Catalyzing Innovation
Financing for Industrial Biotechnology Innovation in Brazil:
Market Structure Features and the Need for Funding Instrument Diversification
Carlos Torres-Freire,1 Igor Bueno,2 and Marco Polli3
1
Brazilian Center for Analysis and Planning (Cebrap),
São Paulo, Brazil
2
FINEP – Inovação e Pesquisa, Rio de Janeiro, Brazil
3 focus on the environment, and the remaining 15% have more
FINEP – Inovação e Pesquisa, São Paulo, Brazil
Introduction
I
n this discussion of the financing of industrial biotech-
nology innovation in Brazil we assess the current situa-
tion, bottlenecks, and the need to diversify company
support instruments. It is well known that high-tech eco-
nomic activities such as industrial biotechnology are high risk,
with high degrees of uncertainty, and require substantial
amounts of financial resources for their development. Within
this group of sectors–comprised mainly of energy, food, or
chemical companies ranging from those with basic technology
to those who are world players–businesses must deal with the
challenge of combining financing instruments and different
partners into a network in order to innovate and be competitive.
We seek to show that the Brazilian system of innovation needs to
be more complex and capable of structuring more appropriate
funding instruments for companies at different levels in the
production chain, from the small to the large, and at different
degrees of technological development.
Companies, Locations, and Areas of Activity
Biotechnology involves the use of cellular and biomolecular
processes with the objective of developing products and tech-
nologies that can contribute to a better quality of life as well as to
better environmental protection. Biotechnology activities have
been practiced for many years. Recently, they have come to play
a larger role due to the dissemination of biotech processes
throughout various sectors of the economy.
In Brazil, companies in the biotech industry, or specifically
companies that develop biotechnology activities in the areas of
agriculture, bioenergy, the environment, and reagents for differ-
ent sectors, number 109 (information regarding the number of
companies in the biotech industry in Brazil and their features
derives from a database created by the Brazilian Center for
Analysis and Planning [Cebrap] and updated in 2014 as a result of
doctoral research by Carlos Torres-Freire).1 Half of these com-
panies are located in the State of São Paulo, primarily in the
capital and in important technology hubs in the State’s interior
such as Campinas and Piracicaba. A further 25% of them are in
26 INDUSTRIAL BIOTECHNOLOGY F E B R U A R Y 2 0 1 6
the two states of Minas Gerais and Rio de Janeiro. The remaining
25% of the companies are located in the south of Brazil and in a
few of the northeastern states such as Ceará, Pernambuco, and
Bahia. Regarding the principal activity areas of these companies,
42% develop products for agriculture, 24% for bioenergy, 20%
cross-cutting activities in the production of reagents, such as en-
zymes, that are used by companies in various sectors.
The fact that Brazil is one of the largest agricultural producers
in the world has a direct impact on technological development in
this area. The sector demands new technologies and research
aids in the development of agricultural production. For example,
the participation of Embrapa and public universities in trans-
genic research in Brazilian agriculture is widespread and posi-
tions the country among world leaders in both agricultural
production and scientific output. This research and support were
central to the development of soybean production in the Cer-
rado, fruit in the Northeast, and sugarcane in São Paulo.
Another group of companies with biotech activities in agri-
culture work in the area of biological control of crops with the
direct use of live organisms and biopesticides. These are
smaller-sized national companies with strong links to universi-
ties and research centers as well as to public research and de-
velopment (R&D) funding. One example is BUG. The company
was created in 2001 in Esalq, in Piracicaba, and develops and
sells wasps that attack the eggs of pests like the sugarcane borer
moth. It has received financing over the last 10 years from the
São Paulo Research Foundation (FAPESP) through the Re-
search for Innovation in Small Business (PIPE) program.
