Tax and Custom Issues
Tax and customs issues are quickly emerging as even the most conservative companies begin moving beyond representative offices
to establish Russian subsidiaries as they seek to avoid formalities while expanding.
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
IP Legislation Seeking Enforcement
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.
To date, no major anti-counterfeit legal offensive has been launched by a research-based company in Russia, possibly because
the initial victory has not translated into the sustained political momentum necessary to pull the production licenses of
the major violators rather than issuing nominal administrative fines.
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
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.