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


Focus Reports first met Manfred Paul in 2006, when he was head of Bayer Healthcare in Russia. At the time, Paul mentioned an expositive Russian proverb, which states that two people can only really know one another after they have eaten one 'pood' of salt together—one pood being an antiquated measure approximately equal to 16.8 kilograms. That is, close relationships in this country are realized through sore and protracted cultivation. Since our first conversation, Paul 'retired' from the industry—but, like many, could do little to stay away from Russia. Paul is now an independent consultant for Naari, a women's health startup that is looking to penetrate this market. In his official capacity as Naari's Director for Russia and the CIS, he remembers the proverb well. Expression alight, he says, "This indeed remains a very difficult challenge." Very much so, for a new player.

It is those with history here that are most conspicuously successful. Those that have weathered market fluctuations, even when they were world ending (think, 1998 financial crisis). We see that in Russia, the Top 25 has little resemblance to the global Top 25, and this with good reason.

Janssen signs a cooperation agreement with Skolkovo and ChemRar.
Baker & McKenzie Russia's founding partner, Paul Melling, took up residence in Moscow in 1989 and specializes in pharmaceutical litigation. He observes, "Companies that have always been very positive about Russia, that have always invested in Russia, and that have expanded in Russia even in trying times, have done very well. I think that is one of the reasons why the listing of top companies in this market, relative to the listing of top companies in Europe or the US, is quite different.

"It is a bit of a truism, but it is still true all the same, that Russians tend to remember those who did not falter during adverse economic periods. They also tend to run from those that did. Hence, a company is in a stronger position if it can prove a long-term commitment to this market."

Case in point: Davidsen, conceivably the longest-standing foreign manager in the Russian pharmaceutical industry, set up the Nycomed affiliate here in 1993 and has served as president since. He has done something absolutely unusual: turn Russia into the top market for a Swiss healthcare company. Melling describes Nycomed as exemplary: "Globally, Nycomed is quite a way down the list of the top 50 pharmaceutical companies [according to Pharmaceutical Executive, in 2011, Nycomed ranks 48th]; but here in Russia, the company is very highly positioned [according to IMS in 2010, 8th]. There are numerous reasons for Nycomed's success, but one of the pivotal components is its commitment to the Russian market through bad times and good."

Much of Nycomed's success has been based on a strategy of in-licensing. Davidsen posits, "In the early 2000s—in the early post-crisis after the collapse of the economy in 1998-99—very many companies had no interest in entering this market; they found it corrupt, non-compliant, or just generally unattractive. So we worked extremely hard from the early 2000s until 2005 to get in-licensing partners." Proudly, he declares, "That has been a successful model, and we have been building on success after success." Many companies are now clamoring to establish affiliates in Russia, but they are rather late to the soiree. As for Nycomed, Davidsen expects his business to surpass €1 billion in revenues by 2014—if not sooner.

Top 20 Pharmaceutical Organizations in Russia by Revenue
Nycomed is not the only company that can credit its accomplishments to pertinacity. Servier, for example, is 25th globally (Pharm Exec, 2011); in Russia, it is the fourth-largest pharmaceutical enterprise by sales (IMS, 2010). Jérôme Gavet, Russia general director, speaks of an early, unsaturated market. "Unlike many other markets," he says, "where we entered and had to face existing competition, in Russia, we penetrated the market at the same time as many of our competitors—or even earlier." This is the foundation; what of the crisis? Gavet goes on: "One time period that was particularly significant was the crisis of 1998. Many foreign companies decided to leave, but we decided to stay. This was a firm decision from our top management and Dr. Servier himself, and he was recognized at the time as manager of the year in Russia. We stayed, and we kept our employees. Today, we have people with a truly extensive history in the company, and they are the pillars of our activities. I recently looked into the figures, and we have nearly 50 people with more than 15 years in the company."

Bayer Healthcare, just one position behind Servier in the overall domestic rankings—and 14th globally—filled the gaps as more reticent investors fled the market. Geisler comments, "Two years after the Soviet Union collapsed, Bayer, as well as Schering, established their respective representative offices here and invested significantly—not in production, but in people, in education, in promotion, and so on. This worked very well, until the financial crisis of 1998. Many companies left in '98. Yet, during the crisis Bayer decided to stay in Russia. That is why, nowadays, Bayer Healthcare has a strong position. Wherever our competitors left the market, we jumped into the gap. We stayed, invested, and we benefitted from our commitment immediately once the market recovered."

Many of the investors who flew the coop at signs of dissonance were American companies, who have traditionally been guarded in emerging regions—in retrospect, perhaps overmuch. Johnson & Johnson, on the other hand, is an enterprise that has long been confident in the Russian outlook. It is the only American organization in the top 10 in pharmaceuticals; across businesses, it may well be the largest healthcare company in Russia and CIS. Arman Voskertchyan, managing director for the region, beams. According to Voskertchyan, only an interminable history, and resultant understanding of the market, could have facilitated the purchase the organization has earned here. "Johnson & Johnson came to the Soviet Union in 1991. Hence, 2011 is a remarkable milestone: We are celebrating our 20th anniversary! This is a momentous achievement for us, because over 20 years, many things have changed—not least of all the fact that the Soviet Union, as a state, has disappeared from the map. We believe that these 20 years helped us not only to establish our business operations here, but also to build an infrastructure that could help us truly understand this environment and ultimately help our patients gain access to high quality healthcare."

In 2008-2009, business again found itself in the wilderness, as the global financial crisis pummeled the Russian state harder than most. None left; this time, some companies in fact countered the market with a speculative surge. A year removed, most found themselves fittingly recompensed.


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