Igor Goryanin biomedical technologies at Skolkovo

Biomedical Technologies at Skolkovo

Skolkovo

February 1, 2011

Prof Igor Goryanin, Head of Biomedical Cluster, Skolkovo

With help Skolkovo colleagues and McKinsey & Company

McKinsey & Company |FROM PRESENTATION IN DAVOS, JANUARY 25TH,

2011

FIRST STEPS, FIRST ACHIEVEMENTS

HTTP://WWW.I-GOROD.COM/

McKinsey & Company |

TOWN-PLANNING CONCEPTS FOR SKOLKOVO INNOVATION CENTRE DEVELOPMENT (ОМА, AREP)

Social

Culture

University

Industry

Commercial

Residential

Park & Ride

SINCE JANUARY 12TH, 2011 ABT 25000 VOTED FOR OMA AND AREP CONCEPTS

HTTP://WWW.I-GOROD.COM/VOTE1/

OMAAREP

1234

5

NUCLEAR TECHNOLOGY

ENERGY EFFICIENCE

MEDICAL TECHNOLOGIES

AIRSPACE TECHNOLOGIES

IT

PUBLIC DISCUSSION OF THE TOWN-PLANNING CONCEPTS FOR SKOLKOVO INNOVATION CENTRE DEVELOPMENT (FOR THE LAST MONTH):

JANUARY 20TH PUBLIC DISCUSSION OF THE TOWN-PLANNING CONCEPTS

JANUARY 12TH VOTING FOR THE BEST TOWN-PLANNING CONCEPT STARTED

DECEMBER 25TH DISCUSSION OF THE TOWN-PLANNING CONCEPTS WITH SKOLKOVO INNOVATION CENTRE PARTNERS

DECEMBER 23RD DISCUSSION AT THE CHAMBER OF COMMERCE & INDUSTRY CONCERNING USE OF EXPO-2010 EXPERIENCE

DECEMBER 20TH SKOLKOVO FOUNDATION TOWN-PLANNING BOARD, SELECTION OF THE FINALISTS


THE MISSION OF SKOLKOVO

SKOLKOVO IS TO BECOME AN INNOVATION HUB THAT WILL STIMULATE INNOVATIVE ENTREPRENEURSHIP AND DISSEMINATE ENTREPRENEURIAL CULTURE ACROSS THE COUNTRY TO INTEGRATE RUSSIA INTO THE GLOBAL ECONOMY:

1. FOSTERING ADVANCEMENT OF HUMAN CAPITAL IN RUSSIA BY ATTRACTING FOREIGN SPECIALISTS AND CREATING CONDITIONS FOR LOCAL INNOVATIVE TALENT DEVELOPMENT

2. CREATING GLOBALLY COMPETITIVE PRODUCTS AND SERVICES BASED ON CUTTING-EDGE RESEARCH

3. ESTABLISHING GLOBAL INNOVATIVE COMPANIES IN RUSSIA


GOVERNANCE STRUCTURE

THE GOVERNMENT PROVIDES INITIAL FUNDING AND SIGNALS CREDIBLE COMMITMENT TO SUPPORT THE PROJECT IN THE FUTURE

THE PROJECT IS MANAGED BY A NON-GOVERNMENT FOUNDATION WITH AN INDEPENDENT BOARD, REGULATED BY A SPECIAL LAW

THE FOUNDATION IS A DOORKEEPER, WHILE ALL SKOLKOVO UNITS (SUCH AS THE CLUSTERS) AND RESIDENTS ARE INDEPENDENT ORGANIZATIONS

MUCH OF THE REAL ESTATE IN SKOLKOVO WILL BE BUILT BY PRIVATE DEVELOPERS


MAP OF KEY PARTNERS (2010 – JANUARY 2011)

STARTED NEGOTIATIONS - 3 INTERNATIONAL

PARTNERS: IMTECH, DOW CHEMICALS, JOHN DEER

KEY PARTNERS

8 AGREEMENTS WITH K EY INTERNATIONAL PARTNERS : CISCO, BOEING, SIEMENS, MICROSOFT , NOKIA, INTEL, TATA, NOKIA SIEMENS NETWORKS

INITIAL NEGOTIATIONS

IN PROCESS - 10 INTERNATIONAL PARTNERS:

ABBYY, NOVARTIS, HONEYWELL, EADS/AIRBUS, ALSTOM, DUPONT, GOOGLE, KODAK, SCHLUMBERGER, JOHNSON&JOHNSON

J OINT EDUCATIONAL PROGRAMS

MAJ OR AGREEMENTS

ESTABLISH R&D CENTER AND LABS

ALREADY SIGNED

RESEARCH GRANTS FOR RESIDENTS

VENTURE CAPITAL FINANCING FOR COMPANIES - RESIDENTS

SUPPORT FOR BUSINESS-INCUBATORS

ALWAYS

ALWAYS

USUALLY

OFTEN

OFTEN

2 AGREEMENTS WITH RUSSIAN PARTNERS: LUKOIL, ROSATOM


SKOLKOVO FOUNDATION TRACK RECORD (MARCH 2010 – JANUARY 2011)