Bioenergy, an area in which Brazil is on the technological
cutting edge, is the main focus of activity for 24% of the
country’s biotech companies. The State of São Paulo is re-
sponsible for half of national ethanol production, which in-
creased rapidly during the first half of the 2000s. Brazil accounts
for one third of the area planted in sugarcane worldwide and it
produces approximately 25 billion liters of ethanol.2,3 It should
be noted that sugarcane processing plants that do not conduct
research into second-generation ethanol or new reagents for
first-generation ethanol are not considered to be businesses with
biotech activities for the purposes of this article. They are,
however, responsible for the numbers mentioned above. Of the
approximately 400 sugarcane and biofuel plants in Brazil, many
are located in the north of the State of São Paulo, in the western
part of the State in the direction of the State of Paraná, and in the
Northeast of the country.
Despite Brazil’s biofuel industry crisis in the last 3 years, it
has been observed that in the long term biofuel production has
DOI: 10.1089/ind.2015.29019.ctf

space to grow. World consumption is still small at around 1% of
the total liquid fuels used in road transport, although in Brazil,
ethanol accounts for 20% of the total.4 This means that demand
can increase a great deal.
The increase of renewable fuels use can significantly trans-
form the production chain and bioenergy research, particularly
with respect to biotech research related to yeasts and enzymes.
With second-generation ethanol, for example, the principal
process is enzymatic hydrolysis; the breaking down of the chain
of cellulose polysaccharides. Here biotechnology is key in the
search for the most appropriate enzymes (those with high yields
and low cost). Additionally, there is also the search for better-
suited microorganisms for the large-scale fermentation of pen-
tose, which is the product of hemicellulose hydrolysis, another
part of sugarcane that is rich in sugar.4 In other words, funding of
research and innovation regarding the genetic improvement of
enzymes and yeasts can increase the productivity of ethanol,
whether first- or second-generation.
Private sector biotechnology companies acting in the area of
bioenergy in Brazil account for some parts of this research
process. These are mainly large companies: production plants,
multinationals, or joint ventures such as Syngenta (Basel,
Switzerland), Novozymes (Bagsvaerd, Denmark), São Martinho
(São Paulo, Brazil), GranBio (São Paulo), and Raı́zen (São
Paulo; a joint venture between Shell and the Brazilian firm
Cosan); or those with financing from giants from other sectors
such as Odebrecht Agroindustrial and Butamax. It is also worth
mentioning the case of CTC (São Paulo), which changed to
become a limited company and is one of the main hubs for the
genetic improvement of sugarcane-–the first project signed
within the scope of PAISS, a joint plan between the Brazilian
Innovation Agency (FINEP) and the Brazilian Development
Bank (BNDES) for the sugar–ethanol sector was with CTC.
This brief overview demonstrates the background of the in-
dustrial biotechnology area. Some of the actions for the country to
undertake to develop this segment can be achieved through policy
decisions and new financing instruments. However, others de-
mand an effort to coordinate and find linkages among the com-
panies, research institutions and universities, and governments.
Market Dynamics: Big Players
and Small Technology-Based Companies
In Brazil generally, there has been an upward trend in the
number of companies involved in biotech activities since the
middle of the 1990s. This means that the industrial biotech
market in the country is composed mostly of young business
enterprises. Most, 67%, were founded after 2000, during a pe-
riod that saw greater investment in science, technology, and
innovation.
In addition to being young, what is striking is that the majority
of industrial biotechnology companies in Brazil are micro or
small businesses: 68% have up to 50 employees (42% are
companies with up to 10 workers). In other words, these are
companies with a lean structure and that are still in the devel-
opmental phase of the product or process–a characteristic of
economic activities based on science and high risks. On the
other hand, 32% of the companies have more than 100 workers.
ª M A R Y A N N L I E B E R T , I N C .  VOL. 12
FINANCING IND BIOTECH INNOVATION IN BRAZIL
When one looks at the founders of these biotech businesses, it
is possible to note that they come from essentially two sources:
researchers linked to universities that started their own busi-
nesses, or professionals who left the biotech companies where
they worked to open their own companies, often as spin-offs or
to become suppliers to the larger original company.
