Antonio Paes de Carvalho: Stepping stones

MIGUEL BOYAYANThere is no exaggeration in describing him, 70 years old, as an obstinate man. Nor in regarding him as a visionary. After all, Antonio Paes de Carvalho offered proofs of obstinacy and of vision of the future when, 20 years ago, he idealized the first biotechnology complex in the country, facing the skepticism of many colleagues. At the time, he was Biophysics director at the Federal University of Rio de Janeiro (UFRJ) and a respected scientist: a specialist in electrochemistry of the heart, he had dozens of articles published in international indexed magazines, two of which in Nature.

He believed that biotechnology was the area of knowledge with the greatest interface with industry, be it the chemical, cosmetic or pharmaceutical industry. In the 1980s, Brazil did not yet have the international prominence that projects like FAPESP’s Genome project or the researches carried out by the Brazilian Agricultural Research Corporation (Embrapa) conferred on Brazilian biotechnology.

Born in Rio de Janeiro, he designed and for 12 years presided over the biotechnology complex in Rio de Janeiro, where important companies were gestated, today consolidated in the market. At the end of the 1990s, he decided to create Extracta, with the mission of offering industry extracts from the immense Brazilian biodiversity, as an alternative to the use of ginseng, ginkgo biloba and other Asian products.

He was moved by a proposition that, today, he himself recognizes as naïve: to offer “marvelous things” to Brazilian industry in such a way as to make it competitive. The company was opened in the exact measure of the boldest dream of any entrepreneur: an English partner – with 49% of the capital -, a millionaire contract with Glaxo, some angel investors (companies or individuals that bet on a venture) and a group of investors.

One year afterwards, problems arose that derived from the absence of regulatory landmarks for access to the genetic heritage which supplied the raw material for Extracta’s activities and from the absence of incentive programs for technology-based companies, which, associated with the classic difficulties of management, almost led the company to wind up its activities for good. The 60 employees, 20 of them doctors or masters, were dismissed.

Paes de Carvalho, though, resisted and insisted. In 2004, the company managed to get a license from the Genetic Heritage Management Council (CGEn in the Portuguese acronym) which legitimated, shall we say, the access to biodiversity. Now, according to Paes de Carvalho, the customers began to come back, and Extracta starts showing signs of recovery. For precaution, he does not reveal names, nor does he give details of the progress of the new contracts.

He merely mentions that he is negotiating a partnership with Petrobras and that he has some agreements coordinated, but likewise protected by secrecy, with several national companies from the area of cosmetics, perfumery and drugs, for the development of products from extracts processed by Extracta. “All these companies are Brazilian. The multinationals no longer even look at this”, he admits.

Paes de Carvalho attributes this resumption of the business also to the fact that the major pharmaceutical companies and the Brazilian agrochemical companies are once again “looking at the chemistry of nature”, which, in his opinion, opens up new prospects for Brazilian science. And he regards as “obvious” the convergence of biodiversity with the efforts of genomics and proteomics to understand the macromolecular and proteic world.

20 years ago, the protocol of intent for setting up the Rio de Janeiro biotechnology complex was signed. How did the idea arise to create the first biotechnology complex in the country?
It was in 1982. I was the Biophysics director of the Federal University of Rio de Janeiro (UFRJ) and I believed that biotechnology was the most modern and promising thing we had in terms of science aimed at the market. I went so far as to touch on the subject with the then Minister of Planning, Antonio Delfim Netto, about the project for creating a biotechnology complex in Rio in the following year. He said: “We have to do it this very year, but it has to be negotiated with the industry”. The problem is that we didn’t have money, and the project for the complex was postponed. Then I created Biomatrix, the country’s first plant biotechnology company, which, in 1985 was sold to Agroceres, which, five years afterwards, sold it to Monsanto. In 1985, Renato Archer, who was the Minister of Science and Technology and a carioca, came with the news that the French wanted to create a biotechnology center in Brazil, and that he intended to install it in Rio de Janeiro. It was then that the idea of the complex resurfaced. In 1988, the Bio-Rio Foundation, the manager of the complex, was created, in the same year that we signed the concession agreement for the use of an area of UFRJ for the term of 30 years, for the creation of the technology park. I was the first secretary-general of the Bio-Rio Foundation and its president up until 2000. We managed to get an area in the campus of the university and, in spite of the opposition from some academic sectors, the project advanced. One of its main defenders was Horácio Macedo, then the Federal’s rector. To the critics, he would argue: “We are going to place the capital and the labor looking eye to eye.” We refurbished the building where a restaurant used to function and transformed it into a company incubator with eight vacancies. The first to install itself was WL Imonuquímica, dedicated to the area of human health and with its origins in UFRJ’s Microbiology Institute. Other companies as well were successful, emancipated themselves, and installed themselves around the incubator, which had a total area of 200 thousand square meters. Today, the complex has over 20 companies, none of then depending on the government, and all of them are making their market.