March 23rd

J une 19th

J une – present

September 28th

October 28th

December 14th

TOWN-PLANNING CONCEPT ELABORATION

COMMISSION ON THE MODERNIZATION AND TECHNOLOGICAL DEVELOPMENT – FIRST RESIDENCY CERTIFICATES FOR 16 COMPANIES GRANTED

SKOLKOVO FOUNDATION MANDATE ENACTED

FEDERAL LAW ON SKOLKOVO INNOVATION CENTRE SIGNED

FUND FOR DEVELOPMENT OF THE CENTER FOR ELABORATION AND COMMERCIALIZATION OF NEW TECHNOLOGIES REGISTERED

COMMISSION ON THE MODERNIZATION AND TECHNOLOGICAL DEVELOPMENT

April – August 24th

May 21st

2 town-planning concepts

10 partner companies

10 innovative projects funded14

partner Universities

27 participants

145 members of the expert board

ADVISORY SCIENTIFIC BOARD FORMED

COMMISSION ON THE MODERNIZATION AND TECHNOLOGICAL DEVELOPMENT – MEMBERS OF THE FUND’S REGULATORY BODIES DEFINED

J anuary 25th

December 20th

*Excluding 4 projects

TOWN-PLANNING BOARD


GLOBAL NETWORK FOR KNOWLEDGE MANAGEMENT

THE FUND’S EXPERT NETWORK(EDINBURGH, BERLIN, LONDON, PETAH TIKVA, OKINAWA, SAN DIEGO, BOSTON, PITTSBURG, CALGARY, BARCELONA, DRESDEN, WEST-LAFAYETTE, AMSTERDAM, LOS-ANGELES, WOLFENBUTTEL, CHICAGO, BERKLEY, STUTTGART, BOSTON, LAUSANNE, REGENSBURG, LONDON, OXFORD, COSTA-MESA, KIEV)

RUSSIAN AND INTERNATIONAL SCIENTIFIC AND RESEARCH INSTITUTIONS(MIT, CAMBRIDGE, STANFORD, MOSCOW, DUBNA, SAINT-PETERSBURG, SAMARA, KAZAN, TOMSK, NOVOSIBIRSK)

SKOLKOVO INNOVATION CENTRE PARTNER COMPANIES:

(CISCO, BOEING, SIEMENS, MICROSOFT, NOKIA, INTEL, LUKOIL, ROSATOM, TATA, NOKIA SIEMENS NETWORKS)

Sk


CREATING IN SKOLKOVO

3D INTERACTIVE TEXT VISUALIZATION

SEWAGE CLEANING TECHNOLOGIES

COMPOSITE INSULATION COATINGS

INFORMATION NAVIGATIONAL SYSTEM IN EMERGENCY SITUATIONS

ASYMMETRICAL ELECTROCHEMICAL CAPACITOR

INTERNATIONAL CENTER FOR QUANTUM OPTICS & QUANTUM TECHNOLOGY

HYBRID LOCOMOTIVE ENGINES

ORIGINAL DRUGS FOR TREATMENT AND DIAGNOSTIC METHODS OF VIRAL INFECTIONS

ORIGINAL DRUGS FOR TREATMENT OF VIRAL INFECTIONS

INTELLIGENT IP SURVEILLANCE SYSTEMSkolkovo

SkCLOUD-BASED 3D RENDERING

CLOUD INCUBATOR

USA(10)NATURAL LANGUAGE COMPREHENSION AND INTERPRETATION SYSTEM UK(3)

MICROBIAL FUEL CELLS

DETECTING AND NEUTRALIZING DANGEROUS INFECTIOUS AGENTS

HIGH-TEMPERATURE SUPERCONDUCTIVE TECHNOLOGIES

GER(3)

LITHIUM-ION TECHNOLOGIES

VIRTUAL PROTOTYPING

FRA(2)

CENTRE FOR RESEARCH OF THIN FILM TECHNOLOGIES IN ENERGETICS

SURFACE MODIFICATION AND FUNCTIONAL COATINGS

SUI(2)

NEW STEEL TECHNOLOGIES CAN(1)

TECHNOLOGIES FOR TREATMENT OF CANCER, INFECTIOUS DISEASES AND SEPSIS

SVK(2)

AGENTS ON THE CARRIER WITH THE «NUCLEUS-CARBONIC CAPSULE» STRUCTURE

ENDOVASCULAR IMPLANTS WITH BIODEGRADATION PROPERTIES

ISR(1)SWE(1)

ENVIRONMENTALLY FRIENDLY WIND POWER GENERATOR WITH LOW COST FOR KWT/H

CZE(1)

NED(1)

APG TO METHANE CONVERSION TECHNOLOGIES

GAS ISOTOPES FOR MEDICINE

27 PROJECTS


JOINT RISK MANAGEMENT IN INNOVATIVE CYCLE

5888,6*MLN. RUB.

