Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry - Pharmaceutical Executive


Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry

Pharmaceutical Executive


Olessia Akimtseva, CMS Senior Associate
Marina Veldanova, general manager of Ipsen Russia, describes an unfamiliar scenario. "This is the first time, in the last 20-year history of the Russian pharmaceutical market, that a new player has appeared: government. This is a very big new player! Of course, the government played some role before—regulatory functions, customs, certification, etc. But now they took the main violin in this orchestra," she says.

It is widely acknowledged that in the vacuity created by the fall of the Soviet Union, healthcare was ancillary. However, since 2005's oil-bought budgetary surpluses brought about the introduction of the National Priority Healthcare Project (Russia has long prospered when the barrel has), the authorities have executed, with dizzying purpose, reform after reform. First, the development of the drug reimbursement system (DLO) for Russia's neediest—and, after spectacular and public failure, the program's reimagining and restructuring. Subsequently, the Vital & Essential Medicines list delineated the strategic medicines of the territory, controlling their market prices.

Then, of course, we come upon today's twin whales-in-the-room: The Strategy of the Development of the Pharmaceutical Industry in the Russian Federation Until 2020, a cumbersome name précised to Pharma 2020; and the Law on Circulation of Medicines. The former is a striking design to turn a generic market with questionable domestic production standards and little globally marketable innovation, into a player. The latter takes a classically semi-regulated market and brings it under strict supervision.

These are colossal steps, but not all is well in a progressive Russia. For one, change is neither predictable nor incremental. Olessia Akimtseva, senior associate at the Russian affiliate of CMS Legal, illustrates the legislative quandary: "After the Law on Circulation of Medicines passed, changes were adopted several times, almost monthly. This is a specific situation to Russia; you will not see this in every country." Akimtseva continues, "There are few certainties upon which we can totally rely. We have new rules, new methodologies, approved every year. That is life."

Unequivocally, volatility hinders the operational mechanisms of a traditionally long-cycle business. AstraZeneca Russia president Nenand Pavletic explains the industry perspective: "If we as pharmaceutical players want to ensure the quality of our products, the quality of our regulatory filings, the quality of our production standards in line with GMP, and the quality of our clinical activities, we need to have a predictable environment. In Russia, the environment is not fully predictable, and this makes it quite difficult for us to ensure the highest quality for our patients. Non-planned and unpredictable changes create significant barriers for our activities."

Many of these changes, moreover, convolute the process of selling products on the market, wrapping additional red tape.

Are the authorities taking note? To what degree has government, relatively inexperienced in the pharmaceutical sphere, and suffused in an overpowering heritage of long-defunct Soviet law and consuming bureaucracy, consulted the industry?

Vladimir Shipkov, former head of the pharmaceutical inspectorate of the Russian Ministry of Health and executive director of the Association of International Pharmaceutical Manufacturers (AIPM), whose 52 members produce 55% of the medicines sold on this market in value terms, is displeased. "Unfortunately," he says, "the key specificity of the Russian pharmaceutical market—indeed, not only the pharmaceutical market, but the Russian market at large—is a lack of transparency, and a lack of communication with the business community—especially with the foreign faction of that community."

Shipkov emphasizes the necessity of an international contribution in building this market. He may be right: the authorities are nigh on starting from scratch, and this moment is exhilarating, and vulnerable. As Merck KGaA's Russia managing director Rita Bobro puts it, "When many of our politicians discuss the restoration of our pharma industry, I am quite surprised. I do not believe that we have something to restore. Instead, we need to build."

The multinational industry appreciates the nature of its position. Boehringer Ingelheim's Blanarik stresses, "Our role is not to question this or that; our role is to understand, to make a contribution." Indeed, multinationals are self-admittedly guests on the market—yet it was arguably these very companies that brought advanced medicine to the territory as the authorities turned away in the 1990s. Blanarik believes that "together with Russian government, different associations working on the market, and our colleagues," Russia can "shape healthcare into something that will be the most suitable solution for the Federation." There is a chance, in Russia, to combine the best practices from around the world, and create something paradigmatic.

Besides, the matter at hand is not just about sensible industry regulation, but about working to continue to modernize this country's therapeutic frameworks, which today loiter well behind those of the West. This is a shared goal, public and private. "We can help overcome one of the key barriers in healthcare, which is the scarcity of physicians who know how to utilize new technologies; who know how to provide advanced and novel treatment," says Arman Voskertchyan, managing director of Johnson & Johnson in Russia. As the authorities intensify their scrutiny of the industry and their involvement in the system, working in concert with business is paramount.

But perhaps not all is so cheerless. Although none would wax idealistic about this country, many believe that the trend, nonetheless, is towards increased transparency and exchange. To be sure, with profits abounding, why not take a positive outlook? Shipkov notes, "Although at the beginning, the Ministry of Health was one of the most 'closed' ministries in the Russian government, it is gradually opening up." Health Minister Golikova is taking meetings—selectively.

Vladimir Shipkov, AIPM Executive Director
Celgene is optimistic. "Looking at the drive toward increased regulation at the Ministry of Health—the registration system in Russia became much more transparent and predictable as compared to previous years. This effort is very much appreciated, at least by Celgene. Certainly, there will always be difficulties involved in a transition period, but once this period is over, then things will become more 'user-friendly,'" says Victor Ferkovich. For many managers, a relativist perspective is heartening.

As Ferkovich explains, "Our Ministry of Health and our government has been making much effort, since 2005, to supply patients in need with the products that will help them."

Ultimately, even if particular government decisions prove discomposing, managers would do well to make note of the broader tendencies. Take Pharma 2020's drive for the localization of the industry. CMS's Akimtsova says, "Localization is a trend that is not going away. In spite of some pieces of legislation that appear rather controversial, overall legislative development is still going in a direction that is quite clear. " She emphasizes that "businesses, as well as lawyers, need to be very active, and very reactive."

"If we understand the trend," Akimtsova concludes, "we are well positioned."


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