Large enterprises that emerged from small scientific groups: What can we learn from this transformation?
By Dr. Agustin Lage Dávila (Granma)
Jan. 31, 2017
Last December, the Center of Molecular Immunology (CIM) presented its 2016 annual report:
A state-owned enterprise with over 1,000 workers, which produces on an industrial scale, supplies biotechnological products to the Cuban health system, exports to over 30 countries (exports that have increased more than tenfold over the past 15 years) and manages three joint ventures abroad, including a factory in China. Exports grew 40% in 2016 as compared to the previous year. Productivity in 2016 was greater than 171,000 pesos per worker and foreign currency earnings were in the tens of millions.
We refer here to the CIM as it is the enterprise that the author knows best, although there are several similar stories to be found among those that form the BioCubaFarma Business Group. Biotech companies with such results are described anywhere as “big-biotech.” Even in those industrialized countries that today have biotechnology (not all do), if the number of workers is divided by the number of companies, an average of less than 100 is obtained, and more than 60% of these firms do not have products on the market.
The CIM’s products, antibodies and vaccines and its productive results, have been widely reported in Cuba and are known to Granma International readers. What many may not know, or do not remember, is that the founding nucleus of what is today this “big” company was a small group of about 60 scientists and technicians who worked during the 1980s in a small laboratory on the top floor of the Institute of Oncology. Fidel himself, when he first visited in 1989, called them “the loft scientists.”
In order to get from there to what the CIM is today, a huge transformation was required which, moreover, occurred during the hardest years of the Special Period.
How was this transformation possible? Is this transformation repeatable, with new groups of scientists, leading to the emergence of new enterprises? These are two questions that may interest many readers, in various economic fields; as to answer them we do not need to talk about molecular immunology or genetic engineering, but about the underlying processes of science and economic management that made this transformation possible.
Let us consider the main ones:
1. The CIM arose in the state budgeted sector (as an institute of the Ministry of Public Health), not as an enterprise, which it became later. Contrary to what some have stated and many believe, the great innovations (genetic engineering, the Internet, microchips, renewable energy, etc.) almost always emerge from state budgeted endeavors, rather than the business sector. Companies then capture these innovations, perfect them, make them scalable and marketable, but they do not generate them. When the Comandante en Jefe decided to create the Biotechnology Scientific Complex, the human capital and scientific collectives with certain experience and initial results already existed, the result of over two decades of revolutionary education and science in the 1960s and 1970s. It would have been as much of an error to assume that scientific development would arise from the business sector, as to fail to transform scientific institutions into enterprises once they had sufficiently matured.
2. There was investment from the socialist state to promote the transformation – a “risky” investment, that is, before being able to calculate the amounts and the periods of recovery. In science-based production sectors, the value of “feasibility studies” is limited. This is due to the fact that these calculations imply assumptions about the impact of innovations yet to come, the probability of their occurrence, their market value and penetration, the reliability of which is unknown at the time of deciding on the investment. This is why private business sectors of the countries of the South do not make such investments. Only the state can contribute the vision of the future and the assimilation of risks that are required. Investing when the investment is “safe,” as some intend, is tantamount to investing too late.
3. The investment included the creation of production capacity, not just the expansion of scientific capacity. The new Center was created together with factories. The essence of the development of Cuban biotechnology was not “to conduct good science” (which was already being done), but to connect science with production and with the economy. Hence the idea of the “Research-Production Centers,” one of which was the CIM. Fidel explained this idea in 1989. Investing in science alone would be equivalent to accepting that someone else capitalize on the results.
4. The new centers had direct import and export powers: they were created alongside their own commercial enterprises. In small countries, supplying the domestic market does not entail sufficient volumes to assimilate the fixed costs of research and associated complex quality systems. High-tech companies can only become profitable through exports. And the export channels are so complex and so specific to each technology, that they can not be developed by “general” exporting companies. The export management emerges almost in unison with the research itself. The decision that the enterprises would have direct import and export functions exposed them, from their very beginnings, to the demands of external markets. This provided a source of both resources and knowledge.
5. This was an investment of “capital with patience.” During the first ten years (1994-2004), the CIM exported very little. Enough for a positive annual balance, but not to recover the initial investment, and less so to finance new ones. From that point on, production and exports quickly took off and the accumulated profits today exceed the initial investment over twentyfold. Had the CIM been under the pressure of short-term investment recovery during its first decade, it would not exist today. The socialist state protected the medium term, assumed the risk, and was not mistaken.
6. The new centers were protected for a decade with a special care system. In classical business management, companies are pressured by short-term profitability. This distracts from the development of new products, which usually have higher costs than “mature” products. In classical business management the golden word is labor productivity, but in high-tech companies growth is usually the most important aspect, even if that means that today’s productivity declines to some extent. One of the hallmarks of high-tech companies is that from time to time (usually a brief period), they must replace leading products with new products. Obviously at some point the transition must be made, and the rules of the game of the business sector assumed, but this must be done once the company is mature, in order to ensure its permanent development using its own profits. For Cuban biotechnology this happened in 2012, with the creation of BioCubaFarma.