2706,3mln. rub.

3182,32mln. rub.

FUND’S SOURCES

PROJ ECTS OVERALL COSTS

mln. rub.

INVETSOR’S SOURCES

mln. rub.

FUND’S SOURCES

mln. rub.

7738,6 2706,33206,3

INVETSOR’S SOURCES

*EXCLUDING LLC INTERNATIONAL CENTER FOR QUANTUM OPTIC AND QUANTUM TECHNOLOGIES

Fund’s sources

during 5 yers

Invetsor’s sources during

5 years

85 bln. rub.

2013

2012

2011

10,6 bln. rub.

11,8 bln. rub

13,8 bln. rub

85 bln. rub.

FUND’S INNOVATIVE PROJECTS FINANCING


Initial ideas

Biomedicine: to focus in development , implementation and commercialization, long-term technology transfer in “P-4 Medicine” (Personalized, Participatory, Predictive and Preventive).Biopharmaceuticals: to establish Russian independence in the pharmaceutical sector from drug discovery to manufacturing (by 2015 many drug patents will expire, further weakening the financial foundation of the industry)Biomedical Informatics: to establish Russian independence in health informatics sector by establishing infrastructure, developing novel computational technologies, knowledge management, rational planning of biological and clinical experiments. Industrial Biotechnology and Bioenergetics: to develop alternative approaches in the bioenergy, and bioremediation sectors, to develop waste, and industrial by-products utilization technologies combined with energy production in multiple forms

11

McKinsey & Company | 12

Main themes identified

ThemesExample priority area (foresight) Rationale

1 May be partially outside the current mandateSOURCE: Expert interviews; Team analysis

Bio-Informatics

▪ Consistently scores relatively high on feasibility, driven by the strong talent pool in math and hard sciences skills in Russia

▪ Relatively low infrastructure and equipment costs (e.g., versus drug production) and high interest from international partners to collaborate with local scientists also supports higher feasibility and opportunity

▪ Can be an enabler of other areas as an early “proof of concept” for Skolkovo biotech cluster

▪ DNA sequencing▪ Pathway modeling▪ Virtual screening

Bio-Healthcare/Bio-Pharmaceuticals

▪ Generally lower on feasibility due to complex nature of end-to-end biologics development, scarcity of experienced local talent and the very high costs

▪ Highly attractive driven by large existing domestic market of ~$1.5B, nearly 100% financed by Russian government healthcare budget spend and nearly all on imported drugs

▪ Some areas (e.g. bio-similars) may have lower entry barriers and at the same time span across topics, ensuring broader impact

▪ Monoclonal antibodies▪ Novel treatment modalities▪ Products for stroke

prevention/treatment▪ Bio-similars▪ Companion diagnostics▪ National incubators

Bio-Industrials1

▪ Has select attractive and feasible strategic directions driven by moderate market size, challenging but feasible production, and pockets of good existing infrastructure

▪ Fast growing genetically modified products for livestock

▪ Biopesticides (i.e. biological defence of plants)

Bio-Energy

▪ Low domestic market potential due to high supply and dominance of fossil fuels in the economy

▪ No government subsidies versus international markets▪ May become both feasible and highly attractive if government was

to prioritise the area

▪ Genetic modification of biomass, e.g. development of species relevant for a particular climate


Global market size

Biomedicine cluster – Russian and global market summary

SOURCE: Evaluate; Markets and Research; government reports; press search; team analysis

ROUGH ESTIMATES

1

14% p.a.

2020

12-16

5-7

0.5-1.5

4-6

0-2

15

6-8

3-5

0.1-0.3

2-4

0-1

2009

2-4

1-2

0

<1

20

14

14

USD billions CAGRPercent

Bio-healthcare/Bio-pharma

Bio-informaticsBio-industrialsBio-energy

39

Russian market size

510

15

160

270

35

260

720

2020

8% p.a.