In Brazil, this makes sense as 46% of industrial biotechnology
companies have passed through business incubators or are still
in them. Also, in the case of researchers, 70% of biotech com-
panies have at least one owner with a post-graduate degree in
their area of activity. This suggests that they were created by
researchers with strong ties to academia, many of them probably
as a result of their own research at the universities.
The fact is that the characteristics of the companies described
above–small-sized, recently established, and by owner-
researchers–help to understand the structure of the industrial
biotechnology market in which large and small companies seek
to cooperate. Small businesses have difficulty developing spe-
cific research, acquiring machinery and equipment, developing
technical expertise and commercial capabilities, obtaining fi-
nancing, dealing with regulatory hurdles, and taking on the
process of patenting. These factors force them to look for part-
nerships with other businesses (particularly larger ones), for
investors to finance their R&D, or for ties with public institu-
tions to share research.
The other side of the coin is that the development of this
specific knowledge by small businesses (and/or the university)
is shared with large businesses, which are very interested in this
collaboration precisely because they do not have one specific
expertise or are not close to a university. In these arrangements,
the large businesses bring regulatory, intellectual property, and
market knowledge to the table as well as the structure for
commercialization. On the other hand, the small businesses take
on the responsibility for developing new scientific knowledge
and specific technologies that, when combined with an adequate
structure, can lead to new products. The cooperation between
businesses can then be set up as a partnership for the joint de-
velopment of products; joint venture, merger, or acquisition, in
which expertise and resources are combined and risks are dis-
tributed. Licensing can also be a solution for looking for new
technologies on one side, and for capitalization on the side of the
license holder. The example of health care is well known, but in
Brazil this also occurs in the biotech industry with the produc-
tion of bioenergy, paper, and genetic improvements in agricul-
ture, for example. Monsanto’s (St. Louis, MO) purchase of the
companies CanaVialis (São Paulo) and Allelyx (São Paulo) is a
case in point when referring to the structure of the biotech
market.
In addition to gaining genetic sugarcane improvements with
the purchase of CanaVialis in 2008, Monsanto also acquired
know-how in sorghum cultivation. This is a plant from the grass
family, which like sugarcane can also be used for the production
of ethanol. In 2011, the multinational commercially launched
hybrid sorghum seeds (created using traditional transgenics
methods) with characteristics such as greater productivity and
disease resistance.5
In the bioenergy sector, some of the large producers of sugar
and alcohol are looking to develop new technologies for
NO. 1  FEBRUARY 2016 INDUSTRIAL BIOTECHNOLOGY 27
TORRES-FREIRE, BUENO, AND POLLI
products and processes using biotech activities that go beyond
their principal activity. São Martinho, for example, produces
sugar and ethanol, but their Omtek unit produces yeast deriva-
tives through biotech processes developed for the human
and animal food markets. Grupo Balbo (São Paulo) has a
commercial interest in PHB Industrial (São Paulo), which de-
velops technology for biodegradable plastic resin made from
sugarcane.
Verdartis (São Paulo) is another example. The small business,
created out of research from USP Ribeirão Preto, with financing
from FAPESP, from FINEP, and from the National Council for
Scientific and Technological Development (CNPq), and located
in a business incubator, is developing an enzyme for bleaching
cellulose. The opportunity is interesting from a commercial
standpoint, as the papermaking process requires expensive
chemical compounds and care in the disposal of industrial waste.
The enzyme acts by breaking down the cellulose substrate al-
lowing for a reduction of chemicals used in the process. Through
genetic engineering and bioinformatics, the company produces
enzymes with specific characteristics for each industrial pro-
cess. One of the principal clients for Verdartis could be Suzano
Papel e Celulose (São Paulo), which has already worked with the
company in the development of industrial scale catalyzers.6
Our aim in this article is not to pursue a more detailed dis-
cussion about agriculture or bioenergy. Rather, our purpose is to
assess the type of arrangements seen between large and small
businesses in relation to the development of new products. We
also focus on the opportunities for financing the innovation of
the market structure of industrial biotechnology in Brazil.
