Venture capital spurs Russian drug development – in California

When the Kremlin invited a group of US venture capitalists to Russia during the financial crisis, some of the visitors saw as much an opportunity to scout for fresh sources of capital as they did a new place to invest in.

Domain Associates, a California-based life sciences venture fund, has found a way of combining both goals in a partnership with Rusnano, Russia’s state nanotechnology company.

Unveiling their first joint project this week the partners said they would invest $40m in Coda Therapeutics, a California-based pharmaceuticals company, which is in the final stages of developing a new drug to treat chronic ulcers, an affliction common among diabetics.

The deal that will give Rusnano a minority stake in Coda Therapeutics has obvious benefits for Domain, drawing a heavyweight Russian investor into one of its existing portfolio companies. Cooperation with Rusnano will help open the door to the huge Russian market for pharmaceuticals and overcome tedious drug registration and marketing barriers.

But what’s in it for Russia and more particularly for Rusnano, which has a mandate from the Kremlin to promote innovative projects to modernize the economy?

In the first place, the project fits with the Kremlin’s plan to oblige foreign investors to establish manufacturing ventures in Russia rather than simply supplying finished goods to the market. Rusnano and Domain expect to identify a site for the installation of a pharmaceuticals plant by the end of the year and complete the facility by 2015.

In the meantime, clinical trials of the new ulcer drug will take place in Russia pushing the boundaries of the local life science industry into new territory.

Leonid Melamed, founder of Team Drive, a Russian management company that is overseeing the project, says the partnership between Rusnano and Domain will help Russia’s backward pharmaceuticals industry catch up with the times. “The pharmaceutical industry is here, but the innovative part is lacking,” he says.

Domain and Rusnano plan eventually to work together with 20 US life science companies to promote the development of drugs to treat viral infections, cardiovascular disease and cancer. So the partnership could kill two birds with one stone, boosting the nascent venture capital business in Russia and the modernization of pharmaceuticals.

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