105

200

11

194

2009

320

120

3

150

65

USD billions

9

6

8

CAGRPercent

25


Criteria for strategic directions prioritization and priority areas identification – Biomedical

1 McKinsey methodologySOURCE: Team analysis

CriteriaCriteria Weight, % Rationale

Current market size

Global

Russia

▪ Indicates both commercial potential as well as priority investment areas for biotech companies, i.e. potential Skolkovo partners

Market growth until 2020

Global

Russia

▪ Reflects where new R&D money typically flows and potentially more accessible capital raising

▪ Indicates long-term opportunity investment areas

Time to commercialize

▪ Lower time reduces go-to-market risk and increases NPV

▪ Indicates potential level for State influence and support

Disruptive potential (number of patients)

▪ Indicates potential unmet need and opportunity for impact

Competitive landscape

▪ Determines ease of entry, inv. risks and potential profitability

Potential for government support

Legislative

Biotech spend (e.g. pharmaceuticals)

Synergy with other Skolkovo initiatives

7

13

10

10

5

10

10

20

10

5 ▪ Leverage full Skolkovo investments, lower costs

Co

mm

erci

al o

pp

ort

un

ity

So

urc

es o

f co

mp

etit

ive

adva

nta

ge

RationaleWeight, %

Physical infra-structure

▪ Presence of labs and equipment critical to conducting R&D

▪ Demonstrates prior capability

20

Existing research and academic resources

20 ▪ Demonstrates existing talent present as well as successful precedents

▪ Provides academics to start innovative companies

Pipeline of talent

30 ▪ Existence of steady flow of scientists needed to drive R&D, key to producing tangible R&D in the future

Regulatory framework

15 ▪ Protects investors, e.g., existence of strong IP

▪ Motivates new investments, e.g., enforces GMP for local production

Local production potential (e.g. drug volumes)

15 ▪ Drug volumes to indicate opportunity for high plant utilization

▪ Access to state financed channels

Attractiveness Feasibility

Each potential strategic direction and priority area (foresight) bucket scored on scale of 0 to 41 for each criterion and then summed and ranked for total attractiveness and feasibility.


0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Attractiveness

Regenerativemedicine

Biomass

Ethanol

Biodiesel

Feasibility

Marine biotechAgriculture

Plantextracts

Bulk/polymers

Food/feed

Oleochemicals

Bioremediation

Nationalincubators

Biosimilars

Companion diagnostics

Genito-urinarySensory organs

Nuclear medicine Cardiovascular

Oncology

Musculo-skeletal

Vaccines and anti-infectives

EndocrineBlood

CNS

Drugdevelopment

Gene therapy

Preventivemedicine

Molecularmedicine

Strategic directions prioritization – Biomedical

SOURCE: Team analysis, Expert Interviews

Biotech Prioritization Matrix

I

IIIV

“Long term potential”Highly attractive but requires more capability and infrastructure building

“Lower priority areas”Select opportunities possible but expect less overall deal flow in these areas

“No regret areas”:Relatively higher probability of success, can be leveraged to support other areas

“Higher priority areas”:Expected to have highest proportion of high potential project proposals

III

Bio-Energy

Bio-Healthcare/Bio-Pharma

Bio-Informatics

Bio-Industrials

McKinsey & Company | 16 1 Cross-cutting areasSOURCE: Expert interviews; Evaluate; IMS; Scientia Advisors; PWC; press search; team analysis

Priority areas emerging (1/2)

▪ Bio-healthcare/Bio-pharma

▪ Oncology ▪ Monoclonal antibodies (e.g., in breast cancer and leukemia)▪ Novel treatment modalities (e.g., personalized treatments)

I

▪ Bio-similars1 ▪ Bio-similars development (e.g., in rheumatoid arthritis) I

▪ Cardiovascular ▪ Products for stroke prevention/treatment I

▪ Endocrine ▪ Diabetes (e.g., GLP-I agonists) III

▪ Blood ▪ R&D partnerships into Blood Factor Co-agulating agents (e.g. long-lasting Factor VIII)

III

▪ Nuclear medicine ▪ Nuclear Imaging (e.g., PET) III

▪ Musculo-skeletal ▪ Rheumatoid arthritis III

▪ CNS ▪ Alzheimer’s disease▪ Schizophrenia▪ Depression

III

▪ Vaccines and select anti-infectives

▪ Vaccines (e.g., TB, flu, new pediatric, conjugated)▪ Anti-virals (e.g., anti-HIV)

I

SubclusterInvestment direction Priority areas Category

▪ Reg. medicine1 ▪ Regenerative medicine (e.g., stem cells) I

▪ Nat. incubators1 ▪ Creation of national incubators I

▪ Companion diagnostics1

▪ Companion diagnostics (e.g., in oncology) I

McKinsey & Company | 17 SOURCE: Expert interviews; Evaluate; IMS; Scientia Advisors; PWC; press search; team analysis

Priority areas emerging (2/2)

▪ Bio-industrials ▪ Plant extracts ▪ Industrial starch production II▪ Food/feed

ingredients▪ Lysine production▪ Citric acid production

III

▪ Bulk/polymers ▪ Sorbitol technology▪ Bioplastics (including biodegradable products) based on carbohydrates

as starch, cellulose

▪ Marine biotech ▪ Exploration of promising compounds derived from marine organisms (e.g red or green alga as anti-cancer compound)

▪ Fish farming (e.g. fish feed)

