Russia's Bet on Biopharma - Pharmaceutical Executive

ADVERTISEMENT

Russia's Bet on Biopharma


Pharmaceutical Executive


Who will pay?

Ultimately, the success of Pharma 2020 may depend on a factor that extends beyond its own remit: a sustainable system of financing access to medicines for the millions of citizens forced to pay out of pocket and who thus lack the resources to consume more drugs. At present, some 68 per cent of drug sales consist of out-of-pocket purchases at retail pharmacy, with another 20 per cent from hospital tenders; only the remaining 12 per cent are subject to some form of government reimbursement. That category includes coverage for all patients with HIV as well as to designated essential drugs for elderly pensioners. Those with coverage amount to only about 4 million people at present.

The Health Concept 2020 plan calls for the introduction of a national drug insurance program by 2016, but virtually no one believes it will come that soon, particularly as Russia's tax base – along with an expanded social safety net – must adjust to the global decline in commodity prices. The expectation is for a modest piecemeal approach, starting with a series of pilot programs at the regional level. "Industry would benefit from a subsidized drug benefit to increase access to the underserved population and ensure a predictable platform for future growth. The challenge is balancing more access with pricing that incentivizes innovation," Aston Consulting's Artyomov told Pharm Exec. Evidence from other countries also shows how difficult it is to make the transition to international competitiveness from a domestic base characterized by low rates of ROI.

Points to ponder

Discussions with a range of industry stakeholders in Russia highlight five key themes that will characterize the investor climate going forward and thus guide a successful strategy geared to this important emerging market. These are:
Culture counts. Fear of failure is deeply ingrained in the way Russians think about commerce. Risk and loss are not part of the local lexicon; in the US, if, out of a portfolio of 10 investments, three fail, six recoup their costs, while one hits the jackpot, that outcome is seen as a success, whereas in Russia, the entire project would be seen as a setback. This can create spillover effects in the relationship with regulators, who are often reluctant to act beyond their own carefully prescribed comfort zone.
Understand investor expectations. Capital markets in Russia are at a very early stage of development. Investor sentiments have instead been molded by the quick returns of a commodity-based economy, underwritten by state-owned enterprise; the high up-front risks and long payouts characteristic of biotech and pharma are still a foreign concept to most Russians. In negotiating contracts, care should be taken to balance multiple provisions designed to protect against failure with the incentives that promote success.
Government leads. Nothing in Russia gets done without the exercise of political will, and the power to do so is centralized in the presidency. Still, there are a few formal channels of communication, one of which is Prime Minister Medvedev's Foreign Investment Advisory Council [FIAC] composed of 48 CEOs from the leading multinationals. Miles White of Abbott, Sanofi's Chris Viehbacher and Joe Jimenez of Novartis currently represent biopharma on the group.
Navigating the bureaucracy is an acquired skill. Transparency and ethics are improving – interviewees agree that there is less tolerance for corruption – but pharma faces a special challenge in that its issues tend to cross the desks of numerous departments, few of whom work seamlessly together. "We exist outside the box," said one CEO. There is a special challenge communicating with the MOH, which incorporates the important regulatory functions of the US FDA, but is reluctant to engage with pharma because its mission is to promote public health, not business. Companies also note a disconnect between the administration of drug pricing and sourcing rules, which are divided among several government agencies.
Innovation is a work in progress. Much of the government's financial support for innovation is issued in very small doses, with average grants rarely exceeding the $5 to $15 million range. It will be difficult to put real critical mass behind this investment due to increasing fiscal constraints, as growth in the economy slows. While enforcement of IP has improved since Russia's accession to the WTO, procurement policies and other rules continue to project a bias against patent holders. Data protection only came into force in July 2012; the Russian standard is for six years and though it covers data amassed during the clinical trial period, this can limit the effective period of coverage once a drug is out on the market. Even domestic companies recognize there is more to be done. As Vasily Ignatiev, CEO of R-Pharm, a leading producer of hospital and specialty medicines with global aspirations, told Pharm Exec, "building a successful international presence means we cannot base our regulatory strategies around what is happening locally. We must rise above the Russian standard."
Foreign drug makers face a reputation deficit. Big Pharma companies have dominated sales in the Russian market since the fall of communism, including most of the products deemed "essential" by the government. There is a widespread perception that foreign companies bought their way into the country, using money to gain access to stakeholders. Today, money can actually buy trouble, and there is great pressure to be more strategic and to find new ways to operate successfully.


ADVERTISEMENT

blog comments powered by Disqus

Source: Pharmaceutical Executive,
Click here