Cablegate: Russian Nano Companies Leave Academy Behind

DE RUEHMO #1241/01 0820349
R 230349Z MAR 07





E.O. 12958: N/A

REF: O6 MOSCOW 12192

1. (SBU) Summary: EST recently visited two nanotech ventures based
in Moscow-region "science cities." The scientists who head these
entities reinvented themselves after the fall of the Soviet Union.
In the process, they have provided a new model for Russia science,
one centered on an extremely disciplined enterprise whose management
is focused on an area that rarely captures the attention of Russian
scientists -- the bottom line. Zelenograd's NT-MDT is a private
company with strong ties to federal and regional officials. The
Institute of Superhard and Novel Carbon Materials (ISNCM) in Troitsk
generates millions in annual revenue and is funded partially by the
Federal Agency for Science and Innovations. Not coincidentally,
neither entity is affiliated with the Russian Academy of Sciences
(RAS). End summary.

The Bottom Line

2. (SBU) EST visited NT-MDT, a nanotech firm based in the former
closed city of Zelenograd, on March 6 to discuss the company's
activities and its perspective on GOR efforts to stimulate the
development of nanotech in Russia. NT-MDT was established in 1989
by Dr. Viktor Bykov in cooperation with two other scientists. The
company was transformed into a commercial enterprise in 1993,
focused on the development of nano-instruments. Boasting a staff of
more than 250 -- including representatives in Western Europe --
NT-MDT is planning to launch an IPO in 2011. Dr. Bykov and his son
Aleksander (the latter is now the company's CEO) provided EST with
an overview of the company's evolution from a small firm to one
whose products meet international standards and hold European Union
certificates. NT-MDT manufactures "big tools" such as
nano-microscopes. The firm's clients include institutes under the
Russian Academy of Sciences (RAS) and universities across Russia, as
well as European and American companies.

3. (SBU) Bykov credits his success to the company's market-based
philosophy. NT-MDT ferrets out information about the needs of
clients (and potential clients) and directs its research efforts
towards meeting those needs. According to Bykov, the main
difference between his approach and that of RAS scientists is how he
defined success: a concept that can travel from the theoretical to
production to sale, rather than a paper published in a journal.
Noting his single-minded focus on commercializing a concept, Bykov
stated that NT-MDT invests 20 percent of its budget into R&D, which
is two or three times the Russian average.

4. (SBU) Likewise, Troitsk's ISNCM invests heavily in R&D. Its
Director, Dr. Vladimir Blank, said that while the institute did not
treat R&D as a special budget category, of its nine million dollars
in 2006 revenue, 2.4 million was allocated for salaries, two million
for maintaining and modifying existing equipment, $200,000 for staff
participation in international conferences ("very important") and
the remainder for designing, building and/or buying new equipment --
which he considers critical to remain competitive. Blank said he
regards Russian-made high-tech instruments as generally of mediocre
quality, thanks to "15 years of problems." ISNCM imports most of
the equipment it uses from U.S. and Western Europe and claimed to
have had "no problems" with either U.S. export controls or Russian
customs importing such instruments.

5. (SBU) Like NT-MDT, ISNCM has produced healthy profits despite
initial skepticism from RAS leadership. As EST learned during a
March 21 visit, twelve years ago Blank was told by RAS management
that the Academy would no longer pursue research into super-hard
materials; his funding would be eliminated. Dr. Boris Saltikov,
then Minister of Science, believed in Blank's work and recommended
that he break with the RAS and create his own institute, which
Saltikov vowed to support. Blank established the ISNCM under the
aegis of the Federal Agency for Science and Innovations, more
commonly known as "Rosnauka." Since then, Rosnauka has funneled
millions of dollars into ISNCM's research. Last year, Rosnauka
provided one million dollars and ISNCM turned a profit of nine
million dollars, belying the RAS's earlier disdain for Blank's

6. (SBU) ISNCM produces lenses for lasers and microscopes and
materials for semi-conductors created from artificial diamonds.
With a permanent staff of 160 and between 40 and 50 contractors,
ISNCM's foreign clients include the Massachusetts Institute of

MOSCOW 00001241 002 OF 003

Technology, the National Institute of Standards and Technology and
Germany's Max Planck Institute. In 2006, ISNCM sold three
atomic-force microscopes to U.S. customers; this year, it has
already sold between 10 and 12. Most of ISNCM's clients are from
the U.S., Japan and Europe, while business with China remains
minimal. Echoing what others have previously told EST, Blank said
the Chinese are interested in purchasing ISNCM's technology and
processes rather than its products. "It's a very strange
situation," Blank observed, adding later that China is a "dangerous

Young Minds

7. (SBU) As a Professor at the Dolgoprudniy Physical Technical
Institute, Bykov uses his position to aggressively recruit promising
young researchers and graduate students on a contract basis,
essentially replacing the RAS institutes as a training ground. He
characterized the students' work as a sort of for-profit internship,
benefiting both NT-MDT and the students, who supplement their meager
RAS stipends with a more bountiful salary from the private sector.
Bykov said that the quality of students is better than ten years
ago, though not as strong as during the Soviet era. In terms of
IPR, the company's policies are clear-cut: NT-MDT owns the patent to
any product created by a full-time employee. It shares the patent
with a scientist if that researcher is based elsewhere and is
performing part-time contract work with the company.

