Investments in nanotechnology: in your own or imported?

Shopping in a scientific way
The magazine "Results" No. 1-2009

A serious dispute has arisen among Russian scientific experts. Some believe that during the crisis it is necessary to buy cheaper scientific developments in the West, others – that it is worth investing in domestic science. Who is right?

At the end of last year, only the lazy did not talk about the market of advanced scientific developments. Everyone as one agreed that the crisis is the best time to buy cheaper nanotech. However, there were also sharp discussions. Tatiana Nikolenko, director of infrastructure programs of the Russian state corporation "Rosnanotech" (RUSNANO), and Andrey Ivashchenko, director of the Center for High Technologies "HimRar", believe that it is more profitable to buy innovations in the West – that's where they are brought to the stage of business projects. But the chief scientific coordinator of the International Scientific and Technical Center, Tatiana Gremyakova, is sure that RUSNANO's investments are in dire need of Russian applied science, which will wither away if all the money goes to the West. Each of the parties presented their arguments on the pages of the Results

On the one hand
Tatiana Nikolenko and Andrey Ivashchenko: the developments of Russian scientists are poorly focused on the needs of real business

– The thesis that the crisis is a good time for buying up innovative technologies is being repeated by many now. Do you agree with him?

T. N.: In general, I agree: innovative companies become cheaper during the crisis, and those who have money can buy them profitably. However, I note that RUSNANO, as a development institute, does not buy innovative developments. We co-invest in innovative projects. That's a big difference.

A. I.: In professional language, this process, however, is exactly what it is called – shopping, buying.

– Why is there a need to do shopping in this area at all?

T. N.: Today, the competitiveness of any country is determined by the level of development of the innovative economy. And Russia lost almost 50 percent of its exports of high-tech goods from 1992 to 2002. In 2005, we exported high-tech products almost 3 times less than the Philippines, 10 times less than Mexico, 17 times less than South Korea. No one doubts that this problem needs to be solved. However, where and what innovations to look for? Of course, there are interesting developments in Russia. But our experience in the field of nanotechnology shows that it is not necessary to limit ourselves only to domestic sources.

– What is the reason?

A. I.: The problem is that there are very few market-oriented studies in Russia. Our academic science functions on an estimated basis – both in the Soviet Union and now. In principle, estimates also exist in the West, but there is a large amount of infrastructure there, which all the time turns research vectors towards the market. In the USA, there are several special programs designed to develop innovative developments on a competitive basis. These are SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer). And we have a hole in this area. Therefore, if something is being invented in Russia, it exists in the phase of, let's say, knowledge generation. The developments that our scientists bring are not only not brought to the stage of the business plan, but they often cannot be brought to it. They have never had a vector, guidelines dictated by industry. Let's say a scientist wants to organize a start-up. In Russia, he would immediately face a personnel problem. Where are the entrepreneurs who will take up its promotion? After all, we need not entrepreneurs from a business school who think in billions of dollars, but people who understand the subject of research and are ready to work on a relatively small amount of risky financing of innovative development.

T. N.: In Russian biotechnologies, for example, infrastructure elements have already begun to take shape and specialists with experience in conducting innovative developments at the global level have appeared. But we are still far from qualitative improvement of the picture.

– And at this time in the West...

A. I.: At that time there was a financial crisis. As a result, a huge number of innovative projects have been suspended in an uncertain state in the USA and Europe. And they are very different from those developments that exist in Russia, as they are at more advanced stages of technologization and commercialization.

– What happened?

A. I.: They have run out of funding. It is our venture funds that, in accordance with the legislation, must immediately reserve all the finances that they plan to invest in development. In the USA, for example, everything happens differently. The fund is built essentially on the promises of investors to give money. Funds are allocated at each phase of the project. The first phase has passed – they gave money. The second phase has passed – they gave more. And in the third phase there was a crisis, and the money ran out. Therefore, a huge number of developments will be frozen in 2009. And they are hunted today in the West by those who have the money to buy them on the cheap. Every large company has a list of projects that it has already looked at and wants to buy, because there is a chance to buy them cheaply. Everyone is waiting for prices to get even lower to start buying up innovations.

– Are there priority areas in which projects are most interesting?