7. The financing of scientific research was subsumed in the costs; not dependent on the profits. In industry the research-development activity (R+D) is usually financed with part of the profits; but in high technology sectors, a strong R+D investment must be guaranteed even (and especially) in the founding stages, when profits are scarce. This is achieved by assuming it as a component of costs. The way in which the management of these institutions was conducted over their first two decades enabled such a strategy. Then came the time to move to funding R+D with retained earnings.
8. Wages, at least during the first decade, were not linked to immediate economic performance. That was done later. This is possibly the most controversial phrase of the whole article, but it describes what happened. Human capital was protected with a policy of collective salary incentives, linked to the economic performance of the entire sector, but not to each institution and much less to each individual. It also worked as a way to build cohesion and integration, and ensure medium and long-term care. Certainly, when organizations grow, the time comes when operational efficiency is paramount, and at that point the wage policy must change; but to have done so ahead of time would have been destructive.
9. The centers were closely attended by the most senior level authorities, reporting directly to the Council of State and with the personal participation of the Comandante en Jefe himself. In addition to the motivation and commitment that the direct attention of Fidel entailed, as well as the assuredness of his guidance, there was also a component of economic logic in this high-level attention; when the automatic pressures of economic regulation (short-term gain, productivity, the link between wages and value added, etc.) are reduced, to protect organizations and allow medium-term attention and risk assimilation; then the permanent qualitative evaluation of what happens in these institutions comes to the fore. The new organizations must be protected, but “protected” organizations can not be allowed to evolve unaccompanied, as this risks shielding inefficiency and a lack of perspective. If we use the leverage of short-term economic indicators less, we must use motivation, the understanding of the essential opportunities and risks, and the intuition of visionary leaders more. That was what Fidel did, brilliantly.
Thus it was possible for large, high-tech enterprises to emerge from small scientific groups.
Can this story be repeated? Of course. The trajectory of the CIM is no exception. Each with its own nuances, the essence of this story is repeated in the Center for Genetic Engineering, the Immunoassay Center, the Neuroscience Center and others, now high technology entities affiliated with the BioCubaFarma Enterprise Group, and which emerged from the National Center for Scientific Research (CNIC), at that time a budgeted entity linked to the Ministry of Higher Education.
But this success has to be repeated many more times, and there are scientific groups with the potential to undertake such a transformation. The process will have to be properly supervised, and for this we need to work in two directions, which on the surface appear contradictory, but in reality are complementary.
The first is to resume the growth (damaged by the Special Period) of scientific potential and the conditions for scientific work in the budgeted state sector, universities and institutes attached to state agencies. This will allow for the permanent expansion of human capital for science, the most important innovations, and plant the seeds of new enterprises.
The second is to capture what has been learned in the transformations that have already occurred, in the provisions established in our Enterprise Law, especially in those related to the categorization and differentiated treatment of High Tech Socialist Enterprises. This will ensure that these scientific seeds, the connection between science, production and the economy, and the economic realization of the human capital created, all bear fruit.
There will be much to innovate, not only in technologies, but also in the design of organizations themselves and their regulatory context, but as José Martí told us: “The peoples that endure in History are the imaginative ones.”
* Director of the Center of Molecular Immunology
THE CIM in Cuban daily life
Over 100,000 Cubans treated
Over 30,000 Cuban patients involved in clinical trials
Products with an impact on the National Health System
CUBAN RECOMBINANT HUMAN ERYTHROPOIETIN:
This is the most effective biotechnological product to treat anemia in chronic kidney disease and its use is generalized across the Cuban Health System.
THERAPEUTIC VACCINE FOR LUNG CANCER
Part of the country’s basic catalogue of medicines. Its safety and efficacy has been clinically tested and more than 5,000 people have received vaccinations worldwide.
HUMANIZED MONOCLONAL ANTIBODY
This product for the treatment of malignant tumors of the head and neck, esophagus, and other areas, is an example of the technological sovereignty of the Cuban biotechnology industry.
THE CIM IN FIGURES IN 2016
Product exported to 30 countries
171,858 pesos – productivity per worker
1,120 workers – 46% have undertaken higher education studies
Line of 21 products – 14 with own patent
Conducts more than 40 clinical trials in Cuba and in more than 10 countries
121 registrations – 39 countries
6 registered products – 816 patents abroad
MAIN RESULTS OF 2016
– Record production of Erythropoietin, 66,000 bottles.
– U.S. Food and Drug Administration (FDA) approve three clinical trials with the Cimavax vaccine and the NIMO antibody
– National coverage of Cuban lymphoma patients with an anti-CD20 monoclonal antibody, demonstrated positive therapeutic results (200 patients undergoing treatment nationwide).
– The first evidence of the effect of the complex intervention in Villa Clara on the survival of lung cancer patients at the population level (all lung cancer patients in the province were studied, regardless of age, sex, or whether they had concomitant illnesses).
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