EXPATRIATE'S GUIDE TO RUSSIAN INVESTMENT
Four years ago, when Vladimir Shipkov came to head the AIPM, the former Minister of Health of the Russian Federation asked
him, 'Why are your member companies not building manufacturing facilities in Russia?' Shipkov recalls: "My answer was that
such a question should not be addressed to the industry—it should be addressed to the government. The Minister and his superiors
should themselves address the question."
In Pharma 2020, their answer is categorical. With the strategy, authorities are developing a system of preferences, aid projects,
investment arms, and importation barriers. Intentions are unambiguous. The initiative falls under the Ministry of Industry
and Trade, and Viktor Khristenko, minister, said the following in a speech at the ChemRar Innovation Center in Moscow: "The
challenge for the federal program is the transition of the Russian pharmaceutical and medical industry to an innovative development
model. In other words, we are talking about going from screwdriver assembly to a full-cycle industry that spans from development
to production and meets compulsory integration into the global markets."
As Marina Veldanova of Ipsen—who is head of the AIPM taskforce for government and public communication—notes, by 2020, 50%
of total-market medicines (by value) should be locally produced, under European GMP standards; within the reimbursement segment,
90%; and 60% of medicines should be innovative. Khristenko is not bashful: "As you can see, we have set quite ambitious goals."
STEP 1: MANUFACTURING
Admitedly, the Pharma 2020 strategy is just that—a strategy. Many of the details have not yet come to power—or to the foreground.
The meaning of 'local producer status,' for example, is a bit of a melancholic lark among the industry. Veldanova explains,
"There is no official explanation of what 'local status' will legally imply. Does it mean just packaging? Or formulations?
Which stage of production must be completed in Russia so that a product may be called 'locally produced'?"
Nycomed's Davidsen worries that the current discussion is perhaps leaning toward full-cycle production—including APIs. If
this is true, Davidsen believes that it "will be very difficult to fulfill, to attract foreign companies to produce their
APIs in Russia. It is quite unlikely that they will do that here."
Jérôme Gavet, Servier Head of the Representative Office
No one yet knows what is to come, and whether late-stage production will be enough to garner state-endorsed local status is
to be seen. With elections coming up, the situation is delicate—as everything else—and may fall to either side. Yet, Dejan
Jovanovic, general manager of Astellas in Russia, is perhaps quite right: "With a market that could likely become one of the
top 10 in the world, take it or leave it. If you do not want to participate in the race, you participate somewhere else."
Moreover, as CMS' Akimtseva described, the broader trends are unmistakable—none seem to doubt the authorities' sincerity when
they say they aim to saturate at least 50% of the market with locally manufactured drugs. An ambitious multinational operating
in Russia perhaps must, sooner or later, think of local production, whether alone or by contract. In response, several companies
have taken the greenfield leap, and are preparing the ground to bring manufacturing here in stages. AIPM member organizations
have pledged in excess of $1 billion to plant construction.
However, Jérôme Gavet, general director of Servier Russia—a company that has had a plant in the country since 2007, before
the announcement of state strategy—is forceful: Unless you are sure of your market, do not invest. "It is true that the position
of the authorities is to encourage investment without providing transparent legislation on the definition of local producers—but
for now, the barriers to importation are still acceptable for those who wish to keep production abroad," he says. "The decision
must be a business-driven decision. If you have demand that warrants a large volume of production and your aim is to produce
for a significant segment of the population, your investment is well founded. To expect fiscal exemption and inclusion in
reimbursement lists must not be the reason to invest in local manufacturing. This must be considered as an additional benefit
but must not drive the investment."
Gavet's final remark is ominous: "You can expect only one thing with certainty—barriers to importation will increase with
Some are yet taking a 'wait and see' approach. Others are partnering locally instead of investing in a manufacturing site—and
transferring production technology and expertise. For instance, both Janssen and Roche have established such a partnership
with domestic generics giant Pharmstandard. Where needed, this kind of transfer addresses the capabilities of the local industry:
national standards by no measure equal international standards.
Gennady Shirshov of the SPFO, representing 36 of the largest companies on the market, is brutally honest: "Let me give you
two figures that are self-explanatory. Everyone, including government officials, keeps on stating that about 75% of the market
share is dominated by foreign manufacturers. That is true—but these are in monetary terms. In unit terms, it is the domestic
companies that dominate the marketplace—they account for about 60% of the market share. But when you analyze what they sell,
the picture is totally different. In quite a lot of cases it is not a medicine in the modern sense of this word. So the challenge
is to turn the local industry into a quality- and value-based industry."
There are exceptions: local innovators like Materia Medica and Petrovax are up to snuff. Pharmstandard has modernized, line
by line. However, within three years, they must be the rule rather than the exception; according to the Law on Circulation
of Medicines, Russian producers have until 2014 to harmonize manufacturing standards with European GMP, or risk losing their
production licenses—after all, the authorities mean to make the local industry export-ready. Some will not survive the transition.
The clock is ticking.
STEP 2: RESEARCH AND INNOVATION
Shirshov shares another anecdote. "There will be many changes in the marketplace," he says. "It is not only about building
facilities. I remember a business breakfast with Viktor Khristenko, the minister of industry, in June of last year, when he
said, 'When we say localize, we do not mean build. We mean create.' It is more about establishing R&D infrastructure, and
supporting it, rather than just constructing buildings."
Milos Petrovic, Roche General Manager
Companies such as AstraZeneca and Nycomed have formally factored R&D into their plans, in addition to localizing production.
As Davidsen emphasizes, "It is not enough to simply set up a production facility, plant your flag, and do sales and marketing."
Perhaps especially for those whom building a manufacturing site, is simply, not pragmatic, R&D is the focal route to well
position themselves amongst their peers as Pharma 2020 unfurls. Roche, for example, is not in the business of high volumes,
and utilizes just a few global production facilities to supply their operations worldwide. Russia does not warrant the critical
mass for another—here, Roche products lead the high-cost reimbursement sector, and their portfolio is geared toward a small
and gravely ill portion of the population. "Besides," Milos Petrovic, Russia head, says, "while I think manufacturing is quite
important for building a viable, thriving pharmaceutical industry, for an innovative company establishing research capability
should be the top priority." Petrovic stresses, "For me, research is the key to progress!"
Minister Khristenko praised Roche in a December 2010 address for having transferred several preclinical HIV assets to a local
Russian startup, Viriom. Viriom will develop and commercialize the assets in Russia and the neighboring Commonwealth of Independent
States (CIS); Roche will retain the right to market the finished products elsewhere in the world. This is precisely the sort
of collaboration the Russian government hopes to see—the international industry offering its expertise to domestic enterprises,
with the aim of developing globally marketable, innovative medicines in Russia. Petrovic explains the collaboration thus:
"The Viriom project was something that was done quite rapidly; we gave them the molecules, the expertise, the scientific board
for help. It was a real commitment, and it was beneficial to all concerned parties."
Naira Adamian, Janssen Managing Director