Public Financing for Innovation by Companies
in Brazil and Its Use by the Industrial
Biotechnology Sector
Funding for innovation in Brazil occurs in an environment
in which capital for investment is costly and meager. Since
2000, basic interest rates in Brazil have never been below
7.25% per year; they remained above 15% per year between
2000 and 2005. Accordingly, the country shows a low rate of
investment–-less than 20% of Gross Domestic Product (GDP)
since 2000–-and a short supply of credit to the private sector,
equivalent to 69.1% of GDP in 2014 versus 125.2% when
considering the world economy in the same year.7,8
Based on both venture capital and private equity funds, the
amount of investment is also restricted in Brazil: in 2013, these
values were the equivalent of 0.37% of GDP versus 1.02% in the
United States.9 In an environment with these characteristics,
innovative projects and business ventures–which require long-
term effort and have high degrees of uncertainty–are particu-
larly hampered. Based on the identification of these bottlenecks
and on the questioning of the linear ‘‘science push’’ model,
direct financing for businesses has been seen as an important
component in the development of public policy regarding in-
novation in Brazil.
In general terms, companies in Brazil have access to the
following means of funding for their innovation efforts: lines of
credit with subsidized interest rates; grants; tax incentives; and
direct investment (equity). Regarding the institutional arrange-
28 INDUSTRIAL BIOTECHNOLOGY F E B R U A R Y 2 0 1 6
ments of these instruments, FINEP and BNDES maintain lines
of credit for innovation and operate with direct investment.
FINEP is also able to offer resources for grants. Lastly, tax
incentives are controlled by the Brazilian Department of Federal
Revenue.
Table 1 shows resources invested by principal instruments for
the year 2012. In the case of FINEP, an increase of 253% was
seen in disbursements between 2012 and 2014, which shows
some of the anticyclical measures adopted by the government as
well as an effort to increase Brazilian productivity through in-
novation.10 However, the expectation is that this value will di-
minish significantly in 2015 in line with the current fiscal and
economic retraction.
Some public initiatives seek to fill the gaps in the availability
of risk capital for small technology-based companies. FINEP,
for example, instituted the INOVAR program in 2001, in which
it selects seed capital, venture capital, and private equity funds
for investments. The agency’s participation portfolio in these
funds corresponded to a total value of $243 million in 2012,
distributed among 25 funds.12 BNDES and Banco do Nordeste
(BNB) also created a seed and venture capital fund called
Criatec I, which had assets of $100 million in 2006. This fund
was followed by two subsequent editions with similar assets in
2013 and in 2015.13 Finally, at the state level, PIPE, launched in
1997 by FAPESP, deserves to be highlighted. Inspired by the
Small Business Innovation Research (SBIR) program of the
National Science Foundation, PIPE offers each selected com-
pany up to $360,000 dollars for conducting scientific and
technological research projects and concentrates on spin-offs
from universities.14 Within the scope of this program, 1,204
projects have been concluded up to the present.14
While the participation record categorizes the industrial bio-
technology companies within the instruments mentioned, the
existing databases are not systematized to the extent that permits
comprehensive and complete segregation. However, in order to
have even a partial measurement of this participation, we cross-
referenced public information of governmental support for
Table 1. Principal Instruments for Public Financing
of Innovation in Brazilian Companies11,12
THOUSANDS OF $
INSTRUMENT (CURRENT AS OF 2012)
Subsidized Credit for Innovation 2,051.0
Disbursements BNDES 1,128.2
Disbursements via FINEP 923.8
Financial Subsidies (values transferred - FINEP) 55.4
Tax Exemptions 3,293.8
Tax exemptions for companies investing in 757.3
R&D (Law no. 11.196/2015)
Tax exemptions ICT sector businesses 2,298.5
Other tax exemptions 237.9
 FINANCING IND BIOTECH INNOVATION IN BRAZIL

innovation with our own survey of companies active in the
sector. Looking primarily at credit, it should be noted that the
existing lines have an almost horizontal nature and go to various
technologies used in industrial biotechnology (and are not spe-
cifically earmarked for biotechnology). In the credit portfolio of
FINEP, looking at contracts from 2002 onwards, 12 companies
