Genotek History
How to create an annually tripling business and captivate the ex-head of the presidential administration
Ekaterina Kinyakina, Forbes, 04.06.2019.
Genotek, one of the leaders of the Russian commercial genomics market, grew out of a student project of Valery Ilyinsky, a graduate of the Moscow State University biofac, and his partners. How did a startup turn into a fast-growing business and why are influential investors appreciating it?
"For almost ten years now, we have been explaining to people what a DNA test can do and what it cannot do. Because in addition to passing a DNA test, you need to do a lot to be healthy," says Valery Ilyinsky, co-founder and CEO of Genotek, in an interview with Forbes. In recent years, his company has become one of the leaders of the young commercial genomics market: Genotek is multiplying revenue from year to year, actively attracting investors and conducting tens of thousands of tests for private and corporate clients in 16 countries around the world. And Ilyinsky himself in April 2019 was among the nominees in the rating of the 30 most promising Russians under 30 years old. What achievements can we expect from the 29-year-old entrepreneur, his partners and subordinates in the coming years?
Two tables and four chairs
Valery Ilyinsky has been interested in biology since childhood. In the 9th grade, he moved to a specialized class in one of the Moscow schools. "There are only two ways from there: either to the MSU biofactory, or to the medical [university]. But I was more attracted to fundamental science than to practical science," the entrepreneur recalls.
So he turned out to be a student at Moscow State University. At the university, Ilyinsky showed himself vividly from the first courses – and quickly received the status of an employee of the Russian Academy of Sciences, as well as the opportunity to train at research institutes in the USA and Switzerland. At Moscow State University, he also met future business partners, and at that time students of the Faculty of Mechanics and Mathematics Artem Elmuratov and Cyrus Petrenko.
In 2010, all three were participants in the additional training program "Formula of Success", later renamed "Formula Biotech". "The program removed concerns: at the biofac [young] scientists understand how the world works, but they do not understand how to build a company, how to attract investment, what is tax. This program gave people who don't understand anything about business at all a starting understanding of how to live in Russia," Ilyinsky recalls.
As a training project, he, together with Elmuratov and Petrenko, came up with the concept of a company analogous to the American 23andMe, an operator of genetic tests. Based on the analysis of 23 pairs of chromosomes (hence the name), 23andMe provides customers with data on predisposition to a number of hereditary diseases. The company has already conducted tests for more than 10 million people and raised about $800 million in investments with an estimate of the entire business at $2.4 billion. "We wanted to repeat the business model, but Artem [Elmuratov] was the only one of us who had at least some entrepreneurial experience behind him. Therefore, he was responsible for the business, I was responsible for the biological part, and Kir [Petrenko] as a mathematician – for data processing and algorithmics," says Ilyinsky.
Every week during the semester, mentors and entrepreneurs came to the "Formula of Success", who introduced the participants of the program to business processes. The most active mentors were Yuri Mitin (now director of the Skolkovo startup Academy) and Mikhail Khomich (now Deputy Prime Minister of Udmurtia). They even organized an analogue of a business incubator in the walls of Moscow State University, and the future Genotek team became its resident.
This allowed Ilyinsky and his partners not to abandon the student project at the concept stage, but to found a company. However, at first she was mainly engaged not in commercial activities, but in infection research and clinical trials. "The genetic business has clearly got on track only in the last five years, and before that there was a long search for a business model, because in Russia everything works differently than in the States," explains Ilyinsky.
According to the entrepreneur, in 2011, in the first year of Genotek's full-fledged existence, there was no "real" venture money on the market: "Naturally, three students could not receive any investments." However, the lack of financial resources at that time did not bother the team. "We started with the fact that we had a free room – two tables and four chairs – in the MSU business incubator. We had our knowledge and the knowledge of our friends," says Ilyinsky.
Science vs. Dreams
He himself worked in parallel at the Institute of General Genetics. Vavilova RAS: there was a laboratory where young scientists could conduct analyses. "We started making bioinformatics for various scientific institutes," Ilyinsky recalls. – We were engaged in processing the data obtained during the decoding of the genome. Practically no one has done it in Russia." Bioinformatics was a new field, the development of which was prompted by the appearance on the market in 2008 of sequencing devices for more detailed DNA analysis.
Thanks to access to the laboratory, the Genotek team also found its first customers. One of them was the St. Petersburg Institute of Cytology and Genetics SB RAS – as part of a fundamental study, the institution instructed young scientists to discover genetic markers that would determine the reaction of rats to a number of medications. "I don't remember the amount they paid us, but it's definitely less than 1 million rubles. It was very cool for us students. There were other customers who paid tens or hundreds of thousands of rubles, which allowed us to immediately reach a turnover of several million rubles a year," says Ilyinsky.