8. (SBU) ISNCM has also had great success in attracting and
retaining young scientists. The Institute's average salary is $950
a month, with laboratory chiefs earning $2000. Blank noted that the
cost of living is less than half of that in Moscow. In addition,
ISNCM has received special grants from the Ministry of Finance to
provide free housing to all of its scientists under the age of 35.
Since its creation 12 years ago, not a single scientist has left
ISNCM, according to Blank. Blank credited ISNCM's cutting edge
work, state-of-the-art equipment and the opportunity to attend
international conferences as part of the institute's attraction for
young scientists. Indeed, during a tour of the Institute only a
handful of staff appeared to be older than 35.

Friends in High Places

9. (SBU) Meanwhile, NT-MDT has received "not bad support" from
Government programs, totaling approximately 400 million rubles (over
$14.5 million) over the last three years, according to Bykov. Such
a sum is due to NT-MDT's deep knowledge of nano-materials and the
firm's "good contacts," he said. (Note: NT-MDT has been approved as
one of the first resident companies in the Zelenograd Special
Economic Zone (SEZ), for which the Agency for Management of Special
Economic Zones has budgeted almost $800 million for infrastructure
development over the next five years. End note.) Indeed, Bykov
referenced his close ties to Dr. Sergey Mazurenko, head of Rosnauka.
ISNCM's Blank noted his connections to Mazurenko as well. Rosnauka
recently awarded a 12 million dollar grant to ISNCM that will be
disbursed over a three-year period.

10. (SBU) Bykov also mentioned his "good friend" Ivan Bortnik, the
head of the Russian Foundation for Assistance to Small Innovative
Enterprises (FASIE). Bykov now sits on FASIE juries and judges
grant applications. Both Blank and Bykov have close ties to Dr.
Mikhail Alfimov, who heads the experts committee advising the GOR
taskforce on nanotech. Alfimov, with whom Bykov has been friends
since 1977 when they attended the same institute, has invited Bykov
to join the expert committee as well. Bykov judged the GOR program
to be both ambitious and "hard to implement." The most promising
areas for nano's development in Russia include the nano-dispersion
of drugs, according to Bykov. NT-MDT is cooperating with
laboratories under the purview of the Russian Academy of Medical
Sciences (RAMS) and the Ministry of Health to develop instruments
for such research.

Why Nano? Why Now?

11. (SBU) When asked why the GOR is suddenly so interested in
nanotech's possibilities, Bykov noted that Russia's old production

MOSCOW 00001241 003 OF 003

capabilities have literally fallen apart and have lost any tenuous
connection to market demand that they once might have had. The
Kremlin is trying to predict what areas present the greatest
potential for development and revenue. According to Bykov, nano is
the natural choice. "Nanotech will meet modern needs. Nano is the
future," he stated. He critiqued the approach of Dr. Mikhail
Ananyan, head of competitor Nanoindustriya. Ananyan, Bykov said, is
lost in his "personal fantasies" and unable to focus on the market's
needs. Whereas Ananyan argues that the Kremlin has tasked the wrong
Ministry with oversight for the GOR nanotech program, Bykov believes
that the issue of who heads it is insignificant. Bykov professed
not to know Aleksander Khlunov, the Ministry of Education and
Science (MES) official designated by the Kremlin as the GOR Working
Group's secretary. He mentioned NT-MDT's ties to Deputy MES
Minister Dmitriy Livanov, however, and noted Livanov's February 22
election as Rector of the Moscow Institute of Steel and Alloys, an
institute which is a key NT-MDT client. (Note: Blank told us that
Livanov will soon leave the MES to take up his new post as Rector
full-time. Blank also said he was scheduled to meet with Khlunov
later that day. End note.)

12. (SBU) Like Bykov, Blank believes that the GOR is sincere in its
interest in supporting nanotech's development. However, he argued
that there are few individuals or organizations within Russia that
have real nano expertise. "Everyone is new to it," Blank observed.
GOR funding for nano has only been at "serious levels" for the last
year or two. In order to illustrate how the standard bearers of
Russian science have been more reactive than proactive when it comes
to nanotech innovation, Blank shared an anecdote about how ISNCM
obtained a new atomic microscope. Two years ago, Blank told
Mazurenko that ISNCM's work was hindered by the lack of this
microscope. Mazurenko agreed to fund its procurement, at which
point RAS institutes and ones affiliated with the Federal Agency for
Atomic Energy (Rosatom) complained loudly that they also did not
have such a microscope. Rubles were allocated and microscopes
purchased. The implication is that, absent Blank's activism, the
RAS and Rosatom institutes would still be without this vital piece
of equipment.

Comment: Academy Who?

13. (SBU) As both NT-MDT and ISNCM demonstrate, working outside the
system of RAS institutes need not hinder a venture's progress. Both
entities have parlayed government support into profitable -- and
self-sustaining -- projects, providing useful evidence for MES
officials in their crusade to focus RAS scientists on meeting market
demand. Both have provided the three necessities to their young
staff: relevant work, the latest equipment, and sufficient financial
incentives, in the form of livable wages and housing. Russian
officials are betting on nanotechnology as the field with the most
promise for Russian science. Scientists would do well to bet on the
NT-MDT/ISNCM paradigm as the model with the best chance for

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