IV

▪ Biotech in agriculture

▪ Fast growing genetically modified products for livestock▪ Biopesticides (i.e. biological defence of plants)

IV

▪ Bioremediation ▪ Oil spills treatment▪ Ethanol production waste (barda) conversion

IV

▪ Biomass ▪ Genetic modification of biomass, e.g. development of species relevant for a particular climate

▪ Bio-energy II

▪ Bioethanol ▪ Cellulosic ethanol (e.g. bioethanol from waste)▪ Microbial synthesis of ethanol

IV

▪ Biodiesel ▪ Use of microorganisms to convert raw materials (e..g CO2, wood, sugar) into biodiesel

▪ Jet biofuel from camelina

IV

▪ Bio-informatics ▪ Molecular medicine

▪ DNA sequencing I

▪ Pathway modeling▪ Virtual screening

▪ Drug development

I

▪ Gene Therapy ▪ Genomics II▪ Preventive

medicine▪ Molecular diagnostics I

I

SubclusterInvestment direction Priority areas Category

III


Level 1Direction

▪ Oncology

Description/level 2

▪ Antineoplastic and immunomodulating agents

– Monoclonal antibodies (e.g., in breast cancer and leukemia)

Bio-Healthcare Priority areas: Oncology

– Novel treatment moda-lities (e.g., personalized treatments)

Rationale

– Large current market (USD 27bn globally, USD 530mn in Russia), expected to grow rapidly (10% CAGR)

– Clear support from the Russian government (e.g., declared interest and state purchases)

– "Hot" area in global R&D, with strong "pockets" of capabilities in Russia (e.g., Gabibov’s lab)

– Area of high disruptive potential as evidenced by large R&D in the area, with high disruptive potential (e.g., USD 275 mn spent p.a. to catalogue gen. changes just in 20 types of cancer treat.)

– Large potential market (USD 250bn in US, growing at 10% p.a.), with high unmet need

– Early commercial successes (e.g., Dendreon, initially for prostate cancer)

– Indications of Russian state interest and support (e.g., Oncophage registration);also PoC

HIGH LEVEL ASSESSMENT

High

Average


Level 1Direction

▪ Vaccines and select anti-infectives

Description/level 2

▪ Drugs capable of fighting infectors, both prophylactic and treatment focused

Bio-Healthcare Priority areas: Vaccinesand Select Anti-infectives

– Vaccines (e.g., TB, flu, new pediatric, conjug.)

Rationale

– Large current market ($60 mn in Russia), with high growth (25% historical CAGR)

– Clearly a priority area for the government▫ High level under-penetration, e.g., Russian National Calendar

only includes ~10 diseases vs. 15-20 in the West▫ HC2020 Strategy explicitly identifies local Vx production as

key state priority▫ Government consistently increased funding to Vx (e.g.,

additional USD 10mn given on R&D in 2010) – Historically strong infrastructure/capabilities to build upon (e.g.,

Vector, Inst. of Sera)

– Mid-sized market (USD 22bn globally, but only ~5% market is biotech-based); Russian market is USD 300mn

– Anti-virals seen as a priority by the state▫ E.g., Over 500K HIV cases (another 1mn likely not

diagnosed) and growing at 10% p.a.; only ~25% get adeq. treatment

– Some R&D capabilities (e.g., Inst. of Virusology)

– Anti-virals (e.g., anti-HIV)

SOURCE: Expert interviews; Evaluate; IMS; press search; team analysis



Level 1Direction

▪ Cardio-vascular

Description/level 2

▪ Biotech products targeted at CV/circ. system diseases

– Products for stroke prevention/treatment (e.g., hemorrhage/ thrombosis)

Bio-Healthcare Priority areas: Cardiovascularand Endocrinology

▪ Endo-crinology

Rationale

– Large existing market size (total current Russian market of $190 mn) makes it an interesting area for R&D

– Significant unmet need due to low effective-ness of products on the market (estimated market could be 10x larger)

– High (and declared) priority for the state due to high case number (400K cases p.a.)

– Large market size (USD 35bn globally), with above average growth expected (5% overall, 25% in GLP-1 component) expected

– Disease seen as a high priority for Russia▫ 2.8mn diagnosed diabetics in Russia (~5mn undiagnized and

~6mn pre-diab.)▫ 2009 drug spend at USD 400mn (incl. USD 100mn biologics);

total direct costs estimated at over USD 10bn– R&D and production capabilities (e.g., Sanofi) already exist on

the market, yet no Russian producers currently active

▪ Products enhancing functio-ning of the endocrine system

– Diabetes (e.g., GLP-I agonists1)

1 Glucagon-like-peptide-1 – increases insulin secretion, lowers glucagon secretion, increases insulin sensitivitySOURCE: Expert interviews; Evaluate; IMS; MoH; NovoNordisk; press search; team analysis



Level 1Direction

▪ CNS

Description/level 2

▪ Products related to curing nervous system diseases

– Alzheimer’s disease

Bio-Healthcare Priority areas: CNS

– Schizophrenia

Rationale

– Significant unmet need due to large patient population (35mn globally, growing at 4% CAGR) and lack of effective treatments (current total1 market size of USD 7bn and USD 20mn in Russia)

– Some historical capabilities in CNS exist (e.g., Inst. of Mol Biology, Chernogolovka Inst.)

