Tax and Custom Issues

Gennady Shirshov

Melling explains the basic challenge: "The temptations to cut corners here are so enormous, because companies are less likely to get caught and results are almost immediate. While every pharmaceutical company will tell you that compliance is at the top of its agenda, even companies with a global 'zero-tolerance' policy can be successful, very profitable and grow their Russian business."

Intellectual property rights legislation has been in place since 1992 and covers most of the issues it should. However, there was no enforcement until 2002, when the Coalition for Intellectual Property Rights (CIPR) and the Union of Professional Pharmaceutical Associations (SPFO) sprang up to organize the industry and win a high-profile battle to persuade the authorities that patents would need to be protected if Russia was ever to have a research-based industry.

Introducing a New Class of Pharmaceuticals

Nonetheless, "the problem is no more acute than in Europe," says Gennady Shirshov, who leveraged his background in managing tobacco logistics to take the position of executive director of the SPFO, a group formed specifically to bring together all six sub-sectors of the pharmaceutical industry - suppliers of active ingredients, foreign manufacturers, domestic manufacturers, distributors, pharmacy chains and analytical companies - to face the critical task of combating illegal imports and illegal domestic manufacturing.

Now the SPFO has expanded its scope to take aim at ensuring the quality of the overall Russian pharmaceutical supply chain through a recent proposal to Roszdravnadzor of a new pilot system designed to quickly identify counterfeits using NIR (near infrared) spectrography. If this is implemented successfully, Shirshov will be eager to extend the NIR program to active pharmaceutical ingredients, at least 80% of which are imports of widely varying quality.

A Unique Heritage of Names and Brands

Even with well over 800 drug manufacturers represented in Russia today, companies with a regional focus, such as Germany's Berlin-Chemie Menarini, Hungary's Gedeon Richter and Egis, Slovenia's KRKA and Lek (now part of Sandoz), and France's Servier still enjoy outstanding success in Russia which guides their corporate growth and leaves many global players in their wake. While pre-financial-crisis market leader ICN opted out, a new group of companies with a Soviet heritage have been working its way up the Russian ranks.

Croatian leader PLIVA (which is best known for its collaboration with Pfizer to develop one of the world's best antibiotics, the blockbuster azithromycin) is a perfect example of this trend, as Russia has become more important than its home market to PLIVA's performance.