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BIOTECHNOLOGY AND BUSINESS IN RUSSIAN FEDERATION

A.G. Moshkin

JSC "Biochimmash"

In my presentation I'll not consider bio-safety as political problem.

First of all, we understand, what money are involved here and what are the prospects. The company Ernst & Young predicted that in 2001 the annual income of biotech was 28 billions of US $ . And it will increase for 15-20% during the next 3-5 years and after that it will speed up to 30% by the end of decade. And this picture is observed at the growth of world gross domestic product (GDP) in 2-3% for the last decade In 1996 , about 284 medicinal preparations produced by biotechnological methods were on the stage of clinical tests, and the market of medical biotechnological produce was evaluated at the rate of 7 billions of $ US. By the prognosis of US Ministry of Trade, by 2006 it will be above 24 billions of $ US.

Some words about the development of biotechnology in Russia for the last 10 years. What happened on the background of global reforms in the country and transfer from the socialism to market economy?

At the beginning of 90-ths, after the disintegration of Soviet Union, in Russian Federation the accelerated privatization has begun. Enterprises, institutes were transferred to privacy by means of so-called check privatization. Each citizen of our country received a privatization check, that later on could be used for the purchase at the auction the shares of an enterprise of interest.

This decision of privatization concluded political sense - to give the property to the citizens that at socialism belonged to all, but in juridical sense to the State. These checks as the securities had purchased by the groups and persons who had the capital and political influence. Therefore, the property has passed to the hands of the limited number of persons. Very rapidly the property received almost for nothing, became useless in the hands of our first oligarchs who could not control it. The second wave- default and new law about the bankruptcy in 1998. Now this wave becomes lower and new wolves are fighting between each other.

What was the start of capitalism in new Russia? From oil and gas. Then the battles for aluminum and metals in the whole, the persons who earned money on metals went to automobile industry. We have passed very rapidly, for the decade, the way of 30-40 years. Now, we are at the level of the middle 60-th. In future- the chemistry, computers and biotechnology. The capital is not invested into biotechnology because the profits in the industries of the primary processing did not yet decrease to normal level, and not all of the property was shared. But novices could do nothing there.

The novices have been appearing in the assembling of cars, computers.

Today, we are in power to create modern and developed biotechnological industry, you know, that in Russia among a mass of problems, there is one important advantage: we build up everything anew, and it is easier that to recover something. In Russia such productions are available, that are not existing in Germany.

What is the state of biotechnology now in Russia and CIS countries? Mostly it is ruined, sometimes by force.

Earlier, in the USSR, there were so called scientific-manufacturing corporations, comprising leading R& D Institute, design and engineering Department and the experimental factory. At the privatization, the parts of this corporation were transferred to private persons separately, that ruined the common technological chain of the development and the production.

Often on the basis of the Institutes' departments, the separate firms had been set up with their own developments and sales. Now we have the other tendency- amalgamation of these firms as the participants of large project within the Institute .Now, cooperative links have been actively restored, the processes of re-construction and stabilization go very actively, the war with corruption also in the focus of attention : Russia is stricken out from the list of countries who does not control the corruption. Especially it is noticeable against the background of recession in world economy. World financial structures begin to organize the funds, including the field of biotechnology.

But in this branch there is no yet the structure, and there are no clearly expressed players. And those firms, Institutes, institutions, who actively work in the field of biotechnology, have a chance to be the leaders of Russian market in 5-8 years. The time will show, if all of us will be the leaders in 5-8 years.

In Russia there is a significant number of R&D institutes and scientific-manufacturing corporations, that have different developments in the field of biotechnology.

What is the potential threat of biotechnological industry?

The first, above all to my opinion, is insolvency of the enterprises, bankruptcy, dismissal, etc. In this situation the personnel and management can undertake important measures to save an enterprise. And these decisions can be very different.

The second, using the research- and- developments with criminal purpose by the employees of the enterprises and R&D Institutes. I think, the probability of this variant is the same as in other countries - USA, Great Britain and others. The people are approximately the same everywhere.

The third, application of biological weapon by terrorists on the territory of RF. I think, this threat is hardly probable, because I don't see great, significant reasons to blackmail Russia.

So, in my opinion, in order to diminish the treat from biotechnological enterprises, this industry should be integrated in world market.

Some words about Russian market.

Total volume of Russian market of biotechnological produce is more than 1 billion US $:

Now more than 60 % is import produce:

Food industry - $ 100 millions
Agriculture - $ 300 millions
Pharmaceutical produce - $

Food industry, by the evaluation of experts, purchases biotechnological preparations approximately for 100 millions $US annually ( including the starters for cultured milk products, yeast, enzymes for alcohol production and meat processing).

In agriculture the country spends about 300 millions $US for purchasing of bio-preparations.

In the nearest future (to 2005), main world manufacturers of lysine are going to increase their production capacities in 1,5 times. In particular, ADM and Ajinomoto have been already constructing the additional production blocks on their factories in the whole world, that will allow to increase the capacities from 200 to 300 thousand t/year.

Optimism of the manufacturer supports the indices of growth in the industries-consumers of lysine: in Chinese market, one of the largest in the world, the rate of growth in pig-breeding and poultry-farming exceed 10% per year.