T. N.: Absolutely. Nanotechnology in medicine and biotech is one of the key areas. According to venture investment statistics, by the end of 2007, out of 14 nanotechnology companies in the world that conducted IPOs, six belong to the biomedical sector. The return of funds to the venture investor for these companies is the highest – fourteen times. For comparison: in IT and electronics it is fivefold, in materials science it is fourfold. It is clear that interest in biotech and medicine is growing. For example, in RUSNANO's portfolio, applications from this area account for about 15 percent.

A. I. At the same time, almost all Big Pharma companies are halving their own research and development. They give up entire therapeutic areas and begin to concentrate their efforts on certain areas. A lot of developments are hanging and they have. They are cutting someone, some of the authors are looking for funding for their projects. And many of these people are starting to look towards Russia. By the way, there are many of our compatriots among them who left for the West at one time. Now is a good time to bring these people back to the country. However, first of all, we need a structure that would be engaged in the transfer of promising projects here to Russia.

– In the field of nanotechnology, this structure, as far as I know, is RUSNANO. What might the transfer scheme look like?

A. I.: The point is that an innovative firm can give the rights to develop in Russia to a Russian partner or open a representative office here itself. RUSNANO or other venture capital companies can finance further completion of the project. At the same time, keep all rights in the Russian and related markets for yourself, as well as obtain significant rights in the world market. It is usually difficult for developers to find the so–called seed funding - the funds needed to "fine-tune the prototype" of an idea. Now, thanks to the global crisis, Russian venture investors have a chance to save on seed financing.

– In what way?

T. N.: Seed financing is an investment of small money in a large number of innovative developments at early stages. Only a part of the projects survive to the next stage of investment. In the West, there is an infrastructure that helps to create high-quality intellectual property. We have already talked about the American small innovative Business support program SBIR, established in 1982. Last year, SBIR's seed contributions amounted to $2.2 billion. A scientist who works on research grants and achieves interesting practical results can very easily get a "seed" 150 thousand dollars to promote his development. Of course, it is impossible to create, for example, a new drug with such money, but this allows you to take the first step towards its development. If this step is successful, at the next stage the project will receive a million from SBIR. And now, in this prosperous environment, a financial crisis is coming – the financing of the next stages expected from venture capitalists is frozen. So why don't we take advantage of the situation and move the development that has been frozen to Russia? We can take the development here, determine the licensing relationship and the territory where we can sell the resulting product (for us it is at least the CIS), carry out the revision already at home. Having built such a chain, we begin to sell a licensed product on the market.

A. I.: By the way, by giving the data of your own tests to the other side, you can receive royalties from all over the world.

T. N.: Yes, this is a profitable and beautiful business scheme. At the same time, RUSNANO acts only as a co-investor. But I must say that this does not cancel the creation of seed funds in the country. For us, this is a critical part of the innovation infrastructure. It is needed to promote intellectual property created in Russia to the domestic and global markets.   

On the other hand
Tatiana Gremyakova: "RUSNANO's investments are in dire need of Russian science, not Western..."

– Tatiana Andreevna, do you think there are developments in Russia that could be bought?

– Russian projects, unlike Western ones, have never been overestimated. There has been a failure in the financing of science in our country since the 90s of the last century. Western investors invested in Russian science because it was of high quality and relatively inexpensive. The function of the ISTC was precisely to connect investors and teams of Russian specialists. But we never expected that a research institute would come to us with its developments. Knowing the "scientific landscape" of the country, we conducted an active search. An example from practice: a Western company comes to us with a request for a specific development, we select several possible performers for it, the company stops at one as a result of negotiations. I think RUSNANO still lacks experience in this, and we are ready to share our best practices with them. For example, we could give them promising business projects of Russian scientists who have passed international expertise. I can responsibly state: we have such projects.

– How do you feel about the idea of buying developments in the West?

