26 June 2014

Russia’s Pharmaceutical Industry Continues to Attract Investors

By Alexey Brevnov, Vice President for Government Relations and Head of Healthcare Practice, PBN H+K Strategies, Moscow

Last week’s Russian Pharmaceutical Forum, the twentieth to date organized by the Adam Smith Institute, attracted officials and executives from Russian and international pharmaceutical manufacturers, distributors, pharmacy chains and industry associations, as well as journalists, patient organizations and others who follow one of the most dynamic industry sectors in the country.
Priorities in regulating and developing the pharmaceutical industry were promulgated several years ago by the Russian government.  These priorities can be found in federal laws №61-FZ On the Circulation of Medicines from 12 April 2010; №323-FZ On the Fundamental Principles of Public Healthcare in the Russian Federation from 21 November 2011; as well as in the federal target program to Develop the Russian Pharmaceutical and Medical Industry through 2020 and Further (Pharma 2020), approved by resolution №91 of the Russian Federation Government from 17 February 2011. Numerous industry gatherings and discussions frequently center on these baseline laws, as their intent is to facilitate the modernization of Russia’s healthcare system.
The sector’s main regulatory trends in the near future will focus on:
  • Data Exclusivity – establishing how long data from clinical trials of innovative medicines will be protected. The key here will be the position of the Federal Antimonopoly Service, which believes the protection period should be 6 years, “so that it’s not extended by a single day,” said FAS’ Timofey Nizhegorodtsev. 
  • National Drug Insurance System – discussions around the introduction of a national drug insurance system, the idea of which was first announced in 2009 by then Prime Minister Vladimir Putin. Many experts agree with Elena Telnova, a lead researcher at Russia’s National Research Institute of Public Health, who claims that right now “political will and […] considerable preparatory work to determine the level of financing” is of great importance. 
  • Localization Preferences – setting clear criteria for localizing the production of medicines, as well setting and approving preferences for companies that begin production of their medicines in Russia. This topic was not discussed in St Petersburg as broadly as before, but many, particularly foreign investors, understand its vital importance. We believe the industry should be able to reach an understanding with the RF Ministry of Industry and Trade so that the Russian Government can approve the criteria by year’s end. 
  • Manufacturing and R&D Localization – new projects to localize foreign pharmaceutical companies’ research & development and production projects in Russia. We should also include the likelihood of Russian companies’ plans to enter the European and international markets. 
The last point is worthy of further attention given the announcements during the past two weeks of a number of important deals and agreements.
First, Russian pharmaceutical company R-Pharm agreed to buy Pfizer’s plant in Germany. Experts value the deal, which is expected to close in fall 2014, at 100-150 million euros.
Secondly, Abbott announced the acquisition of Russia’s Veropharm for up to $495 million. We suspect this might be a new M&A record for the Russian pharma market involving a foreign investor.
And finally, on June 25, Russia’s R-Pharm and Eli Lilly announced an agreement, under which the former will begin producing the full range of Humulin insulin products at its Russian partner’s plant in Kostroma.
Interestingly, all the international companies named above are headquartered in the United States. Until recently many experts claimed US and European sanctions against Russia’s involvement in the situation in Ukraine would effectively spell the end of any major investment projects. It seems that Johnson & Johnson’s Naira Adamian, who is the managing director for its pharmaceutical division, was on the mark when she said: “I think every company’s position, including those from the US, is: we have been, are and will be [on the Russian market] for decades to come.”
PBN Hill+Knowlton Strategies’ Healthcare Practice remains committed to its clients and partners, helping them better understand the realities of the Russian market and working with them to resolve business challenges. At this year’s Adam Smith Russian Pharmaceutical Forum we certainly left with the impression that Russia is on the way to further advancements and modernization in the pharma sector.

Related contacts :

Alexey Brevnov
Vice President, Government & Public Affairs and Head of Healthcare Practice

phone: +7 495 775 0077
email: alexey.brevnov@hkstrategies.com