– "Hot" R&D area globally (USD 0.5bn spend p.a. in the US alone and growing), with an opportunity to "create" a large market

– Large patient population, both globally and in Russia, affecting 1.5% population

– High unmet need due to lack of effective treatments, with USD 0.4bn R&D spend p.a.

– Historically present R&D capabilities in Russia (e.g., Inst of Pharmacology)

– Mixed perception of disease importance –not a priority for the Russian government

– Large and growing patient population, est. at ~15mn in Russia; low diagn./treatment rates

– Anti-dep. market at USD 40mn and growing– Current global market of USD 12bn, in 5 yr. expected to decline to

8bn due to LOEs– Mixed perception of disease importance – not a priority for the

Russian government

– Depression

1 Primarily non-biologicsSOURCE: Expert interviews; Evaluate; IMS; NIH; press search; team analysis



Level 1Direction

▪ Nuclear medicine

Description/level 2 Rationale

– Large global market (USD 1.3bn), expected to grow at 3% p.a.– Highly competitive market dominated by 3 major established

players (e.g., GE, Phillips, Siemens)– High fixed/investment costs– Russian government supportive of medical devices (imaging

focus), investing USD 1bn into R&D centers in 2009-10▫ E.g., Medradiopreparat received RUB 1bn from the state,

with add. RUB 10bn likely– Significant R&D capabilities exist (nuclear research plays to

Russian strengths) and good infrastructure based on Russia’s position as a major raw materials (e.g., radionuclide) supplier

▪ Specialty medicine/medical imaging branch using radio-active decay for disease diagnosis and treatment

– Nuclear imaging (e.g., PET)

Bio-Healthcare Priority areas: Nuclear Medicine

SOURCE: Expert interviews; Evaluate; IMS; NIH; press search; team analysis

1 Primarily non-biologics



Level 1Direction

▪ Blood

Description/level 2

▪ Products for treatment of blood related disease

– R&D partnerships into Blood Factor Co-agulating agents (e.g. long-lasting Factor VIII)

Bio-Healthcare Priority areas: Blood and Musculo-Skeletal

Rationale

– Large market globally and in Russia ($230m for Factor VIII and remaining $25m for other factors)

– Listed as high priority for local production by both Ministry of Health and the Ministry of Industry and Trade

– Pharmstandard, a top local Russian pharmaco with substantial investment backing, investing heavily to produce

– Regarded as complex to produce, esp. recombinant form, due to complicated biologics production process

– Expected competition from other Russian pharmacos investing in the space

– Mid-sized market in Russia (USD ~60mn), growing at ~10%– Relatively competitive space, with multiple effective drugs

available (e.g., Remicade, Humira, Enbrel)– Research may be leveraged in other auto-immune areas, e.g.,

psoriasis or lupus– Some R&D capabilities exist in Russia

– Rheumatoid arthritis

1 Primarily non-biologicsSOURCE: Expert interviews; Evaluate; IMS; NIH; press search; team analysis

▪ Musculo-skeletal

▪ Drugs for musculoskeletal disease treatment



Level 1Direction

▪ Bio-similars

Description/level 2

▪ Products off-patient but relatively more complex to develop

Bio-Healthcare Priority areas: Biosimilars and regenerative medicine

Rationale

– Biologics market in Russia is very large, at USD 1.6bn, and expected to grow at 14%

– Russia has sufficient development/production capabilities to produce bio-similars▫ Large investments into infrastructure committed/ongoing▫ Multiple projects close to completion (e.g.,

Pharmstandard/Generium, Biocad)– Russian government extremely focused on locally produced bio-

similars▫ Integral part of HC2020 and Pharma2020 (partly due to cost

savings)▫ Significant funding (e.g., USD 100mn) already committed by

various state entities

– Bio-similars development and production

– Large potential market ($1.5bn currently, forecasted to grow to $15-20bn by 2025)

– Existing capabilities/infrastructure (e.g., stem cells in SPb), enhanced by beneficial regulatory environment regulations

– Research direction relevant for other TAs (e.g., alimentary)– Relatively open space with no dominant leader

– Regenerative medicine (e.g., stem cells)


▪ Regenerative medicine

▪ Creating living, functional tissues to repair or replace tissue or organ function

