Domain Associates, a life sciences-focused venture capital firm, announced in March a new joint venture with RusnanoMedInvest, a subsidiary of the state-run Russian investment firm Rusnano. The $760 million venture will invest in late-stage life sciences firms from Domain's portfolio, with the eventual goal of marketing those firms' products in Russia.
Brian Dovey, a partner at Domain, said the idea for the joint venture dates to 2010, when he and about a dozen other venture capitalists were invited to Russia to give advice on how the country could boost its high-tech sector, and included a sit-down with then-President Dmitry Medvedev.
That meeting was no photo-op, Dovey said. It lasted an hour, with a heavily engaged Medvedev offering a frank assessment of the country's difficulties.
"I came back thinking they are very committed," Dovey said.
Shortly after, Russia announced plans to spend $5 billion to grow the tech sector, and officials said they were open to ideas about how to spend the money. It didn't take Dovey long to see the opportunity.
"In the U.S., you have a lot of ideas, but the money was shrinking because of the economic crisis," he said. "A lot of our investors were trying to bail out."
Russia seemingly had the opposite problem. Dovey flew back to Russia, this time with a proposal to start a joint venture investment firm.
"We'll invest side-by-side," he told the Russians. "You can leverage our analytical due diligence, and in return we will get those products licensed for Russia and the CIS (former Soviet states), and help you start a pharmaceutical business there."
It took two years to work out the details, but in March, the new joint venture announced its first investment, giving $40 million to San Diego biotech CoDa Therapeutics, which is developing a treatment for chronic wounds, such as venous leg ulcers and diabetic food ulcers.
The joint venture offers the Russians more than just Domain's market knowledge — it also gives the former Soviet Republic an ambassador. Dovey said just the mention of the word "Russia" brought concern from some of the executives in his portfolio, dredging up fears of a country still figuring out capitalism, and one full of corruption land mines.
David Finegold, senior vice president for lifelong learning and strategic growth at Rutgers University, said Russia is seen as an emerging market for the pharmaceutical industry. Though it has historic challenges, he said, it also enjoys some significant advantages.
"They have a very strong underlying base, in terms of science there, and quite a good medical doctor training infrastructure," he said. "The raw material is there to be able to grow good companies in the future."
Historically, Finegold said, Russia's economy has been more dependent on natural resources, like oil. He said they're smart to use a venture capital firm like Domain to help bring the economy in new directions. He likened the strategy to that of Singapore, which was a successful early investor in overseas biotech companies.
"The knowledge they gained there helped them to then form a national strategy for what it would take to grow those kinds of companies there in Singapore," he said.
That's the idea behind the Domain joint venture, according to Leonid Melamed, CEO of Team Drive, the company retained to manage and implement the joint venture. In a prepared statement, Melamed said CoDa Therapeutics' investment represents the start of a systematic approach.
"The experience gained will not only be useful in putting together the next transactions as part of this investment agreement, but also could be used as a model of new investment opportunities in the Russian pharmaceutical industry," he said.
The goal in Russia is not only to eventually sprout a strong life sciences sector, but to address health concerns key to that country. One of the goals of the investments will be to grow firms that aim to address prevalent health concerns in Russia. Dovey said there's a lot of crossover between the United States and Russia, but he said there are differences, too.
"In the cardiology area, the incidence of heart failure and cardiac problems is probably magnified there, primarily through smoking and drinking," he said. "By the same process, there's very little Alzheimer's, because the life span is shorter."
Companies that receive funding will be expected to market their products in Russia and the region. The joint venture has set up a Russian company, NovaMedica, which will manufacture and market the products there.
Dovey said he expects to invest the money in roughly 20 companies within a three- to five-year period. He can't say what the next investment will be, but Dovey said there's a good chance New Jersey companies will end up on the final list, given that Domain's portfolio includes a number of Garden State companies.
"It's one of those few situations where you see a win-win-win all around," he said. "It's good for Domain, good for Rusnano, good for Russia, and good for the U.S./Russia relationship."
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