Holding Pattern.

Biotech in Brazil?

Perhaps not soon, investors warn.

Brazil's research science is cutting edge, and venture capital has begun to take notice. Tens of millions of dollars have been spent or designated for projects ranging from genetics to crop research. Minas Gerais is home to a global top 10 biotech cluster. Yet, as the world economy slows, some wonder aloud when--and if--the much-predicted biotech boom will get under way.

South America's largest country has laid the foundation, in part because of deep academic talent. Brazil leads the world, for example, in some types of cancer research. Despite obvious desire and potential for new products and companies, dialogue among industry the scientific community and government remains difficult, says Luiz Castello Branco, director of BancBoston Capital in Sao Paulo.

"The potential for human medicine is huge. There is a niche to explore. Natural products can lead to industrial solutions," Castello Branco says. "The negative side is that the link with a business vision has not yet been made. Even the perception of the need for such a dialogue has remained difficult."

Investor enthusiasm for biotechnology cooled after pharmaceutical company Novartis' misadventures in the Amazon jungle. In 1999, the Swiss firm signed a pioneering agreement with BioAmazonia, a government-sponsored agency. Under the deal, Novartis was to spend US$4 million in research programs in the region. In return, it would be allowed to ship 10,000 gene samples to its Basel headquarters.

Then the contract was denounced last year by a board member of BioAmazonia. Novartis was accused of biopiracy by environmental activists. Under pressure, the government canceled the deal. Daniel Vasella, CEO of Novartis Pharma, announced in May that his company would not contribute a nickel toward the planned Biotechnology Center in the Amazon.

The whole affair might just have been a misunderstanding between the government and the Swiss drug maker, but it caused a lot of harm, venture capitalists complain. "It was a disaster, which hampered the development of the sector. There was an avalanche of criticism against business and very damaging consequences for the [industrial] customers' side," says Antonio Paes de Carvalho, president of Extracta, a Rio de Janeiro research company.

Paes de Carvalho believes he could double the number of partnerships with industry if regulatory issues were addressed. Unfortunately, biotechnology has never been high on the government's agenda, and Brazil has entered a pre-electoral campaign period sure to slow any decision making, he says.

Growth factor. Some who have already invested in biotechnology express caution. "There is more money available than projects and, even then, there are a lot of doubts about their viability," says Leonardo Correa at Factual Partners, which is financing a biotech venture with the pharmaceutical industry.

Misunderstandings aside, where biotech has taken root in Brazil it has blossomed. In the past few years, dozens of small firms have set up shop on the hills surrounding Belo Horizonte, in Minas Gerais.

Guilherme Emrich is CEO of insulin-producing company Biobras, in Minas Gerais' state capital. He also manages FIR Capital Partners, a $75 million investment fund. More than a third of its cash is budgeted for biotech projects, Emrich says.

In the same breath, however, he sounds the alarm: If clear rules are not laid down, business opportunities will be lost.

For now, Emrich is eyeing a young company focused on little-known biodiversity in wasteland in and around Minas Gerais, a hot, semi-arid region where water is scarce. "What grows up there must have something interesting in it," he says.

Whether something interesting will grow in Brazil's biotech investment sector is another question entirely.

SMALL WONDER

A little known Brazilian research institute impressed the scientific community last year. The Fundacao de Amparo Pesquisa do Estado de Sao Paulo (Fapesp) was the first in the world to decode the genome of a plant that infests oranges. The foundation's work in cancer research earned Fapesp international respect, kickstarting innovative projects in biotechnology. Nearly $10 million has been spent on 150 companies since 1997. For example, Fapesp contributed more than $100,000 to Genosys, a Sao Paulo firm developing a growth hormone.

PATENT PARTNERS

A model of cooperation among research, industry and funding, Extracta is headed by Antonio Paes de Carvalho, a biotechnology veteran in Brazil. His small, Rio-based company partnered with Glaxo Smith Kline to explore biodiversity in the Atlantic Forest near Rio. His company has set up a databank of 30,000 samples of species, allowing access to other drug companies. The pioneering, $3.2 million research deal, signed in July 1999 with Glaxo, is backed by risk capital in a local fund coordinated by Pactual Partners.

SEED MONEY

French pharmaceutical firm Aventis made an early move in 1999 when it acquired Mitla and its organic seed data bank in Minas Gerais. Several other companies have explored genetic research in agriculture. Syngenta, a joint venture of pharmaceutical firms Novartis and Zeneca, has been working on new insect-resistant crops, such as corn and cotton. Syngenta says it is devoting around 10% of its global sales to research in biodiversity, $25 million of it in Brazil. U.S.-based Monsanto has invested $40 million in Minas Gerais.