McKinsey & Company | 25 SOURCE: Expert interviews; press search; team analysis

Level 1Direction Description/level 2

Bio-Healthcare Priority areas: Talent development and diagnostics

Rationale

▪ Diagnostics ▪ Diagnostics applied across TAs

– Relatively small market (USD 400mn globally), which grows very rapidly (expected 25% CAGR)▫ Despite relatively low potential of each test (USD 100-150mn

globally), frequent identification of new biomarkers expected to drive the size

▫ Growing evidence of clinical utility likely to drive adoption, and market participants likely to capture greater share of value

– Market still nascent, with significant degree of fragmentation allowing for relatively easy entry of new players

– Some R&D capabilities exist in Russia

– Companion diagnostics (e.g., in oncology)


– National incubators can be an effective tool to encourage innovation▫ E.g., USD 25-50K grants to graduate students, with larger follow-

on funding based on performance– National incubators concept allows to diversify funding targets,

channel money to most effective uses, and create synergies▫ Large of large numbers stipulates that some funding would be

successful▫ Follow-on funding approach ensures performance-based funding▫ Common infrastructure (incl. management support) would create

significant economies-of-scale for funding recipients

– National incubators

▪ Talent development

▪ Search and development of talented scientists

McKinsey & Company | 26 1 Not confined to molecular medicine but cross-cuttingSOURCE: Expert interviews; team analysis

Level 1Direction

▪ Molecular Medicine

Description/level 2

▪ Development of molecular interventions to correct genetic/mol. errors of disease

– DNA sequencing1

Bio-Informatics Priority areas: Molecular medicine and Drug development

▪ Drug development

▪ Use of data, analysis and modelling techniques to develop/test new molecules

– Virtual screening

Rationale

– Largest segment of the bioinformatics markets, expected to be USD 10bn globally in 2020

– Fast market growth (>25% a year)– Large disruptive potential, e.g., making a breakthrough for

personalized medicine– Low barriers to entry: relatively low infrastructure/ start-up costs

and high potential talent pool

– A large component of drug development BI (total drug development market is expected to be USD 8bn globally in 2020)

– Fast market growth (>20% a year)– Strong synergy with other biotech initiatives in healthcare:

potential for faster and more cost efficient drug development through in silico assessment of candidate molecules

– Relatively low capital costs with big potential benefit, e.g., FDA estimates that 10% improvement in drug efficacy prediction rate can save USD 100mn devel. cost per drug

– Synergies with other Skolkovo bio-HC R&D

– Pathway modeling


McKinsey & Company | 27 1 Not confined to molecular medicine but cross-cutting2 Illustrative portion of preventative medicineSOURCE: Expert interviews; press search; team analysis

Level 1Direction

▪ Gene Therapy

Description/level 2

▪ Insertion, alteration, or removal of genes within an individual's cells to treat disease.

– Genomics1

Bio-Informatics Priority areas: Gene therapy and Preventive medicine

▪ Preventive medicine

Rationale

– Relatively unclear market size and potential timing of market development, however, disruptive is potential high

– High computational skills requirements maps, well to Russian academic and current research strengths

– High potential for partnerships

– High market potential (estimated at USD 2bn by 2015), expected to grow at 20% rate

– High computational skills requirements leverage traditional Russian R&D strengths

– Can act as an enabler for other bio-healthcare areas

▪ Work on preventing diseases, as opposed to curing them, using bio-informatics advances

– Molecular diagnostics2


McKinsey & Company | 28 SOURCE: Expert interviews; team analysis

Level 1Direction

▪ Food/feed ingredients

Description/level 2

▪ Organic acids (citric, gluconic, lactic), amino acids (lysine, threonine) vitamins.

Bio-Industrials Priority areas: Food/FeedIngredients and Plant Extracts

– Lysine (aminoacids)

– Citric acid

Overall, many of the areas in food/feed ingredients are import substitution story, not technology development story

High-level rationale

– Medium size market (~$40-60 m) and quickly growth market (15% a year) in Russia

– Significant potential for import substitution (currently 80% is imported)

– Good accumulated research as Soviet Union was one of the world leaders in lysine production

– Very competitive industry internationally

– Average market (~$20-30 m)– Existing production in Russia (JSC Citrobel)

▪ Plant extracts ▪ Hydrocolloids (gums and starch), flavor and fragrance ingredients (essential oils, botanicals),

– Industrial starch – Large market ($150-200 m) in Russia– Slow growth (2,5-3% globally)– Russia has accumulated substantial research base of starch

technology driven by significant local producing industry: main market players in Russia are Efremovsky, Gulkevichsky, Chaplygin, Zvyagin, Krahmaloproduct

– Exists potential for development of niche products (e.g. for oil drilling)



Level 1Direction

▪ Bulk/polymers

Description/level 2

▪ Natural rubber, bioplastics, polyols (sorbitol, mannitol, xylitol, glycerin)

– Sorbitol technology

– Bioplastics (including biodegradable products) based on carbohydrates as starch, cellulose

