May 15, 2009 (Vol. 29, No. 10)

Country’s Riches Could Be Used to Attract Much-Needed Capital and Technology

An article in the April 1 issue of GEN described the environment for biotechnology in Chile and the various government programs intended to promote its advancement. The main priority has been R&D that will strengthen the country’s major export industries, all of which are based on natural resources.

This article will focus on the companies  that make up Chile’s biotech industry—some 70 companies, most of them small in size. Many of these firms are members of the The Chilean Association of Biotechnology Companies.

The Grupo Bios is composed of BiosChile, BiosWerfen, and Austral Biologicals. The Grupo, which reported annual sales of $13 million last year, is primarily focused on human and animal health. While the basic technologies in use by the three companies are similar—monoclonal antibodies and genetic engineering—each firm pursues a different business strategy.

BiosChile manufactures and markets a series of diagnostic kits, including kits for blood typing, pregnancy, Chagas III (a disease common to South America), and the salmon pathogen, Piscirickettsia salmonis.  BiosChile also provides oligonucleotide synthesis services and has developed a salmon vaccine in collaboration with Fundacion Ciencia para la Vida.

BiosWerfen markets kits and reagents for clinical laboratories, including PCR kits, products for in vitro fertilization, and reagents for lab testing.

Faced with logistical difficulties and credibility issues associated with clinical reagents originating in Latin American labs, Grupo Bios established Austral Biological in San Ramon, CA. The nascent firm markets growth factors, cytokines, transcription factors, and monoclonal antibodies in the U.S. and other industrialized countries.

Andes Bioscience was founded based on research supported by Ciencia para la Vida. The company’s novel approach to cancer is focused on small RNA transcripts that differentiate normal cells from human tumor cells. Knockdown of these transcripts is thought to induce selective cell death of tumor cells.

Biosigma is using biotechnology to improve mining operations. The firm’s expertise is bioleaching, which uses microorganisms to extract minerals from ores. Codelco, the state-owned copper mining company, has long been interested in bioleaching, and in 2002 it set up Biosigma as a joint venture with Nippon Mining & Metals Co. Funding for this initiative has increased from an initial capitalization of $3 million to $40 million today. 

Biosigma’s research is directed toward the characterization of appropriate microorganisms and the identification of proteins involved in the metabolism of copper ores. Originally, the organism of interest was Acidithiobacillus ferroxidans, which cleaves the bond between copper and sulfur. More recently, studies have honed in on other organisms that are more efficient in carrying out bioleaching.

It is estimated that if bioleaching could be used in all of Chile’s copper mining, production costs would be reduced by 50%, and the usable copper reserves would grow fourfold. Biosigma is a participant in the Genoma Chile initiative and has received $2 million to pursue its R&D in collaboration with universities and research institutes.

Biosonda is fairly representative of the firms that have emerged from the universities. The company produces biostimulants and adjuvants for veterinary use and human vaccines, including the blue carrier, which is isolated from the hemocyanin of the locos, a Chilean mollusk. In addition it offers an antibody to human acrosin that can be used in assays to determine the fertilizing capacity of sperm. 

A number of major U.S. corporations such as Genzyme, Dupont, Monsanto, and Pioneer have significant investments in Chile. Genzyme, in addition to marketing its products in Chile, also supports the development of Chilean biotech by making diagnostic technology available to local universities, helping commercialize government-developed research, and providing grants of up to $50,000 to universities and individuals. 

There is a scarcity of seed and venture capital in Chile, particularly for innovative new companies. Financing for start-ups typically comes from families or close friends. Establishment of a venture capital network in Chile faces serious obstacles, including the geographical isolation of the country, limitations on pension fund investment, and a dearth of exit possibilities for early investors. Foreign investors may also find it difficult to withdraw funds from the country in the short term.

Filling this void is the government, which plays a dominant role in the financing of new companies. Of the $38 million  available for new investment in 2002, 87% came from public sources. If Chile were able to attract more foreign venture capital it would not only expand financing for innovation, but would also bring in needed expertise in management, recruitment, and technology assessment.

New reforms are expected to bring about many positive changes, including tax incentives, particularly a capped exemption from income taxes on capital gains; the creation of new corporations of limited liability with the participation of venture capitalists; the ability of The Chilean Economic Development Agency to invest in venture capital funds; and permission for venture fund firms to manage small companies. 

Grupo Bios comprises three companies: BiosChile, BiosWerfen, and Austral Biologicals, all focused on different aspects of human and animal health.

Building a Future

Chile has many positive attributes—it is rich in resources, has a democratic and competent government, a good educational system, and a core of quality research.  In addition, its government, which is committed to technological innovation as an engine for economic development, has the support of the Interamerican Development Bank and the World Bank.

Chilean biotech observers, however, are concerned about the country’s limited technological capacity. Further development requires expanded basic research, a significant increase in the relatively small number of scientists that are capable of leading teams at a global level, and the building of a robust infrastructure that can lead to the successful commercialization of new processes and products. 

Government policy has placed a priority on technologies directed toward the principal export industries. And yet a sustainable development strategy must be placed in a global context. How will new products and technologies open up new markets?  What factors would make Chile attractive for potential foreign partners? And, how can Chile attract foreign partners with capital, technology, and managerial know-how?

The newly industrializing countries of Asia are rich in technology and capital but are generally lacking in natural resources, making them naturally complementary to Latin American countries such as Chile.  For both U.S. and Asian countries, Chile potentially represents an entry point into the future developing markets of Latin America.

Robert Yuan, Ph.D. ([email protected]), is professor emeritus of cell biology and molecular genetics at the University of Maryland in College Park.

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