Russian market of pure lysine can be today assessed as 8-8,5 thousand tons to the equivalent of lysine mono-chloride. And for the last 2 years this figure is stable.

Potential demand to lysine in Russia requires additional studies for its evaluation and detailing. These estimations range from40 to 80 thousand tons/year. But in any case it should be noted, that the opinion of the majority of specialists is the same relatively to great demand to amino acids due to the growth in the industries-manufacturers (11-13% /year in poultry-farming and 5-6% in pig-breeding).

Pharmaceutics - the largest user of biotechnological produce and investments in Russia.

Today pharmaceutical industry of Russia is fully oriented to the manufacturing of finished medicinal forms from the imported substances. As a rule, it is not gene-engineered substances, but produced by the method of chemical synthesis or isolated from natural source, mainly of plant origin. Developed pharmaceutical industry is ready to construct the productions, connecting only with the finished medicinal forms. Substances, importing from China and India are the medicines of yesterday's. modern medicines come to Russian market, but because of its cost it can not be bought by wide population.. Therefore, the point about the creation of gene-engineered and biotechnological preparations is extremely urgent for our country.

Food industry and agriculture have significant potential for import substitution.

Now it is necessary to create infrastructure of the industry, it is necessary to provide the interchange of information between the potential participants of the market. Just with this aim we have organized and held two conferences "Biotechnology and business", the goal of that is to cooperate people who want to earn money on biotechnology, those enormous billions. We want to give the projects to investors and to help investors to earn money on innovations.

Now, we can say that this cooperation has begun.

Only for the last 2-4 years a lot has changed in our country. Now we have investors, such as private banks and funds and state banks - Vnesheconombank , that are ready to invest into biotechnological projects in RF. We have engineering companies, ready to perform management of biotechnological projects at world level. We have consulting in the field of biotechnology. I would like to list the specific institutions, that could be your partners in the field of biotechnology in RF. Project financing in the field of biotechnology is accomplished by Rosbank, Vneshtorgbank, bank "Centrocredit". International fund at Rosbank is under organization. Also the group "Russian investors" is under organization. In May, 2003 "Alfa-group" declared about setting up the venture fund "Russian Technologies" with the volume $20 millions f $US, the organizers consider the main directions of the activity of the fund biotechnology and new materials.

From the foreign investors on the territory of Russia I'd like to mention "Saars Capital", "Millhouse capital", in May, 2003 "Baring Vostok Capital Partners' declared the success of its first fund: average internal norm of income for 18 of the implemented investments was more 50% per year. Engineering company that makes management of the projects is "Elevar". We are, Joint Stock Company "Biochimmash", can perform R&D, to scale up the technology.

Also it should be noted, that in Russia the role of state is traditionally great, therefore while implementing the projects it is necessary to get the support of governmental organs of the proper level.

We also believe that in Russia there are favorable conditions for biotechnology development:

I would like to outline some qualities of Russians, that are favorable for business development. 90% of Russians have anti-crisis thinking. We find the way out of very complicated, heavy situations, are able rapidly, intuitively make decisions, and able for risk. The Russians have strong mechanisms of individual psycho-correction, rapidly recover after the stroke. The Russians are collective and able for individual creative work simultaneously. The shortcomings are the continuation of our merits. We have hypertrophied self-conceit, we are flexible, lazy and we perform the regular work badly.

So, the position of Russia on definite scientific directions is rather competitive. Of the Institutes of biotechnological profile I would like to mention "VNIIgenetika", the Institute of biological instrument engineering (Moscow), NII of vaccines and serum with their own production , the Institute of especially pure preparations (Sankt- Petersburg), "Vector"- state Center on molecular biology, RKK "Energia"- problems of space biotechnology (jointly with "Biochimmash"), design bureau "Farmbiomash", the factory "Biomashpribor" (Ioshkar-Ola).

As for the manufacturing, the situation is as follows. Yes, the factories on the territory of Russia are existing. But these factories should be considered as the site with ready infrastructure for new production. The most interesting factories, from this point of view, are biotechnological factories, that are situated in Nizchny Novgorod, Shebekino, Krasnoyarsk, Novosibirsk. Wide field for the activity is available in our country, where we have the advantages not only before CIS republics and Baltia, but also before the eastern investors.

As a conclusion, I would like to say that we are ready to work with biotechnological projects, ready to finance these projects.

The market is structuring, there financial, engineering, research institutions, factories.

What possibilities have been opening for joint work:

Why Russian nuclear weapon now is not a direct threat for other countries? Because a long way has been passed to build up the system of control. Russia is in the number of its honest owners. And now it is also necessary to work in collaboration with other countries, to make civilian developments and jointly to earn money.

Some words about JSC "Biochimmash". We perform the developments in the field of agriculture, pharmaceutics, food industry, ecology, space biotechnology, and design of equipment for these industries.

Main position of the institute in the market - scaling up of the technologies to the level of large-scale production, "From test tube to the factory".

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Proceedings of First Russian Workshop on Biological Security
Copyright © Committee of Scientists for Global Security and Arms Control