Bio-Industrials Priority areas: Bulk/polymers and Bioremediation


– Big market size ($50-150 m) in Russia and average growth (13%)

– Relatively lower feasibility given no local production– High availability of raw material in Russia (starch)

– Small market size (5% of bulk/polymers market ~$20-30 m) and medium growth in Russia

– Unlike many Western countries, no regulatory obligation to use biodegradable materials

– High availability of raw material for production (e.g. wood waste from timber industry)

▪ Bio-remediation

▪ Biotreatment of waste, oil spills for clean-up/removal

– Oil spills treatment – Currently negligible market size (no statistics) but with medium growth (construction of pipelines, new field exploration)

– Lack of regulatory support (no pressure from the state to be environmentally more responsible)

– Can be used immediately by existing industry

Environmental theme largely depending on strict regulatory regime which is lacking in Russia



Level 1Direction

▪ Marine biotech

Description/level 2

▪ Application of molecular biological methods to marine and freshwater organisms, to produce foodstuffs, energy, drug compounds

Bio-Industrials Priority areas: Marine Biotech

– Compounds derived from marine organisms used in healthcare (e.g red or green alga as anti-cancer compound)


– Some disruptive potential but only 45 marine-derived natural products tested to be used as medical drugs in preclinical and clinical trials so far, only two have been developed into registered drugs

– Fungi as a source for the compounds may be derived in extreme marine environments (cold water in Russia)

– Research capability exists (Dalnevostochniy and Kaliningradskiy centres) but limited to only two institutes

– Total spend on fish preservation and reproduction in Russia $50-70m

– Limited natural resources for classical fish farming– Existing but small fish farming industry– High potential for disruptiveness, in case of extension into

genetically modified fish cultures

– Fish farming (e.g. fish feed)



Level 1Direction

▪ Biotech in agriculture

Description/level 2

▪ Yield enhancement, transgenic foods, biopesticides

Bio-Industrials Priority areas: Bio-agriculture

– Fast growing genetically modified products for livestock


– Big total stock raising market in Russia ($42 bn)– Restrictive regulation in the home market: growing genetically

modified food for human consumption is banned in Russia– Unclear regulation on genetically modified plants for use in

feedstock

– Significant agricultural industry in Russia ($41 bn)– Total global biopesticids market ($ 1,6 bn)– No regulatory restraints, however no supportive laws– Competition with cheaper comparables as pesticides

– Biopesticides (i.e. biological defence of plants)



Level 1Direction

▪ Biomass

Description/level 2

▪ Biological material from organisms used as a source of renewable energy

Bio-Energy Priority areas: Biomass and Biodiesel

Rationale

– Large market (USD 15b globally and USD 50-150m in Russia)– Opportunity to develop species relevant for cold Russian

climate, which can also be leveraged in other Nordic countries– Large amounts of available resources in the home market

– Genetic modification of biomass, e.g. development of species relevant for a particular climate

▪ Biodiesel ▪ Vegetable oil or animal fat-based diesel fuel

– Use of microorganisms to convert raw materials (e..g CO2, wood, sugar) into biodiesel

– Jet biofuel from camelina

– Significant disruptive potential, e.g. both environmental and energy production technologies

– Low potential in the home market– Longer term horizon for development of the technology – 10+ years

– High disruptive potential, however market is not defined yet as the technology is not ready

– Unlikely government support in the next 10 years– Availability of the plant (camelina) on the Russia market



Level 1Direction

▪ Bio-ethanol

Description/level 2

▪ Biofuel used as a motor fuel, mainly as an additive for gasoline

Bio-Energy Priority areas: Bioethanol

– Cellulosic ethanol (e.g. bioethanol from waste)

– Microbial synthesis of ethanol

Rationale

– Large market potential (USD 40b globally in 2009, up to USD 2b in Russia by 2020)

– Large amounts of raw materials– Potential exports markets already existing (e.g. current

increase from 5% to 10% share of ethanol in petrol in EU starting 2011)

– Large market potential (USD 40b globally in 2009, up to USD 2b in Russia by 2020)

– Longer term horizon for development of the technology – 10+ years

– Uncertain potential in the home market



The expected impact 2015-2020

IP protected production of essential medicines, healthy food and animal feed, drug and food

public safety

Improved state health system through new technologies for diagnostics,prevention and treatment of diseases

Increased renewables in the total energy balance. Improvement of ecological situation in Russian Federation by reduction of

emissions and conservation of biodiversity.

New jobs created for urban and rural population with diverse

Innovative economic development from scientific research originated from Skolkovo, Russia and by transfer of foreign technologies

Establishment of the internationally recognized scientific and industrial biotech center

The development of related industries (medicine and agriculture) through the creationof the additional demands from the biotechnology industry

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There is a unique opportunity for Russia

Roger Kornberg, Nobel Laureate

Igor Goryanin biomedical technologies at Skolkovo

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