How did the idea of creating Extracta arise?
I began to think about setting up Extracta in 1998. The idea was to create a company that would have access to, catalog and analyze the immense chemical variety of plant biodiversity, within the rules established by the Convention on Biodiversity and Brazilian law. I thought, silly scientist that I was, that we were going to offer Brazilian industry marvelous things and that it would become competitive. In the course of these years, we brought together an extensive collected of isolated extracts, collected in the Atlantic Rain Forest and in the Amazon. These extracts are ready for screening tests in the discovery of new substances of an industrial interest. Our database has brought together samples representative of almost 5 thousand Brazilian plant species. It is still small, in the light of the 60 thousand known and cataloged species of Brazilian biodiversity. And we are at the stage of expanding to other biomes, in such a way as to encompass samples extracted from animals, microorganisms and marine organisms. This collection is one of the company’s great values. The idea that plants have biologically active molecules makes every sense. Unlike us, plants do not manage to defend themselves by the fight or flight mechanism. But they have a defense against animals that attack them. Looking for chemical biodiversity, therefore, is very important.
Otto Gottlieb [a chemist, ex-professor of the São Paulo and Fluminense Federal universities and a researcher from the Oswaldo Cruz Foundation (Fiocruz)], for example, used to think that collecting plants did not make sense, because they have a unified structure that makes it possible to known exactly where a given molecule will be. But there is an enormous difference between theory and practice. You get plants of the same species and they make completely different biochemical carnivals.

Were you able to count on the support of partners to finance the investment?
Xenova, an English company that was run by a Brazilian chemist, came in as a partner, with 49% of the capital. But the partnership did not last long: Xenova’s holding company, the Xenova Group, was doing badly, and they pulled out of the medical adventures. They put in US$ 50 thousand and stopped. We then began to negotiate with Glaxo, with which we signed up the first technology contract, in 1999. With this, the Brazilian investors came “the angel investors”. It was the largest technology outsourcing contract done by Glaxo below the equator: US$ 3.2 million. They wanted to know whether Brazilian nature had an answer for eight disease targets brought by the company. They were targets for seeking medicinal molecules, and one of them was an enzyme related to insulin. We set up a 700 square meter laboratory, with the quality standard demanded by the partner and the mission of creating biological assays for natural tests. The equipment alone cost US$ 2 million.

Did Extracta also enjoy venture capital?
When we began to have a presence, we attracted the venture investors. The Biominas Foundation came in with US$ 400 thousand from the Inter-American Development Bank (IDB), and Solits Biotecnologia – a venture capital company of Banco Pactual – with US$ 1.7 million. Little by little, we formed an enormous collection of Brazilian biodiversity. We had 4.5 thousand species, with 11 primary extracts, to which streaming was applied, that is to say, high-speed screening. It all went very well, until, one year afterwards, the Novartis and Bioamazônia disaster happened [In 1999, the federal government considered illegal a bioprospecting agreement entered into between the Bioamazônia association and the multinational, Novartis, which had the objective of identifying substances with an industrial potential]. In 2001, Provisional Measure [PM] 2186 was published, which created a series of rules for access to the genetic heritage and hindered bioprospecting. We saved ourselves only because the contract with Glaxo had already been signed. But from that moment onwards we did not have any new contracts. The customers disappeared. Three of them, even, were already practically closed. The three contracts were with multinationals, since the Brazilian industry has no way of asking for a definition of a target at a molecular and cellular level.

Did the new rules established by the PM call for changes in Extracta’s collecting?
From the point of view of the procedures, we didn’t feel any differences. The expeditions would go away and bring back flowers, fruit, seeds, and th botanists would classify them. Before the PM, we had already created everything that was provided for in the Convention on Biodiversity. The problem was with the customers. In March 2002, the Genetic Heritage Management Council (CGEn) was created and, 15 days later, Extracta asked for and got a special license for bioprospecting until June 2004. The regulation of the access to the genetic heritage, by the way, was based on the Extracta-Glaxo case as a model. What matters is that we fulfilled the contract with Glaxo, which related to ten molecules on two disease targets. The problem is that Glaxo merged with SmithKline and they lost interest. They didn’t use these molecules. We have the material and the right to use them. This is what we want to use, now that we are resuming activities. They are extracts already fractioned with high technology. They have all been tested in vitro, in accordance with the internationally accepted standards for the pharmaceutical industry. Amongst them, we have 15 antibiotic extracts.