– Of course, if the cost of innovation has fallen due to the crisis, something can and should be bought. But this should be done very, very carefully. Think about it: will a pharmaceutical company want to transfer its best projects into the wrong hands? I strongly doubt it, given the crisis of ideas that is currently present in this area. In any case, a comprehensive and independent expertise is needed to evaluate projects. Especially for the projects with which RUSNANO is going to start, because this will determine its reputation. One more question: is it worth buying developments in the USA and Europe? After all, these are very expensive regions. There are no less scientifically interesting India, China and others. For example, in one of the first projects launched by RUSNANO, the technology is planned to be purchased in Europe and placed in Moscow. And this is despite the fact that the Europeans themselves are now moving production to the countries of Southeast Asia: in the Old World it is unprofitable… Most likely, production using Western technologies will also be unprofitable in Moscow.

– Do you mean the project for the production of micro sources for use in oncology?

– There is a promising method of treating tumors, brachytherapy – micro sources of radiation with a very short free path are injected into the human body. Radiation kills tumor cells, while healthy tissues are largely left out of its action. Many of the isotopes used in this process are produced in our country. However, in this case, as in many others, unfortunately, we still sell only cheap raw materials. And then we bring micro-sources with the same isotopes from abroad at a high price, as well as imaging systems for treatment. For quite a long time, Russia has been trying to establish its own production of micro sources for brachytherapy. There is an institute in Obninsk that received seed financing from an international investor and prepared a site for such production. It would be good if RUSNANO, developing its own project on brachytherapy, paid attention to the site in Obninsk. Now they are ready to deploy production there, but if the money of large companies goes into business, they are unlikely to withstand competition and will have to curtail work. It turns out that the sprouts of Russian innovations will be ruined.

– Can you give examples of competitive Russian developments in the field of nanotechnology?

– One of the successful projects in which our center also participated is the project of microchip diagnostics of various pathogenic microorganisms. When we started discussing this in 1998-1999, no one wanted to think about microchips seriously. Now the technology is patented. The Russian side has allocated money for production. By the way, a characteristic problem is that the capabilities of microchip manufacturers are much greater than they are able to sell in Russia. Such situations should be anticipated in advance by investors such as RUSNANO. Another example is the pilot production of nanotitan at the Russian Federal Nuclear Center – VNIIEF in Sarov. This lighter than the "traditional" titanium is now needed both in medicine and in the aircraft industry. The development needs scaling and is considered very promising. According to international experts, it is quite competitive. Another development: a microcapsulated measles vaccine created at Vector in Novosibirsk. Now she is undergoing clinical trials in Kazakhstan, which means that the neighbors will buy the development. Here, by the way, is an example of how other countries are buying up our technologies on the cheap, while we are going to buy technologies in Europe and the USA on the cheap.

– Those who defend this point of view say that there is no infrastructure for applied science in Russia...

– There will never be an infrastructure if no efforts are made to create it. Russian investments are needed not by Western, but by Russian science and technology. The situation is changing. For example, earlier our scientists had to import animals into the country for testing. And now Russia already has its own world-class nursery, a base for preclinical research has been created in accordance with international standards. Of course, there is still a lot to be done on this field. The problem is often not even that we cannot conduct qualitative research. Unfortunately, international standards have not been adopted at the legislative level. Now they say that Russian pharmaceutical companies should switch to GMP standards (good manufacturing practice). But there are also GLP standards (good laboratory practice), they also need to be adopted so that our scientists are simply taken into account in applied science. When, during negotiations, Russian researchers declare that they have the opportunity to conduct a promising drug through all phases of testing, we are usually told that the legislative framework has not been worked out in Russia, therefore joint development is difficult. So, maybe before investing in foreign science, you should think about how to solve the issue of harmonization of the legislative framework in scientific research in Russia? By the way, it is quite difficult for our scientists to formalize the rights to scientific property, and business cannot work with a product whose ownership rights are not defined. This contradiction must also be resolved at the legislative level.

– And what do you say about the human factor? Is there a personnel shortage in Russian applied science?

– Of course, he is. But there are not so few scientists in Russia who know how to manage a project, how to make a business plan. Many of them have been trained in Russia and abroad. Our center alone has conducted hundreds of people from various institutes through such training. And it is simply unwise not to use this human material. Of course, there are situations when, for example, it is impossible to transform the old pharmaceutical production. It's easier to just build a new factory. But otherwise, it is very wasteful to invest money in a project, considering yourself a player in an open field. We need to look for prophets in our own homeland.

Portal "Eternal youth" www.vechnayamolodost.ru12.01.2009