give co–financing - and go ahead. But I don't have such young entrepreneurs. This is the bottleneck. We have already created infrastructures, prototyping centers, we have all the laboratories, we have the possibility of seed financing, there are funds, but "there are few real violent ones," as Vladimir Vysotsky sang.

Let's try to describe in more detail the "portrait" of such a person.These people, of course, must have a natural science education.

Now, after university, such people are spreading to different places: someone makes innovative software companies, someone seals seams in houses, someone trades, someone arranges orange revolutions. And in theory, this is the golden fund of innovative development of our country. There are not many of these people, 5-10% of them in every course at the university, and they need to be identified as early as possible. It would be great to make an organization like innovative construction teams, which systematically identified such people in all universities, taught them and would give them the opportunity to earn on their entrepreneurial energy, but in high-tech areas. It seems to me that this is the link for which the entire chain of innovative development can be pulled, but this is not a trivial task. In search of such people, we are now very actively experimenting with Phys Tech. We are building innovative clusters around it and hope that we will have the first practical models in the near future. The main thing here is to make a model when the craftsman will work together with the apprentice. That is, a successful technology entrepreneur will train "interns" in real, his own startups. This, by the way, is exactly the idea that Academician Pyotr Kapitsa laid down when he came up with Phys Tech. Only there the student, starting from the 4th year, worked in branch and academic institutes together with "artisans from science". I hope that the results of our "experiments" on the education of technological entrepreneurs will be available soon to see, and maybe even to replicate.

What do you think about Skolkovo? It seems that the tasks that it should solve are very close to yours.Here we need to analyze very carefully what is being offered to us.

The benefits that are offered in Skolkovo are good, but they are not essential for innovative startups. VAT is irrelevant for small innovative firms, property tax is even more so. That the payroll tax will be two times less is good, but it will be the same as it is now with us. It's just that everyone will grow twice, and there it will remain as it is now. Considering that having such a tax now, we are developing quite slowly, it follows that it is not the size of the tax that matters. Now, if there were no payroll tax at all, as in the Arab Emirates, it would be noticeable.

And what is the cost structure in your innovative projects?Our salary is 60-70 percent, and this is a lot.

In our projects, the main thing is people, not the robots that you can see in our laboratories. This equipment is hanging in contract research organizations. There – yes, there are a lot of fixed assets. And a small innovative enterprise is usually 10 people and a patent. Then these people rent a laboratory, equipment, outsource some research, so their main cost item is salary, especially in the early stages.

The Skolkovo project provides for the creation of service enterprises and infrastructure for research that can be rented to your enterprises…That's what everyone wants now.

RVC wants to make its own infrastructure funds, and Bortnik does, and Rusnano. Everyone is doing it now. I have a hypothesis as to why this is happening. Because it's easier to report. When you do a billion R&D and 80% of them are unsuccessful, it's scary and scary. The prosecutor's office will come and come and explain why you have only one successful out of 10 NIRS. But when you build houses, put hardware there, then everything is fine – here's the infrastructure, here's spent. The fact that this is an "operating room without patients" and nothing happens there is the second question. It is important that the money spent does not carry risks to officials or those who spend this budget money. Therefore, I believe that first we need to generate innovative demand, we need to make massive grants (such as the Bortnik Fund, only increasing it a hundred times). And different grants in different industries. If 100 thousand dollars is enough for an IT specialist to program a prototype, then we have 100 thousand – this is just one screening experiment to conduct, and that's it. In biotechnology, the entrance ticket is a million dollars for the same thing, but with greater risks.

In general, infrastructure things are a double–edged sword: they very easily turn into dead capital if no one works for them. I'll give you an example. If we need our own laboratory with some expensive piece of hardware, we buy this piece of hardware, make a laboratory, recruit people, often bring "from there" a person who knows how to work. Then this laboratory works for a year on internal orders, when we give them "funny work". They do them badly, they do not succeed (with full funding). If we had immediately released them to the foreign market, they would have disrupted all our contracts and irreparably damaged our reputation. Therefore, we keep them on "funny orders" for a year, and when we see that they reach working capacity, we begin to integrate them into work where there are already partners and a serious attitude. And that's the only way! Because all these pieces of hardware require a craftsman who knows how to work on them. And artisans pass their craft from master to apprentice. If you just recruit apprentices and put them around the hardware, nothing will happen. Therefore, there is always a danger of installing the most modern hardware with a fanfare, with which no one knows how to work, for which there are no orders because of this and which is rapidly becoming obsolete. We get a vicious circle…

So Skolkovo is the wrong idea?Skolkovo is a very correct idea.

I just want the implementation of this idea to be adequate to itself. And I think it's very right that they make such a project from scratch. Because if it had been made in Pushchino, Dubna or somewhere else, these places would have already imposed their existing framework. It is correct that there is a concentration of resources, both administrative and financial, the probability of success is greater. A great idea is the extraterritorial principle. I would add to this only more serious benefits in the form of zero payroll taxes. The main partners of Skolkovo should be university centers. We have several dozen leading technical universities – all of them should become partners of Skolkovo, and all startups registered in them should receive the full volume of innovative benefits. And while the infrastructure is being built in Skolkovo, 10% of these startups will turn into something interesting in 3-4 years.

It is right that they take foreign partners and tell them: do your research laboratories here in Skolkovo, we will protect you from everything. Big Pharma companies sell hundreds of millions of dollars worth of drugs in our country. They are told: localize either by production or by research, or better yet, both. They don't want to build production here, because they are being closed all over the world, and they want research centers, but they don't understand how to link this with their presence on the market, and in general, where to build it, on what basis. Now they are offered a certain place where, perhaps, they will not have any headaches, and they will have to communicate with all levels of government (50 organizations, all have three levels of hierarchy, that is, 150 people come, and they all need to talk to them). They will sit quietly on this territory, and no one touches them: neither municipalities, nor regionals, nor federals. Any foreigner will have a brain explosion if all these firefighters, SES, Rostechnadzor, tax, drug control go to him. In this regard, Skolkovo is the right decision.

In working with such large companies, I would suggest using offset transactions more actively. It is necessary to make legislation so that such contracts are played out at the competition. We are buying from you for $ 100 million your innovative drug, which is really good and our healthcare system needs, but you make a corporate seed fund in Russia for $ 10 million or open a laboratory on the basis of a university, while registering as a partner of Skolkovo. If we make legislation for such projects, it will greatly stimulate the innovative part of our development. What is our problem? We had a very large refinancing rate in our country. With such loans, no production could develop, so we are just now starting to move from trade to production. And innovative development will be in another 5-7 years, when production workers will already begin to struggle in price competition. If we want to speed up this process, we need to introduce offset legislation that will encourage both our local and foreign manufacturers to invest in innovations right now. Not because they need innovation, but because it will be a condition of their presence in the market. They need the market right now. And we need smart money from Big Pharma and our pharmaceutical manufacturers, otherwise all development institutions will inefficiently finance all developments because they are afraid. They want to finance only research that will be successful, and only the research that has a prototype can be successful, that is, it is no longer an innovation, but a reproduction of something.

That is, your forecast for Skolkovo and modernization?Optimistic.

Otherwise, we would not have registered our new startups as residents of Skolkovo. Only we have a lot of work ahead of us, and we can't make system errors along the way.

Portal "Eternal youth" http://vechnayamolodost.ru
25.01.2011