Brazil’s fledgling biotech industry is beginning to deliver notable breakthroughs thanks to an emerging ecosystem of research start-ups clustering around universities in São Paulo state, specialising in pharmaceuticals products for tropical diseases and on plant and animal health products for the burgeoning tropical agribusiness sector.
A recent report by FT Confidential Research, an FT research service, found that biotech businesses offered significant opportunities for early-stage investors: Brazil had good science and ready markets for pharmaceuticals products for consumers, and for plant and animal remedies for agribusiness.
But the industry stands at a crossroads because, as government funds for research dwindle rapidly, commercial investors are only now making initial forays.
In the highly-regulated human health sector, pharmaceuticals lab Eurofarma in 2015 become the first Latin American company to win regulatory approval for a biosimilar drug — a biopharmaceutical product designed to have active properties similar to one that has previously been licensed. While only 20 such drugs have been approved globally since 2006, the sector is expected to generate $35bn in sales by 2020, according to consultancy Deloitte.
Another company, Recepta Biopharma, achieved a notable coup in July 2015, signing an $86m deal that will allow a US company to use one of its innovations — the first such intellectual property deal signed by a Brazilian firm. The pharmaceuticals technology deal with Cambridge, Massachusetts-based Mersana Therapeutics gives the US company the right to produce Recepta’s monoclonal antibody (mAb) for cancer treatment.
Boosting the efficiency of the tropical agribusiness sector is another potential game-changer for Brazil.
“Biotechnology related to agriculture is our single best competitive advantage,” said Carlos Henrique de Brito Cruz, scientific director at Fapesp, a São Paulo state research foundation. Most biotech initiatives are clustered around Campinas and São Carlos universities in the state.
The foundation, which last year disbursed R$1.2bn ($300bn) for science and technology research, is sponsoring a biotech cluster based at the University of Campinas. These labs are led by Paulo Arruda, a tropical plant biologist with experience in high-tech mergers and acquisitions.
In 2008, Mr Arruda led a group of other scientists and majority shareholder industrial conglomerate Votorantim in the sale of sugarcane breeding companies Alellyx Applied Genomics and CanaVialis, two biotech outfits spun off to Monsanto for $300m.
Mr Arruda told FTCR: “There are niches that can be exploited and that can have a major impact in global science and technology. We are a tropical country with a magnitude of biodiversity that is still unknown and which can have an impact on animal production.”
The Campinas labs also receive support from Toronto-based Structural Genomics Consortium (SGC), a research alliance funded by Merck, GSK, Novartis, Bayer and others, which has invested more than $400m in early-stage drug discovery. In March 2015, SGC picked Campinas as one of three global centres for protein kinase discovery, opening a new lab with the support of a $6.2m grant from Fapesp.
However this progress comes just as state funding for research is shrinking because of Brazil’s budgetary crisis and the falling value of the real. The 2016 budget for the ministry of science, technology and innovation has been slashed by 24 per cent, having already been cut by R$2bn last year.
This contrasts with previous years of rising funding. One state agency, Finep, increased the value of loans it approved 333 per cent between 2011 and 2014 to R$8.62bn. There was also a significant increase in the total amount disbursed by Fapesp, which rose 24 per cent to R$1.15bn over the same period, and by the BNDES, Brazil’s national development bank.
Until last year the federal government had shown interest in fostering innovation as a way to reduce the cost of distributing advanced drugs through its public health system, known as the SUS. Now — just as the first commercial fruits of drug discovery are coming on stream — the state is making way for private equity funds and early-stage venture capital investors.
Francisco Jardim, a founding partner of SP Ventures, believes that “the biological revolution is the solution” to a growing rejection by consumers of Brazilian agriculture’s heavy use of pesticides, which has in turn led to the emergence of chemical-resistant pests.
“Brazil is one of the largest purchasers of agrochemicals in the world,” he says, pointing out that regulators could soon call time on often-indiscriminate use of these substances.
SP Ventures has already invested in Imeve, which produces probiotics for animals, Proimp, which produces predator mites to help control pests, and Imprenha, which makes a genetically modified bacterium that produces a protein to improve the fertility rate of cows.
Other investors include Santa Catarina-based CVentures, which is in the process of investing a R$55m fund that is financed by, among others, the International Finance Corporation and CAF, the Development Bank of Latin America.
Richard House is Principal, Latin America at FT Confidential Research.