In a first-of-its kind deal, Roche recently licensed a handful of pre-clinical HIV assets to Russian biotech Viriom, a start-up created specifically to develop and commercialize the compounds in Russia, Ukraine, Belarus and Kazakhstan.
No money changed hands, however. Roche will contribute the non-nucleoside reverse transcriptase inhibitors plus its HIV expertise (via coaching and a presence on Viriom's board of directors). In exchange, Viriom will pay the Swiss pharma royalties on sales in its territories. Roche retains rights in other markets and can use Viriom-generated clinical data.
The alliance, inked Oct. 14, furthers Roche's goal of building up its presence in Russia, a market worth just $11 billion last year but forecast to reach over $20 billion by 2012. IMS labels Russia - along with China - as among the fastest-growing pharmaceutical markets. And Roche's role in creating Viriom will do wonders for its relationship with the Russian government, which is keen to create home-grown "bioclusters" and encourage local development of novel drugs.
According to Miles Petrovic, general manager of Roche Moscow and head of the group's Representative Office in Russia, the deal "represents an entirely new concept for Russia," in the sense that it's among the first examples of a local company taking drugs all the way to the market in Russia.
Not About Risk-Share, But Strategic Access
Roche didn't plan to develop the HIV compounds internally and has no claw-back rights to them. As such, this deal isn't about sharing risk, like emerging market tie-ups modeled on Eli Lilly's 2007 collaboration with India's Piramal. In that deal, Lilly has a more typical arrangement - the option to regain assets before registration (or even earlier). In this case, "the intention was not a risk-sharing one," clarifies Peter Sandbach, strategic business partner, Communication, at Roche Pharma Partnering. Instead it's about strategic access: "Russia will continue to grow, and we're committed to ensuring access to our products and technologies for the patients who need them," says Sandbach.
Roche isn't the only one - nor the first - to tap the Russian market. Several large drug makers have stuck it out through challenging times in Russia. Sanofi Aventis - ranked number two there in sales terms - claims to have had a presence in Russia since 1970.
Meanwhile mid-sized players such as Nycomed (which also has had a long presence in Russia) are busily establishing local production facilities, hoping to cash in on a medium-term Russian government objective to purchase 50 percent of drugs from local producers. (1 See 'EuroPharmaToday', June 22, 2009.)
Others are doing deals with well-established locals: Johnson & Johnson, for instance, granted local pharma giant Pharmstandard distribution rights to cancer drug Velcade (bortezomib) after the Russian group won a government tender to distribute cancer drugs.
Viriom Is Latest Addition To Russian Biocluster
Viriom was established in 2009 by ChemRar, a non-governmental business incubator focused on life sciences. ChemRar, which is funded by investment companies including San Diego-based Torrey Pines Investment Inc., will finance Viriom through early development as well as providing R&D and legal infrastructure.
It will then bring on a wider investor consortium to support late-stage work and product launch - likely to comprise mainly U.S. and Russian private-equity players, according to Nikolay Savchuk, a director at Torrey Pines, Viriom's chairman, and chief executive of California-based global CRO ChemDiv.
Traditional, U.S.-style venture capital doesn't really exist in Russia, Savchuk said in an interview. Nor, he adds, are there any plans to create it, given the challenges facing the VC model. "Why emulate a model that's broken, anyway?" he points out.
Most Russian 'venture' money comes from the government or foreign sources. Investors in the $90 million Bioprocess Capital Ventures fund, for example (which is focused on innovative life-science investments) include the state-owned Russian Venture Company and VneshEconomBank as well as institutional and private investors.
These funds are used to access western assets as well as invest in local opportunities: in May 2009, U.S.-based Cleveland BioLabs signed a term-sheet with Bioprocess for a Russian-based JV to develop the company's Curaxin compounds (small molecules designed to reactivate apoptotic pathways in tumor cells) for cancer. Term sheets currently are being finalized, according to Cleveland BioLabs.
Meanwhile, ChemRar's nascent biocluster appears to be doing just fine without local VC. The incubator has fostered other biotechs, including three-year-old iDialog, focused on taking novel anti-infectives through to proof-of-concept, and ChemRar Pharma, which in-licenses oncology assets. These are supported by contract research organizations and other infrastructure groups such as ChemDiv's Russian arm, the Chemical Diversity Research Institute (which recently was announced as Viriom's service partner on the HIV compounds).
Savchuk expects several more Virioms and iDialogs will be created to license compounds from western biopharmaceutical firms, although "there's more than one potential type of deal ... not only in Russia but also in other developing markets," he said.
Government Money Is Still Important
But although ChemRar itself isn't government-funded, state support - complemented by public-private partnerships - remains important for the growing Russian biopharm sector. Half of iDialog's $6.5 million funding came from the state. The BioProcess Capital Partners fund includes $52 million from the Kremlin. Organizations such as Rosnanotech Corporation (set up in 2007 to invest in nano-technology) and state-owned VneshTorgBank have access to multi-billion dollar government funds.
Nevertheless, at least in biopharma, "for now, we're still counting new companies in the dozens, not the hundreds," Savchuk observes. But progress is significant, and in any case, past examples of vigorous government support for biotech in Western European countries - in particular Germany, with its generous BioRegio program during the 1990s - prove that quality is more important than quantity.
Russia: A Growing Priority for Western Firms?
The more western firms do to further the evolution of Russia's biotech sector, the better their chances of gaining a foothold in a challenging, yet important market that for some firms only recently has become a priority.
Savchuk suggests that some of the reasons several western firms have been slower to tackle Russia than, say, India or China, are historical and psychological. In many minds, Russia has inherited the ex-Soviet Union, Cold War image of an ideological enemy to the West.
Unlike China, for example, where relations warmed throughout the '70s and '80s, Russia also has been tainted by corruption and a chaotic health care system, and a highly opaque drug registration process.
That is now changing. Increasing transparency, a more overt business focus and better established relationships between Russian pharma and financial institutions and their western counterparts have led to increased interest in Russia.
The government's Health 2020 and Pharma 2020 programs, aimed respectively at expanding medical insurance to the entire population, and encouraging local innovation and drug R&D and manufacturing, help too. As such, "we're talking to half a dozen major pharmaceutical firms about potential partnerships," said Savchuk; Novartis and Eli Lilly are particularly active in seeking in-roads into Russia," he continued.
Thus the Roche-Viriom deal, although unusual for now, may not remain so for long.
- Melanie Senior ( 3 m.senior@elsevier.com )
This article also appeared in "The Pink Sheet" – Oct 26, 2009
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