On the outskirts of Moscow, nestled in a grove of native birch trees, sits a gray, rather functional building whose modest profile belies its ambitions as the crucible for a new Russia—one whose prosperity is built on health, not hydrocarbons. Once the home of a Soviet-era state radio company, it now serves as the headquarters of ChemRar, a consortia of biotech start-ups and R&D venture investment companies, funded through a diverse combination of private capital and public funds, dedicated to a single goal: to develop and commercialize innovative medicines with therapeutic potential for Russia and —ultimately—the global market.
ChemRar is more than just an enterprise. Instead, it is the template for a new business model that merges the private incentive in finding new growth opportunities in a country that has historically underinvested in health, to the public interest in diversifyingRussia's economy away from its reliance on volatile cyclical commodities like oil and gas.
Many business analysts contend the time to change that model is now. The International Monetary Fund [IMF] has real GDP growth slowing to an anemic 1.4 per cent in 2013, accentuated by declining oil revenues, a shrinking population base, and uncompetitive levels of fixed investment. In contrast to most other emerging countries, Russia's share of world output is now falling, not rising.
ChemRar is not the only embodiment of the push for industry diversification. Another, perhaps more prominent example is the Skolkovo Foundation, a non-profit, government-backed technology "incubator" established in 2010 that, among other things, offers tax incentives for biotech start-ups that locate at its state-of-the-art research campus in the Moscow suburbs.
While ChemRar serves primarily as R&D real estate for biopharma start-ups, Skolkovo is one of the big publicly funded institutions established during Dmitry Medvedev's presidency that pursue a much broader range of business and industrial policy objectives. The 200 companies with resident status at Skolkovo benefit from a partnership with the Massachusetts Institute of Technology [MIT], the centerpiece of which is the jointly run Skolkovo Institute for Science and Technology [SkTech]. Beginning this year SkTech will provide basic science, education and entrepreneurial support to Skolkovo resident companies and researchers in five multidisciplinary fields, including biomedicines. All told, some 30,000 workers are now engaged in activities linked to the Skolkovo innovation cluster — the government's dream is that it will someday emerge as an eastern version of California's Silicon Valley.
Is Russia Ready? Four Questions
Clearly, Russia desires a future in the pharma big leagues. IMS Health predicts that Russia, now ranking 11th in market size, at $16.6 billion in annual prescription sales, will rise to 8th by 2017, with $26.6 billion in sales, surpassing the UK, Canada and Spain. Russia's push for prominence in pharmaceuticals reveals a complex mix of positive and negative factors that will take much effort, more years and some luck to deliver the desired outcome: a globally competitive industry, with the grassroots capacity to discover, develop and market drugs with global appeal.
Pharm Exec interviews with key players in the Russian industry highlight four strategic questions that will prove critical to success: