Medication for Abramovich: how Biocad has become a leader in biotechnology

“I am interested to solve complex problems,” said co — founder and President of Biocad Dmitry Morozov. — It is interesting to seek funds from those diseases which cannot be cured at the present stage of development of science, for example in the field of Oncology. The more complex the disease, the less chance to cure it — so I find it interesting”. With RBC Morozov talks in Moscow city: where the company rents a small office for meetings with partners. Basic office Supplies in St. Petersburg. Frost moved there a few years ago to build the company of their dreams.” Biocad now includes two factories and three research centres. The company’s portfolio of 17 generic drugs, five of five biosimilar and original drugs in various stages of development — more than 40. According to “SPARK-Interfax”, in 2014, Biocad revenue amounted to 8.4 billion rubles., net profit — 4,8 billion rubles (data for 2015 yet).

Morozov founded the company now owns only 30%. In may 2014, on purchasing 70% of Biocad announced Millhouse Capital of Roman Abramovich and one of Russia’s largest drug manufacturers “Pharmstandard”. Millhouse Capital owns 50% of the company, the amount of this transaction was not disclosed. And “Pharmstandard” for 20% paid $100 million (3.5 billion rubles at the exchange rate on the date of payment). Based on this sum, it turns out, all Supplies could be valued at $500 million (Vedomosti, citing a source close to one of the parties to the transaction, reported that Millhouse Capital bought a share based on a lower valuation; the company spokesman John Mann declined to comment on the RBC acquisition cost).

Bloomberg in 2013, saying that a controlling stake of the company is for sale, citing close to the deal sources say an even higher rating Biocad: from $750 million to $1 billion.

Over the past ten years on the Russian pharmaceutical market had several transactions with comparable amounts of money, says the managing partner of Novus Capital (advises M&A transactions) Alexander Lobakov. But none of these sold over the years, large companies do not specializiruetsya on the production of biotech drugs.

A cure for boredom

“The pharmaceutical industry will be to develop rapidly in the nearest century, so I decided to invest in it,” says Morozov. In 2001 he at that time co-owner of the Bank “CentroCredit”, “bored” from the Bank, which did not bring him satisfaction, sold a stake in the business and have invested with a partner about $8 million in a pharmaceutical factory and its own research center.

Business partner was Andrew Karklin, whom they met when frost bought the aluminium assets, says the businessman. CJSC “Biocad”, according to the register, 25 July 2001, in equal shares established Dmitry Morozov and Tatiana Dubrovskaya. Dubrovskaya, according to Morozov, the civil wife Karklina. Contact Karlinym RBC failed.

Originals and copies

Work on innovative medicine begins with basic research: at this stage of 10 thousand molecules selected one on the basis of which can be obtained new medication. Preclinical and clinical trials carried out consecutively at the cellular level, animals and humans. Registration of the finished drug takes several years. The first years after the market launch of innovative medicine (also called an original) is under patent protection, after which other manufacturers may produce generic medicines and biosimilars of this drug.

Generics are manufactured by chemical synthesis. The biosimilar is the same as the generics, but the chemical and biological origin. Unlike the generics biosimilars are not exact copies of the original drug.

Partners began production at the suburban plant of dietary supplements the content of bifidobacteria. Preparations for the normalization of the intestinal microflora is sold under the brand name of “Bifidumbacterin”. In 2004, according to IMS Health, its sales amounted to about 3 million rubles., and then went down. According to Morozov, the project was unsuccessful and Biocad was forced to close it. Gradually started the production and medicines, and first in 2005 brought to market the original drug — antiviral “Genferonฎ”.

At some point interest Karklina to participate in the project, according to Morozov, is cold. In 2011, the share which, as Morozov says, was controlled by the partner, acquired Gazprombank (Bank statements from 2011, this asset is not mentioned). Accurate package size and the amount of the transaction was not disclosed, refused to name them frost and now.

In 2013, it became known that a controlling stake of Biocad for sale: according to Bloomberg, was interested in buying American giants Pfizer and Amgen. Morozov calls among the then candidates also Israeli Teva Pharmaceutical Industries. The question of the buyer, according to Morozov, coordinated and with him as one of the shareholders of the company. “I proceeded from the understanding, with whom I and my team will be comfortable working,” he explains. I want to create a company of your dreams with pleasant to me people.” So 70% of Biocad has appeared to “Pharmstandard” and structures of Roman Abramovich (according to “Vedomosti”, a part of their package, sold them and Morozov). Representatives of Pfizer and Teva declined to comment, Amgen and Gazprombank queries on the RBK not answered.

For Abramovich pharmaceuticals is not a new industry, and “Pharmstandard” — not a foreign company. It Millhouse Capital in 2003 on the basis of the five plants created the holding company “Pharmstandard”, and in 2008 sold it to Victor Haritonin and Yegor Kulkov. Now Abramovich pharmaceutical assets in Russia, said the representative Millhouse John Mann.

Stake in Biocad, according to Mann, is a promising investment for the company that used to invest “in technologies of the future”. “Pharmstandard” considers the purchase a “financial investment pursuing strategic objectives,” said the company in 2014. To obtain a more detailed explanation about why they appreciated Biocad in five annual proceeds from buyers failed: assistant Haritonin told RBC that the company will not communicate on the subject of Biocad, the queries in “Pharmstandard” remained unanswered. “We need to look at the potential market and what share in it the company could theoretically take in the future” — the analyst of BKS Marat Ibragimov. “Pharmstandard and Millhouse paid for exactly the potential of Biocad, he said.

What kind of potential I saw in Biocad Roman Abramovich and Viktor Haritonin? RBC surveyed market participants and analysts say the three main versions. First — investments in innovative drugs that Biocad expects to bring to market in the next few years. Second — investment in generics and biosimilars, which the company brings to market now. And finally — the transformation of a competitor in the struggle for delivery under government contracts in a partner.

Moved bounty

By 2010, when frost moved to St. Petersburg, Biocad already had a factory in Krasnogorsk district of Moscow region and R&D center (research & development) in Chekhov. In the Northern capital of Biocad, according to Morozov, invited the then Governor Valentina Matvienko, offering the choice of several plots to create a new production.

A year later, Biocad opened in the SEZ of St. Petersburg (from 36 residents of zone 12 belong to the biomedical cluster) R&D center, invested about 120 million rubles In 2013, it has launched a first phase of the plant (investment amount of 330 million rubles, including borrowed funds), which produces not only medicines, but also raw materials for them — substance. A year later the company opened its third R&D center, investing in a more than 200 million rubles.

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“In St. Petersburg we got access to talented young people from different universities,” says Morozov. — Previously, these people were simply nowhere to take. In Moscow, I would have spent much more time creating machines talent: the capital’s young people do not want to go to the lab.” Now three R&D center Biocad include 17 laboratories, staffed by about 350 people. The average age of employees of Biocad, according to Morozov, 28 years. One of the R&D centres in St. Petersburg deals with the study of small chemical molecules and the other two are in St. Petersburg and in Moscow — biological molecules. Biocad, according to Morozov, is engaged in the full cycle of drug development.

All costs of Supplies for product investments in the development occupy more than 70%. In 2015, Biocad spent on R&D 1.2 billion rubles. “We have five or six years are costs, conduct clinical research, keep staff — lists Morozov. — Naturally, all these costs fall in the cost of the final products”. In world practice the cost of developing an innovative drug is up to 90% from its price at the pharmacy, says the CEO of RMI partners, which manages projects company rosnanomedinvest and novamedica) Vladimir Gurdus.

In the portfolio development at Biocad is now more than 30 original drugs, however, until clinical trials while heard only four of them. One of the drugs will come to market this year, and in 2018 the company plans to launch two or three original drugs every year that promises frost. He expects that drugs, now under development, patents will receive more than half.

Competition in the class

The amount of investment in the development, which calls Morozov, differ from the attachments of the world’s pharmaceutical giants even at times, and by orders of magnitude. For example, Janssen, a pharmaceutical subsidiary of Johnson & Johnson, in 2014, invested in R&D $6.2 billion Average cost of developing an innovative drug is €1.25 billion, and the period of its withdrawal to the market — 14 years, said in an interview with RBC, the co-Chairman of the Board Janssen Joaquin Duato.

Biocad in 2013, brought to market its innovative drug “Algeron” for the treatment of hepatitis C. the Development took five years and cost about $5 million At the time it was cutting-edge technology, but now the development of this level for us, “kindergarten”, Morozov admits: “We took a known molecule, made it a little bit differently and got the original drug”. Such developments, he explains, are referred to as next-in-class: this is a new drugs in its class, with improved properties of existing ones. These drugs also belong to the innovative and protected by patents. “A fully innovative products in the category of first-in-class are essentially new drugs that are on the market yet was not, — explains the difference Vice President, business development of the company “Growth” Milos Petrovic, former head of the Russian subsidiary of the Swiss Roche. — Next-in-class are new molecules, but their mechanism of action is already clear”. To create a cure for the next-in-class and is much cheaper and takes less time: it is tens of millions, and three to five years, says Petrovich.

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Innovation in Russia and revolve around the development of new uses of existing molecules, says hurdus. “To invest in R&D billions of dollars need to earn money or to attract investors. But they on the market yet”, — he throws up his hands. In addition to the Biocad gurus lists several Russian companies, the development of which in the Russian market are quite competitive: “Generium” (project Victor Haritonin), “R-Pharm” and led them “to Novamedica”. Development Director at RNC Pharma Nikolai Bespalov adds to the list of “Polysan”.

“30 innovative drugs in development (this figure refers to the frost. — RBC) is very much, perhaps now is the best score on the market”, — said the Chairman of the Board of nonprofit partnership “Union of pharmaceutical and biomedical clusters of Russia Zakhar Golant. “R-Pharm” in the development of the now 14 innovative molecules, two of which are first-in-class, says the owner of the company Alexey Repik. “Generium”, according to CEO Dmitry Kudlaya, in the development of nine of the original molecules, single original drug is undergoing clinical studies. “Novamedica” in the development of 15 projects will enter the market 10-15, calculates gurus. “Poliana” in the development of the seven original drugs, said a company representative.

And among manufacturers of biotechnology products a full cycle with a Biocad can only be compared to the “Generium”, said Andrey Vasilyev, a former head of the Department of innovative development and scientific engineering of the Ministry of health. “A relatively large number of companies that have a full cycle production of biotech products, — says Nikolay Bespalov. But the drugs which they produce, is much easier than the Biocad”.

Sale of “Algeron” in 2015, according to IMS Health Russia amounted to 257,3 million rubles in wholesale prices is approximately 2.9% of the total sales of the company. Drugs next-in-class Biocad will bring to market and further, sure frost. There are among the developments of the company and several drugs of the category first-in-class, continues with the businessman, but to say more about them refuses.

More generics

While innovative drugs are mainly being developed, core revenue Biocad bring generics and biosimilars, according to IMS Health Russia, from RUB 8.9 bln revenue in 2015 on the original “Algeron” drugs and the line “Genferon ฎ” accounted for only 12.5% of sales and 1.1 billion roubles (hereinafter the data about sales — IMS Health Russia). “Generics in our portfolio is dominated by because they are faster to develop,” explains Morozov. — In the future, we will focus on the development of original products, but from time to time will release and generics [with a short development cycle]”. From biosimilars, the company plans to abandon.

Now in the portfolio development at Biocad two bioanalogue and ten generics. This year Biocad plans to increase revenue by 40% due to market for another two anticancer biosimilar of bevacizumab and trastuzumab, which came out from under patent protection in 2015.

At Biocad, according to CEO IMS Health Russia Nikolay Demidov, “very good planning for the withdrawal of analogues of the drugs that come out from under patent”. The right to bevacizumab (original drug “Avastin”) and trastuzumab (“Herceptin”), as well as the rituximab (MabThera”), belonged to Roche. In 2015 from the sale of three of these drugs, according to IMS Health India, Roche was rescued by 12.6 billion rubles., in 2014 and 17.3 billion RUB.

In the next few years Biocad is planning to withdraw the medicines the most “expensive” diseases, including cancer and autoimmune, Morozov says. Will be among them, and generic versions of drugs coming out from under patent protection.

Despite the fact that while the primary portfolio Biocad are generics and biosimilars, approximately 70% of its revenues from medicines made from its own substances (active substance of the drug). It can boast not all Russian companies: from 350 manufacturers of medicines in Russia last year, the production of substances involved, according to Bespalova, only 45 (less than 13%).

To remove a competitor

90% of sales of Biocad in 2015 brought delivery on public procurement, according to data of IMS Health Russia. For the greater part of the revenues of 67%, or about 6 billion rubles will be provided the program for additional pharmacological support (DLO; supplies of drugs for beneficiaries; IMS include delivery on the program “7 nosologies” how DLO). Whole sale drug company, according to IMS Health Russia, amounted in 2015 to 8.9 billion rubles.

Morozov insists that orients the business “on public procurement and on the solution of certain problems.” In 2013, the main generator of revenue Biocad were antiviral drugs Genferon ฎ ” and “Genferon ฎ light: according to IMS Health Russia, from their sales it made 858,3 million rubles (36%). More than 95% of these drugs were sold on the commercial market.

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But in 2014, expired patent protection of the anticancer drug rituximab, which is under the brand name “MabThera” sells Swiss Roche. In Russia the drug is packaged at the factory of “Pharmstandard” in Ufa, “Pharmstandard” was and still is a distributor of the drug. Rituximab the state buys under the program “7 nosologies” (includes drugs to treat the most costly diseases): in 2013, Roche, the sole manufacturer has put this drug on the 8.4 billion rubles.

Already in 2014, Biocad brought to market its generic rituximab under the brand name “Azelia”. In the first year, we are always willing to put the state of the drug in the amount of 268, 8 thousand rubles., the rest put Roche, the total supply amounted to 9.1 billion rubles And in 2015, according to IMS Health Russia, sale “Acerbia” on public procurement amounted to 5.4 billion rubles, “MabThera” to 3.5 billion rubles (total amount of supply — 8.9 billion RUB).

In the development of generic rituximab Biocad helped the state: to this end, the Ministry of industry granted the company a subsidy of about 285 million rubles, told “Vedomosti” Deputy Minister of industry and trade Sergey Tsyb. The effect from these investments in the end of 2014, he was estimated at 6 billion rubles.

Assistance from the state

Biocad — “an active participant in government programs directed on development of Russian pharmaceutical industry”, says the representative of the Ministry of industry and trade. The company, according to him, has done and is doing more than a dozen state contracts to organize production and to conduct clinical trials of innovative and import-substituting drugs totaling about 1 billion rubles.

After the withdrawal of “Acerbia” Biocad revenue soared by 180%, to 8.4 billion rubles in 2014 (the company recognises revenue from the supply of the drug in 2015 for 2014 reporting year).

Biocad and the interests of the shareholders of “Pharmstandard” can overlap not only rituximab. In 2015, according to RNC Pharma, 70% of the 1.5 billion rubles of state purchases of interferon beta-1B provided “Generium”, around 25% of Biocad. “Generium”, according to “SPARK-Interfax” belongs to CJSC “Lekko”. This company is 100% ownership of “Pharmstandard”, stated in the financial statements of the company.

One of the lobbyists of the pharmaceutical market, who asked not to be named, believes that “Pharmstandard” could invest in a competitor that prices at the auction after the conclusion of generics has not dropped too much.

Frost all the questions about the possibility of concerted action calls “absurd”. “”Pharmstandard” has its shareholders, Biocad his, ” he says. — Every company seeks to maximize its profits. And by your logic it turns out that I have to say “Pharmstandard”: “You let the house sit, I will earn”. Well, as it will look to the shareholders of “Pharmstandard”?” General Director of “Generium” Dmitry Kudlay, too, insists that “to speak about any agreements between companies impossible.”

Sees no problem and the FAS. “Pharmstandard” has only 20% of Biocad, and it creates threat of violation of the Antimonopoly legislation”, — told RBC head of the Department for control over social sphere and trade FAS Timothy Nizhegorodtsev.

In 2015, government market segment was, according to IMS Health Russia, roughly half commercial: 308,3 billion RUB compared to 631,7 bn (according to DSM Group, 322,9 against 740,6 billion rubles, respectively) Biocad will own the market segment of government purchases as long as “the state will buy generics and to build administrative barriers to foreigners,” said Deputy Director of Stada CIS Ivan Glushkov. The sector has a limited number of patients and limited funding, and the strategy of the state may change, he warns. Director of the SBI research Institute health organization and medical management of the healthcare Department of Moscow, David Melik-Guseinov, on the contrary, believes that public procurement — “friendly, reliable segment, a stable demand which will always.

“Dima restless”

Morozov keen on the idea to deliver medicine abroad. In 2015, exports brought the company only 4% of revenue. “We supply medicines in Vietnam, Sri Lanka, CIS — lists Morozov. — While a small amount, but now our products are registered in 47 countries. Once the registration process is complete, the sale of drugs abroad will grow significantly”.

Will frost continue to compete with international pharmaceutical giants? “Dima restless and will no doubt pull the whole company to a normal Western standard, — considers Morozova good friend, who asked about anonymity. — But I don’t think in our lifetime they will be equal with someone from Big Pharma: they are advanced for Russia, but Western leaders they till as the sky. We are too far behind, and need too large investment.