from the sector were present, including Granbio, Suzano, and
Grupo São Martinho, with a portion of them directed at the use
of biomass for the manufacturing of plastics, fertilizers, and
fuels.15
With regard to financial subsidies, Brazilian regulations re-
quire that these resources be made available on a competitive
basis through public calls for bids. In this case, projects are
better directed when defining the technological areas or sub-
areas likely to receive support. Table 2 sums up public calls for
subsidies posted and highlights values reserved for biotechno-
logy. Looking at the results of these public tenders, 17 industrial
biotech companies can be identified, including the previously
mentioned Verdartis.15 When looking at the content of these
proposals, one can see a predominance of projects related to the
agricultural chain including biopesticides, biofertilizers, and
seed inoculants as well as the production of second-generation
ethanol.16
As one can see, Brazil offers companies a range of programs
and financial instruments, but there continues to be dissatis-
faction with the impact of these efforts. Among the primary
problems with these programs are precisely the lack of a formal
system and a lack of ongoing evaluation. Indications of prob-
lems include the following:
. The stagnation of productivity in the economy, especially
in the industrial sector
. Exports continue to be based on commodities
. Investments in R&D are still dominated by public sources,
or in other words, there has been no significant leverage
effect
. Low patent activity in contrast to the trajectories of Chi-
nese and Indian companies
. Concentration of support in large companies
Similarly, in the case of industrial biotechnology, there is still
much to be achieved given the potential of the country, con-
sidering the biodiversity across its territory, and taking into
consideration the research professionals and infrastructure in
addition to the impetus for innovation.
Conclusions
While Brazil does provide mechanisms for supporting innova-
tion, they are still insufficient to leverage the country’s resources
and capabilities in industrial biotechnology. The combination of
financial instruments currently implemented in view of the ar-
rangements between the sector’s large and small companies, sug-
gests the need to re-think the use of lines of support and identify
better ways to tailor them according to the stages of the company
within the production chain. Access to better financing conditions
is concentrated in those companies that are in good financial health
or belong to large groups. Small businesses, where radical inno-
vations and possible paradigm breaks may occur, confront major
obstacles in finding access to more favorable conditions.

Table 2. Public Calls for Financial Subsidies for Innovation16

VALUE OF RELATED
COMPONENT RELATED COMPONENT OVERALL VALUE
TO INDUSTRIAL ($ MILLIONS, ($ MILLION,
YEAR PUBLIC CALL FOR TENDERS RESOURCE TYPE BIOTECHNOLOGY CURRENT) CURRENT)
2006 Financial Subsidy for Innovation Grant ‘‘Biotechnology’’ area including 13.8 137.9
biopolymers and industrial
enzymes

2008 Financial Subsidy for Innovation Grant ‘‘Biotechnology’’ area including 436 2454
bioinsecticides and
biotechnology processes for
agriculture

2010 Financial Subsidy for Innovation Grant ‘‘Biotechnology’’ area including 51.2 284.2
bioproducts and genetic varieties
for agriculture

2011 Support for Industrial Grants, credit, Second-generation bioethanol, All related Credit (298.6), grants
Technology Innovation for the and equity new sugarcane products, (238.9), equity (59.7)
sugar-energy and gasification of biomass
sugar-chemical sectors

2013 Financial Subsidy for Innovation – Grant Bioproducts and bioprocesses for 3.7 24.0
products derived from agribusiness
biotechnology processes

ª M A R Y A N N L I E B E R T , I N C .  VOL. 12 NO. 1  FEBRUARY 2016 INDUSTRIAL BIOTECHNOLOGY 29

TORRES-FREIRE, BUENO, AND POLLI
To this end, efficient support instruments for technology-
based business startups can contribute to the dynamism of the
sector. How can support be given to these small businesses and
help them overcome the so-called ‘‘valley of death?’’ How can a
more stable and consistent funding structure be maintained, and
how can the private sector be brought in to support innovation in
this segment? These are some of the questions that, among
others, could be the focus of future research into the analysis of
possible policy innovations that would contribute to the reduc-
tion of bottlenecks and bring about gains for Brazil given the
existing potential of industrial biotechnology.
