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Matthias Wernicke, General Manager of Merck KGaA’s Biopharma business in Russia, talks about how the country is transitioning from an emerging to a mature pharmaceutical market.
Matthias Wernicke is General Manager of Merck KGaA’s Biopharma business in Russia. Pharm Exec caught up with him recently to discuss how the country is transitioning from an emerging to a mature pharmaceutical market, and how Wernicke sees his role in helping to influence and enable these advancements.
My university education was in Economics and Politics, and I hold a Ph.D in Economics. Before entering Merck KGaA, Darmstadt, Germany, I spent 15 years at McKinsey, where I worked with clients in many industries, focusing more and more on international pharma and healthcare clients.
I think having studied Economics at Oxford benefits me a lot in my daily work today. In any country around the world, healthcare is very strongly linked to the economic and political context. This greatly affects us as one of the partners in this healthcare system. For any leader in the pharmaceutical industry, it is important to understand the context. Just to give a very straightforward example: We know empirically that how much a country, a society, is able and willing to invest in the health and wellbeing of its people is directly related to its level of GDP. And we know empirically that this relationship is more than proportional – the percentage spent on healthcare goes up with a country’s increasing wealth. This is one of the reasons, for example, I personally see very optimistic signals for our Russian patients. With increasing general wealth in Russia, there will be an increasingly higher proportion of public money spent on healthcare. Over the next 10-20 years, we’ll see current levels of 4-5% of GDP spent on healthcare go up to the 8-10% that is the norm in Western Europe
Coming back to my personal path, my experience at McKinsey added a business and management angle to my academic background. For fifteen years, I was exposed to different, complex situations in the international pharma and healthcare industry as a consultant. Among the lessons I learned was an absolute willingness to listen to all the voices around the table before taking decisions, and to be able to work in new areas without having a prior knowledge or expertise. However, neither academia nor consulting can compete with the challenge and the satisfaction of having an international leadership role in a respected global company.
Most of my professional life, before I came to Russia, was spent in a European or US business context. From a pharmaceutical industry perspective, there was a category of markets that I was very interested in getting to know – the fast growing, emerging markets. Russia and the surrounding Eurasian markets are very interesting places to be and experience first-hand. Within Eurasia, you face double-digit growing markets like Russia, Kazakhstan and Ukraine that are close to being mature. On the other hand, in some countries we are only just starting some of our business, such as IVF in Uzbekistan. Also of course, Russia and the wider region has an incredibly strong culture and history; is a privilege to have the chance to be exposed to it.
I would say it is at a transition stage from emerging to more developed. Ten years ago, local manufacturing of drugs was very limited. Now, as a result of the national “Pharma 2020” strategy, a lot of drug manufacturing, including international brands, has been localized and is done by a strong local pharma industry. For instance, around 70% of Merck KGaA, Darmstadt, Germany’s sales are from locally produced medicines. Moreover, in the next five years, comparison with 2017, export of medicines manufactured in Russia is about to grow by four times according to the local national healthcare project. I believe it is possible that this will be achieved. Of course, all of this can only be done with major investment into capability build-up, technology transfer, and major investments into new facilities in Russia. But the results are there!
In other areas of our business, we are seeing an evolution towards western practices, e.g. a more rigorous approach to regulatory frameworks and on pricing. The risk is that some of the Russian frameworks add a lot of Russia-specific requirements to an industry that is operating globally. If this trend continues, it may be difficult for some companies to continue to serve Russian patients, because serving the market is becoming too complex. I think policymakers in Russia need to be wise to not overregulate, and to reduce, for instance, some of the timelines in the regulation and reimbursement processes, and also to leverage common points with EMA regulation, or really simplify processes within the Eurasian union.
Despite its long tradition and its strong German corporate foundation, Merck KGaA, Darmstadt, Germany, is a very agile organization, constantly seeking out new opportunities to grow. For Russia, the first priority was to capture the growth opportunities that we see in the market. In 2018, the first full year I was there, we grew by 30% on the previous year, largely driven by the successful repatriation of one of our core products from an external distribution partner. In 2019, our growth will be entirely organic – we are again expecting a very solid double-digit growth. Looking back over the last 20 months, our growth record is very good.
Our second priority is to ensure that in this complex market, with these extraordinary growth rates, we maintain or improve our control over all aspects of operations. During the last 20 months, we have introduced – among the Russian leadership team -a very tight and efficient system of KPIs and early warning indicators that make sure all our growth is sustainable and, ultimately, also compatible with the strategic priorities of the Russian healthcare system. We must not forget we are here to serve the Russian patients.
Our third priority is – as always in Merck KGaA – to develop our people and to be the place for strong talent and individuals to work and grow. To chart our progress with this, we have an annual employee satisfaction survey, and Merck Pharma Russia has one of the highest scores across the whole company in this dimension.
Overall, the healthcare challenges are the same around the world. For Russia, there is currently a lot of optimism because more resources and more government attention are being devoted to it. One of the overarching targets of the government, driven by demand of the Russian President, is to increase life expectancy from the current average of 73 to 80 years by 2030. This is, of course, a very difficult challenge. But compared with many western countries, a lot can still be achieved, for instance, by providing the most up-to-date pharmaceuticals to oncology patients. In this area, Russia still has some gaps compared to the West. If there is the willingness to fund those treatments, the ambitious life-expectancy goal becomes more realistic.
I think we are very strongly positioned in Russia to contribute to the healthcare and pharmaceutical agenda. We know that strengthening the healthcare system is a key policy priority, especially in areas where we are helping patients – oncology, immunology, chronic diseases – so we can really expect to contribute to the development here. We are working very actively with Russian doctors and scientists in all areas of medicine, because we really see a strong scientific and academic base in Russia on which to build future collaborations. Finally, we are, with our additional life science business, supporting and supplying a lot of the basic equipment and technologies on how to build a local pharmaceutical manufacturing industry. This will continue to be strongly needed for the market.
So, overall, we are looking at a very active next decade for Merck in Russia, and I am very optimistic about our outlook in this very dynamic market.