HungaryHungary

Growth Depends on Future Funding

05.02.2004

Even a few years ago, biotechnology as a business sector was close to non-existence in Eastern Europe. Apart from a few companies such as Biorex and Comgenex Hungary was no exception. However, a surprising number of small start-ups were started in the last few years, even despite the downturn in investor interest towards high-tech ventures. The Hungarian Biotech Association, established two years ago, now has close to thirty members with new ones joining almost monthly.

Given the countries history and background in innovation and research combined with the recent growth in other high-tech areas, this trend was something expected to happen. The number of the Hungarian Nobel laureates per capita is higher than in any other country. The traditions of Hungarian science and technology go back many centuries including milestones such as the foundation of the first university in Pécs in 1367, the establishment of the Hungarian Academy of Sciences in 1825 and of the Hungarian Patent Office in 1896.
Strengths
Hungary's main strength is its people, as the country has highly qualified, well educated workforce, characterized by creative, flexible and independent thinking and problem-solving owing to the country's cultural tradition. According to some the reason might be that even in the near past researchers needed to produce results with inadequate resources, which gave rise to innovative solutions. Furthermore, the Hungarian workforce is still cheap relative to its quality and flexibility. Due to its highly qualified workforce in R&D at a relatively low cost of labor, it is no surprise that Hungary has the lowest cost per publication among OECD countries and ranks fifth in foreign patent applications per R&D expenditure. The number of publications per million US-$ spent on research is double of that in the USA and triple of that in Japan. A global survey conducted in 2001 by the Financial Times ranked Hungary the sixth most competitive economy in the world. Interestingly not the relatively low labor costs, which may have had a significant influence on this result, were included in the study but the respective country's proportion of knowledge-intensive manufacturing and services, number of patents related to high-tech, investment in knowledge, R&D and higher education.
Hungary is a growth centre within Europe, with good business infrastructures and an economy and a market on the move, creating numerous high-tech opportunities. The country's relative proportion of high-tech exports as a percentage of total exports is higher than that of the EU and is several times as much as those of the Czech Repub-lic or Poland. Based on a 2001 OECD statis-tic, Hungary was ranked fifth globally in share of high and medium technology ma-nufacturers in total gross value added, preceding countries like Finland and the USA.
Multinational companies established about 30 R&D labs in Hungary, out of which pharmaceuticals (Sanofi-Chinoin, Astra, Teva-Biogal and Akzo Nobel/Organon) rank third, but are still lagging far behind other industries. Major research operations for pharma or biotech have yet to be set up. The Hungarian drug industry, former provider of the majority of the Eastern European region's pharmaceutical needs, managed to survive the fall of communism. Although most of them are mainly generics today, a few Hungarian pharma companies like EGIS, Chinoin and Richter Gedeon also do original research. Another traditionally strong field is chemistry (combinational and medicinal chemistry). Main fields of development are agribiotechnol-ogy, enviromental and human biotechnology (proteomics, genomics, chemical and pharmacogenomics, production of enzymes, antibiotics and vaccines) as well as - in terms of technologies - microarrays. The biggest biotech companies (ComGenex Rt., N-Gene Kft., Genodia Molecular Diagnostics, Vichem Chemie Kft. and Solvo Rt.) have 40 to 50 personnel on average.
Weaknesses
The major obstacle shadowing the future of Hungary's biotech sector is the same as most other places, not surprisingly the lack of capital. Even though the country has many VC players, none of these really understand biotech and international funds have so far shown reluctance to invest in the region. However, with Hungary joining the EU in just a few months, investor interest seems to be rising as well. Biotech companies often rely on a mixed model to raise cash and offer services alongside long-term research goals. Other possibilities include financing through business angels, VC from parent companies abroad (e.g. Vichem Chemie Kft. from Axxima Pharmaceuticals) or money from national and international tenders. The other obstacle is the availability of entrepreneurs and managers who understand the industry, or just life sciences in general. This is of course again not a local specialty, it is probably true for most of Europe. One of the possible solutions to this problem might be the increasing number of researchers and business people returning back to Hungary after having been “braindrained” to the US or Western Europe in the last two decades. There is also much to do from the governments side. It already introduced several R&D and innovation related tax measures. Although Intellectual Property laws are harmonized with the EU, there is much to improve at the technology transfer offices at universities. Several other initiatives are under discussion such as establishing incubator houses - maybe within a year in Budapest and Szeged - or supporting interdisciplinary education.
New Innovation Fund
In January 2004 a separate Research and Technology Innovation Fund was established and will be operated by the equally new National Office for Research and Technology. The Fund is dedicated to the knowledge and technology based competitiveness of companies registered in Hungary, promoting mainly demand driven R&D innovation, serving companies directly or indirectly. It comprises resources of the central budget of some Euro152,695,000 annually, which will be doubled from 2006 on, as well as moderate company contributions, which can be reduced by own or outsour-ced direct R&D costs.
Furthermore, an Innovation Bill is under preparation with the purpose of setting the rules of financing (programmes and transparence), dealing with human resources in innovation (complex approach), monitoring, information services, policy making tools, shaping international R&D relations (EU and worldwide) and promoting the public understanding of science.
Trade and Development
The Hungarian Investment and Trade Development Agency (ITDH), a governmental institution, also expects important growth in the Hungarian biotechnology industry, and focuses more and more on this sector. The organization establishes connections with potential investors and leads through the process of investment from helping to choose the location to explaining benefits and subsidies available. The ITDH arranges meetings between potential investors and the representatives of universities, technological and innovation centers or associations.
In order to improve administration efficiency, the ITDH will introduce the one-stop-shop operating model from 2004 on. First it will improve availability of essential information for sound investment decision in Hungary, covering labor market, education system, availability of labo-ratoriums and industrial sites, trends and interactive databases. The ITDH will offer investors information on R&D related grants, on available support schemes and on bureaucratic processes. The ITDH also has an important role in the international development and growth of the Hungarian biotech SMEs. The organization provides contacts and information about the external markets for the companies planning to appear on multinational scenes, and supports their presence at major international conferences and biotech events. The ITDH collects and forwards the biotech projects and business plans of the Hungarian spin-offs and start-ups to the biotech specialist VC investment funds.
Contact
Ernö Duda, Hungarian Biotechnology Association
eMail: info@hungarianbiotech.org
Marcell Veidner, Hungarian Investment and Trade Development Agency, eMail: veidner@itd.hu

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