The pool of clients allowed Genotek to do without external investments for several years. The company closed the first round of financing only at the end of 2013 – about $500,000 was invested in the project by the RuStarsVentures fund and a group of private investors. At that time, Genotek had already moved out of the alma mater of its founders and settled in the industrial zone near the Aviamotornaya metro station. Own funds were enough even to open a small laboratory, Ilyinsky notes.
Investments have given the business a boost. Genotek began to actively explore the b2c segment and expand the team: in the third year of work, the founders of the company had their first subordinates - customer service managers, data processing, PR and advertising specialists. To date, the team has also been replenished with biostatistics, bioinformatics and specialists in the interpretation of client information. In total, Genotek employs 70 people as of 2019.
The company remains "quite science-intensive," Ilyinsky notes. Because of this, according to the entrepreneur, his dream of hiring a manager who would take over all the operational management of the business, so that the founders would focus on the development of scientific potential, did not come true. "We made several attempts, attracted different people. But it was not possible to find a manager on the side who would effectively manage," the CEO of Genotek states.
He considers himself "more of a businessman than a scientist." "The more the company developed, the more it had to get involved in business processes. There are things I can't do, and there are things I'm good at. For example, to manage Genotek," says Ilyinsky.
These are not empty words. Genotek's turnover has been tripling year by year for four years, the entrepreneur claims (he does not disclose financial indicators). According to SPARK, in 2017, the total revenue of two legal entities associated with the company amounted to about 150 million rubles, and net profit - more than 40 million rubles. The business attracts the attention of influential investors: in 2016, Genotek attracted $2 million from a pool with the participation of ex-head of the presidential administration of Russia Alexander Voloshin and CEO of Rusagro Maxim Basov, in 2017 - $ 1 million from the Pharmstandard holding.
"This is a fast-growing company with a stable business, a serious research base and the best bioinformatics in the country. At the same time, Genotek has its own modern and full-fledged laboratory complex. All this allows us to provide high-quality world-class services on the orders of both clinics and individual clients. Of course, this is the merit of the founders and managers of Genotek," Alexander Voloshin told Forbes about the motives for investing in the project.
DNA freaks
80% of Genotek's revenue in Russia today is provided by private clients, 20% by contracts with medical institutions. Through partners, the company also provides services in 16 CIS and European countries, including Italy, Austria and Poland. Foreign expansion is often associated with bureaucratic difficulties, Ilyinsky notes: "If there are some customs restrictions on the import and export of biomaterials. For example, biomaterials cannot be exported from Russia and the USA, but they can be imported. It's quite simple to legally formalize. We also have high hopes for Latin American countries where there are interested customers."
In general, the company's new customers appear in two models: the first model is "for the sake of interest", the second is due to diseases, Ilyinsky lists. For example, in 2018, a woman with her son applied to Genotek. In appearance, she was about 60 years old, her son was about 30, while both looked much older than their age. Doctors diagnosed them with progeria, a rare disease that causes premature aging. However, genetic analysis showed that there was no corresponding mutation in the clients. So, together with scientists from the Institutes of the Russian Academy of Sciences and Pirogov University, Genotek specialists discovered a new mutation in the ELN gene that causes a change in the structure of the skin. The research results were published in the journal BMC Dermatology (Okuneva et al., A novel elastin gene frameshift mutation in a Russian family with cutis laxa: a case report).
Prices on the commercial genomics market have not fallen in recent years, although they are not comparable to the cost of the first decoding of the human genome, which cost the researcher $ 3 billion. A full transcript of the test from Genotek costs 240,000 rubles today. More low–cost services – for example, analysis of only those parts of DNA that have clinical significance - are much cheaper. In the case of Genotek – from 9,000 rubles, says Ilyinsky.
Among the company's competitors are Atlas, MyGenetics and My Gene projects. On average, in the Russian market, DNA testing for certain markers costs 20 000 – 30 000 rubles. There are also more economical options: for example, Atlas offers tests from 5,900 rubles for the analysis of seven genes to 17,900 rubles for the analysis of 28. Companies also have additional services. So, MyGenetics is engaged in the selection of individual nutrition programs through the consultation of a nutritionist.
Genetic tests are still almost not included "in any medical protocols," Dmitry Alekseev, Atlas R&D Director, told Forbes. In Russia, according to him, customers are not mentally ready for the widespread introduction of DNA tests due to the lack of diagnostic habits. The stratum of the population willing to pay for the service is limited to several tens of thousands of users, the manager estimates. "From the positive trends, more and more doctors want to grow in this direction, and when it gives the first results, the popularity of genetic tests will immediately grow. I look at the process very optimistically," he notes.
Ilyinsky emphasizes that he considers a "utopia" scenario in which DNA tests would be a mandatory service. "They have become a normal practice, like cell phones. A few years ago, market enthusiasts looked like freaks. 100 years will pass – and those who do not do genetic tests will already be freaks," the entrepreneur sums up.
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