Carlos Torres-Freire, is a researcher at Cebrap, São Paulo, Brazil. He received a
PhD in the Department of Sociology, University of São Paulo.
Igor Bueno is an economist at FINEP, Rio de Janeiro, Brazil. He received a MSc in
the Department of International Economy at State University of Rio de Janeiro.
Marco Polli is an analyst at FINEP, São Paulo, Brazil. He received a PhD in the
Department of Science and Technology Policy, UNICAMP, São Paulo.
Contact: Carlos Torres-Freire, PhD, Brazilian Center for Analysis and Planning
(Cebrap), Rua Morgado de Mateus, 615, São Paulo, SP, 04015-051, Brazil.
E mail: catorresfreire@usp.br
REFERENCES
1. Torres-Freire C. Biotecnologia no Brasil: uma atividade econômica baseada em
empresa, academia e Estado [Phd Thesis]. São Paulo: Universidade de São Paulo,
2014.
2. Ernst & Young. Beyond Borders: Global Biotechnology Report 2010. EYG
Limited, 2010. EYG no.: CW0068.
30 INDUSTRIAL BIOTECHNOLOGY F E B R U A R Y 2 0 1 6
3. UNICA. União da Indústria de Cana-de-Açúcar – ÚNICA. (2015) Available at:
www.unica.com.br (Last accessed Aug 2015).
4. Rosa ES, Garcia JLF. O etanol de segunda geração: limites e oportunidades.
Revista do BNDES 2009; 32(2):117–156.
5. Oliveira M. Opção produtiva. Pesquisa FAPESP. March 2012:62–65.
6. Silveira E. Brancura total. Pesquisa FAPESP. March 2012:66–68.
7. De Negri F, Cavalcante LR. Os Dilemas da produtividade no Brasil. In: De Negri F,
Cavalcante LR (eds). Produtividade no Brasil – Desempenho e Determinantes.
Brası́lia: ABDI/IPEA, 2014:15–52.
8. World Bank. Domestic credit to private sector (% of GDP) - World Bank Open
Data. (2015) Available at: http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS
(Last accessed Jul 2015).
9. KMPG and ABVCAP. Consolidação de Dados da Indústria de Private Equity
e Venture Capital no Brasil -2011 – 2012 - 2013. São Paulo: KPMG, 2014.
10. FINEP. Relatório de Gestão do Exercı́cio de 2014. Rio de Janeiro: FINEP,
2015.
11. IPEA. Conditions for innovation In Brazil: A review of key issues and policy
challenges. Working paper from: Workshop on Innovation for Productivity
Growth in Brazil. Brası́lia, July 1–2, 2015.
12. FINEP. Relatório de Gestão do Exercı́cio de 2012. Rio de Janeiro: FINEP,
2013.
13. BNDES. Fundos da Série Criatec. (2015) Available at: www.bndes.gov.br/
SiteBNDES/bndes/bndes_pt/Institucional/Apoio_Financeiro/
Programas_e_Fundos/Criatec/index.html (Last accessed Jul 2015).
14. FAPESP. Pesquisa Inovativa em Pequenas Empresas - Biblioteca Virtual (2015).
Available at: www.bv.fapesp.br/pt/3/pesquisa-inovativa-em-pequenas-
empresas-pipe (Last accessed Jul 2015).
15. FINEP. Projetos contratados. (2015) Available at: www.finep.gov.br/chamadas-
publicas (Last accessed Jul 2015).
16. FINEP. Chamadas públicas. (2015) Available at: www.finep.gov.br/chamadas-
publicas (Last accessed Jul 2015).