At the cellular level
How to make money on investments in pharmaceuticals
Dmitry Kulish, Forbes, 01.06.2018
The Russian pharmaceutical market will grow by 8-10% in the coming years. However, those who want to invest in new medicines should think carefully: there are many pitfalls in the sector. How to avoid basic mistakes and choose promising ideas?
The pharmaceutical market has shown growth in dollar terms again after a two-year break, DSM, a key analyst of the Russian market, said recently. In rubles, the growth has not stopped, and now the annual market volume has reached 1.63 trillion rubles, of which about a third is public procurement, and the rest is retail. In the ranking of fast-growing RBC companies, eight out of 50 belong specifically to the pharmaceutical sector. At the same time, traditional Russian markets (from real estate to metallurgy) are stagnating.
The interest of investors is also enhanced by the fact that the government's policy of localization of pharmaceutical production allows domestic medicines to break through the marketing wall of multinational giants.
The motto of the industry was the expression: "In ten years, ten domestic companies will share a pharmaceutical state order of ten billion dollars." At the same time, there are only five or seven domestic companies capable of producing at least something worth a billion dollars. Therefore, it is not surprising that brave investors are increasingly appearing, sincerely hoping to buy a pharmaceutical plant for a billion rubles, which over the next twenty years will quietly give a billion rubles in dividends per year.
But, alas, you should not look for easy money in "pharma". And although ten billion ten domestic companies will be divided, there will not be those among them who hope for a relaxed existence of rentiers. Those who want to invest in the pharmaceutical sector should respect the peculiarities of this market, create partnerships, build their own teams and prepare for risky investments that require serious management. Investors who have fulfilled all the conditions of this game have excellent chances to become one of the ten kings of the Russian pharmaceutical industry in 5-10 years. Having invested about 1 billion rubles now, in 5-10 years they will be able to receive 1 billion in revenue over the next 10 years.
The right questions
The key feature of the pharmaceutical industry is that the main investments are made not in capital funds, but in the results of R&D and marketing, which in Russia have not yet learned to consider capital.
Simply put, live money turns into a pile of paper that you will not be able to pledge to the bank. Gradually, investors are beginning to understand that the key topic of the pharmaceutical business is not the purchase of a beautiful factory at all, but the purchase of a product – that is, the same mountain of paper.
In addition, we need a team that will know what to do with this mountain of paper for the next ten years. And gradually, instead of the wrong question: "Which plant to buy?" – investors are starting to ask the right questions: "How to make a product?" and "Where to find a team?".
How to make a new "Arbidol" and "Ingavirin"
This topic is interesting for B2C investors who do not want to get involved with the state, but love and know how to work with retail. We are talking about super successful retail products with sales of 4-6 billion rubles a year and an operating profit of about 50%. Therefore, the main focus in these drugs is on sales.
Of course, we cannot do without clinical trials and certified pharmaceutical production, but in order to achieve high profits, we need a well-coordinated team that will competently plan the promotion and effectively execute the plan. And in Russian conditions, as we know, this team is more important than clinical data.
Large retail products are necessary for building a pharmaceutical business, but it's still worth starting with creating your own commercial team that will learn how to sell some "Cerebrolysin" or "Essentiale" well, and then take a swing at your own product.
How to make a cure for cancer
In this case, we are talking about socially important products with public procurement of 6-8 billion rubles a year. This topic is of interest to investors who work confidently in public procurement. Such products really save lives, which means that you cannot do without honest and long-term international clinical testing.
Most investors have heard this without us, but they can't believe it. They continue to hope that something can be accelerated and something simplified. Alas, it will not work. Therefore, we must be prepared to wait five to seven years and tune in to the fact that in the third year of clinical trials, the drug may show a bad result and all investments will be lost. Real scientific victories are always a small miracle: five years before the success of Rituximab, few people believed that it would work.
It follows from this that investors wishing to invest in anticancer drugs need, firstly, to build a portfolio, and secondly, to carry out a meticulous and comprehensive examination of scientific projects at the entrance to the portfolio.
How to make your own cell therapy
CAR-T-cell therapy is one of the most striking breakthroughs of biomedical science in recent years. This topic is interesting to investors who want not only to earn, but also to change the world for the better.
Russian scientists are traditionally strong in cellular technologies and are already working on a par with foreign colleagues in the field of CAR-T and in the field of stem cells. Here there is a market problem that did not exist in the previous two groups.
Usually saving the patient's health and life justifies any costs. But in the case of cellular technologies, the costs are infinitely high, causing consternation even among industry professionals. After all, it is necessary to grow cells for each patient personally, conduct a personal mini-study, monitor acute side effects.
Therefore, we advise investors to enjoy the opportunity to make the world a better place and at the same time not forget to integrate it into the financial model for which they are going to pay.
What could be the ideal project in "pharma"
Despite the complexity of cellular technologies, we would still advise investors to pay attention to this area first of all. There are two tasks in it that domestic developers are quite capable of solving. This is a transition to non-viral vectors in order to reduce side effects, as well as the creation of therapeutic combinations.
Both tasks are of global importance and are looking for an investor who will not only give money, but also help organize a complex research team. The fact is that to solve these problems, it is necessary to involve four different groups of highly professional scientists: molecular biologists, biotechnologists, pharmacologists and clinicians.
Centers of such competencies already exist in Russia today. These same centers can do clinical miracles with stem cells, and their work is greatly facilitated by the adoption of FZ-180 "On Biomedical Cell Products". Nevertheless, the plane will not fly if someone does not stand at the center of these projects, does not organize the cooperation of several powerful groups and does not finance the project. And it is precisely such an investor who, having invested one billion rubles today, will be able to receive 1 billion in revenue in 5-10 years over the next 10 years.
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