MIGUEL BOYAYANAnd what happened to Extracta after that?
When the contract ended, in 2002, the company’s income fell to zero. We had no other contracting party, and we got into a critical situation. We tried to coordinate things again with Glaxo, but they didn’t want to, they changed partner: they transferred the contract to a research center in Singapore and abandoned investigations into nature. Their business now is genomes and proteomes. Recently, they began to go back, since the stock of research is drying up with the increase in costs. After 2002, we went through a perilous situation. Our main partner, Banco Pactual, had already put into the company far more than foreseen, and the Biominas Foundation as well. The angel investors had also invested money and began to have to sustain an empty Extracta. Pactual wanted to close the company. At the time, I ought to have accepted, but I didn’t let them close it. I had the Minerva’s vote – 51% – and I didn’t agree. That led the investors to a defensive position, since they wanted to get out of the business with a minimum of loss. In 2003, Extracta approached Oxiteno, a partner that seemed to us of enormous potential. This was a wager of venture capital that began with a small investment. But the expectation was that this amount would be multiplied by three. But then fresh problems began: Banco Pactual decided to leave, and that worried Oxiteno. The fear was of associating its image to something that was bankrupt. The thing reached such a point that one of our angel investors called our attention by saying that it didn’t make sense for Pactual and Oxiteno to be associates in a business like this. Today, Extracta is 87.5% Antonio Paes de Carvalho, with the angels at the back of us. Biominas kept 9%. They have an institutional investment and cannot leave. And Xenova, our first partner, has 2.5%. We had zero funds from the National Economic and Social Development Bank (BNDES) and no funds from Finep (Financier of Studies and Projects).

Did you never apply for funds from Finep?
Yes. We took part in the venture capital forums and won a prize of R$ 150 thousand. The money was not released, and in the following year they told that that program had closed down and that the money would come by way of a loan. They asked me if I wanted it. “You are going to pay with a percentage of your sales, and if you don’t have sales, five years from now the loan disappears”, they explained. So I said: “Of course I want it”. It was then that they said that we had to have all our papers in order, and we also had to show the authorization of Extracta board of directors. I went to the board of directors, and Banco Pactual and Oxiteno did not authorize the company to take the loan. They argued that R$ 150 thousand would not resolve the company’s life, and it would have to be kept open until the loan ended. I communicated to Finep that the partners didn’t want it and they told me: “Get rid of your partners”.
And I even asked: “If I get rid of the partners, will Finep back me?”. The answer was yes. I trusted Finep. We convinced the partners to leave. Finep once again asked for all that paperwork from the notaries, and I didn’t manage to get all the certificates. A debt had been taken to court,  and until it is paid and the objection raised, it takes time. And I didn’t manage to close anything with Finep. I tried a partnership with Fiocruz, but they contracted out the same thing that Extracta does, one part in Singapore and another in Europe. They weren’t capable of crossing the streetl. They are going to look for products of this kind with plants from the East. Nowadays, if they ask if I want to do business with the government, I say no.

After all these hitches, is the company recovering?
Our collection is accurate. It is one of the great values of Extracta. From 2004, after the license from the CGEN, the customers started coming back. New customers were also attracted by the stability of the economy, a positive sign for the partners. Today, we have partnerships that are being coordinated with various companies from the area of cosmetics, perfumery, drugs etc. What we are trying to show the Brazilian pharmaceutical industry is the following: you are after phytotherapics. Instead of carrying on making ginseng, ginkgo biloba, look at our biodiversity. There are hundreds of extracts for various targets. They are all Brazilian companies. The multinationals do not even look at this. They are only interested in the pure molecule, because they cannot place them on the international market.

How to guarantee the sustainable production of the plants from which these extracts are obtained?
The expedition goes into the field, asks the owner for authorization, and presents a concrete proposal: we are going to collect, but, with a minimum of effort, one year from now, you can have the plant cultivated. With this, you bring back a part of the business back to the base of the earth. There are simpler communities that are doing this. This has nothing to do with traditional knowledge. It has to do with the plant.

The Ministry of the Environment is drawing up a bill  on access to biodiversity. What do you think of the terms of the proposal?
What they want to do derives from the enormous complaints from researchers, scientists, and even from companies. Everything that was collected before 2000, before the provisional measure, is under suspicion. Hence, it cannot be used. Now they want to set off for the following: they no longer want to know where the collection is done, what the contract is like etc. They want everything within the standard, but the control will be done only in the end contract with the large customer, in the case of the product reaching the market. This is the one that will be registered with the CGEN. I agree with this, because I have never thought differently. But the proposal contains something that can hinder: in the big contract, they want a percentage to come out to a fund handled by the government, to distribute benefits and to guarantee the conservation of nature in communities that have nothing to do with the contract. That is going to become a mess. The Brazilian Biotechnology Association is frontally against the creation of a public fund that is going to distribute benefits. That is not going to work, it’s going to the wrong hands, the distribution will be political. It would be much better for the companies that are working with bioprospecting, like Extracta and Natura, to be obliged to constitute funds for them to record and whose projects they control. Everything transparent.

Has Extracta already done something similar to this?
Extracta, which has never distributed a dime in royalties, because we do not receive royalties for anything, has already invested R$ 600 thousand in the Federal University of Pará. We constructed an extraction center equal to the one we have in Rio de Janeiro, we fully equipped the laboratory, and we paid staff over two years, for them to be able to make our Amazonian collection, which is 20% of the total of our collection. All this – plus the technology for how to carry out the extraction – went to the heritage of the Federal University of Pará. The university didn’t k now what to do with that, and almost left it to die. Now, we are about to close a very interesting contract with Petrobras that is practically going to double our collection, using things from Amazonia. The partners are Extracta, Petrobras and the Federal University of Pará.

Extracta continues open to venture investors?
If the contracts that we currently have in Extracta’s pipeline come into effect, we do not need venture capital or anything. One of them is three times bigger than the one with Glaxo, a multinational in the pharmaceutical area. Extracta will go back to the previous level of income.

At the time of the contract with Glaxo, how many people were working with Extracta?
At the height of the contract with Glaxo, we had 60 people working, of which 20 masters or doctors.

And what happened with this personnel?
Something typical of Rio de Janeiro happened: some 20% were immediately hired by companies in São Paulo. Natura took several from the chemistry area, for example. The rest kept floating around UFRJ, Fiocruz, a postdoctoral scholarship here, another there. And everyone asking when they are going to come back. We had to dismiss them one by one, paying all their dues, without owing anything.

Besides your obstinacy, to what do you attribute this resumption of the company?
This is due to the fact that the major pharmaceutical companies, the agrochemical companies, amongst others, are going back to look at the chemistry of nature. This is a clear tendency. I have talked to my colleagues in São Paulo and stated that making protein-based medicines, except for vaccines, is difficult to manage. It seems obvious to me that it is possible to make biodiversity converge with all the efforts of genomics and proteomics that make us understand more and more of the macromolecular and proteomic world that makes our organism work. Small molecules have to be identified that make it possible to stick the key into the middle of a lock and to turn it. There is an obvious connection between what Extracta does and genomics and proteomics.

You have had all the kinds of partner that a biotechnology company could have. What would have been the ideal partner?
The ideal partner was Glaxo. The venture capital partners went in on account of the contract with Glaxo. Oxiteno was more cautious. Votorantim had opened its investment fund – Votoratim Ventures – and Oxiteno wanted to have one as well.

Does Brazilian biotechnology have a future?
Brazil has a very good scientific potential, but it tends to get etiolated. That is not valid for São Paulo. It is valid for Rio, which used to account for between 17% and 20% of Brazilian scientific production and today is decadent, with people going abroad or looking for their golden dream in São Paulo. I get mad when they say that this happens because São Paulo has money. You can’t keep your mouth open, waiting for the government to drop crumbs. All the government’s programs, since Fernando Henrique Cardoso’s administration, were programs with increasingly fewer takers. Accordingly, the funds are falling exponentially in time.  The quality has been so much refined, while the quantity of funds was falling. FAPESP made an enormous leap.
The Small Business Innovation Research Program (PIPE), which reproduces the model of the American Small Business Innovation Research (SBIR), was important for this leap. When I got to know the SBIR, in the United States, I was surprised: “You are placing public money for private ends”. They looked at me as if I were an ET and replied “It is the best investment that the American public can make through its government, because that is why we have sufficient technology to sell you things the whole time”.

And what is the way out for the country to advance?
We are still beginning to mature. We cannot wait for the political solution that has as its primary motion the construction of the surplus of the economy and the guarantee that the big businesses of the country will have good visibility abroad. There is no provision for us to develop anything in terms of science and technology. The convention on biological diversity was done for the rich countries to come here, to use our things, and to leave some looking glasses and some beads.