The Russian pharmaceutical market is considered one of the most dynamic in the world, growing 10-12% on average per year since 2003, and is projected to rise in value from USD 24 billion in 2013 to USD 75 billion by 2020. Much of this growth has been driven by the importation of innovative medicines developed and manufactured by multinational pharmaceutical companies. The local Russian industry has meanwhile focussed on the production of low-margin generics, which account for 70-80% of the entire market by volume. Such an imbalance on importation led the government to establish economic and healthcare principles, which were expected to propel the local industry into a discovery phase and control pharmaceutical expenditure through localisation initiatives. These principles manifested in 2009 through the Ministry of Industry and Trade, who formally created the Strategy of Pharmaceutical Development 2020, also known as Pharma 2020. The USD 4 billion strategy focused on upgrading the domestic pharmaceutical industry, which would increase the availability of domestically manufactured medicines for the Russian population. The Strategy proposed targeted results that Russia would strive to achieve by 2020, namely:
• Increase the share of locally produced medicines up to 50%
• Ensure that 90% of vital and essential medicines are domestically produced
• Increase the share of innovative medicines up to 60%
• Boost exports to $100 million
The Strategy was divided into three principal stages. The first stage, 2000-2012, would be characterised by the construction of new production sites and R&D; the second, 2013-2017, would emphasise home production of national generics and the creation of import substitution market mechanisms; the final stage, 2018-2020, would prioritise increasing the share of pharmaceutical exports and expansion in global markets. Russia also expanded funding for the reimbursement of expensive drugs through the “Seven Nosologies” program, which covered diseases with particularly expensive treatment options. Pharma 2020 set the tone for multinational and domestic pharmaceutical companies alike to undertake a massive expansion in operations on Russian soil.
Russia’s Pharma 2020 has made significant headway since its implementation. There have undeniably been moves by several major multinational pharmaceutical players to penetrate the Russian market. In 2011, Novartis announced a plan to invest USD 500M into the Russian marketplace, including a new plant in St. Petersburg. This was followed in 2012 by Takeda’s USD 96M investment in a new facility in Yaroslavl. Since then, Bayer, GSK, Eli Lilly, Teva, Merck, and AstraZeneca have also invested significantly and forged partnership deals with various local entities. As a result, the pharmaceutical industry is currently outpacing other sectors of the economy: in 2013, growth in production exceeded 10%. The country is closer to meeting its goal to increase the volume of domestically produced vital and essential medicines to 90% by 2020, as indicated by the value now being at 65%, which already surpasses previous development estimates. Since the Pharma 2020 program was implemented by the Ministry of Industry and Trade, the volume of domestic production of medicines has increased by 84%.
In early September 2014, in light of Russia’s geopolitical situation concerning Ukraine and rising tensions with the West, Russian Prime Minister Dmitry Medvedev promised that the current Russian embargo on certain Western products would not be extended to foreign drugs that do not have locally manufactured analogues in Russia. He was specifically referring to a draft document recently published by the Ministry of Industry and Trade, which proposed that in cases where the same product is produced by at least two manufacturers from the Eurasian Customs Union (an EU-type economic alliance formed in 2010 consisting of Russia, Belarus, and Kazakhstan), foreign products would be banned from partaking in any relevant tenders. This move by the Kremlin was hardly surprising, given that Russia’s strategy since Pharma 2020 has been to make it more challenging for manufacturers without a local presence to compete successfully in the Russian market. Furthermore, in early 2013, Russia further encouraged foreign manufacturers that established plants in Russia by granting in return the same preferential treatment that Russian firms receive in terms of pricing. Suppliers whose products are of Russian or Belarussian origin are awarded an additional 15% of the contract price during government procurement auctioning, while suppliers with non-Russian or Belarussian products are paid 15% less. Although the realities of these pricing advantages are sporadic, the intention of the legislation is clear.
If import substitution is in fact one of Russia’s priorities, it is important to assess where Russia currently stands. Approximately 80% of all prescription drugs sold in Russia are imported. Russia’s existing domestic pharmaceutical manufacturers are primarily engaged in the production of “semi-finished” drugs, as it is less costly to import chemical substances than ready-made medicines. Furthermore, only 5-10% of Russian domestic pharmaceutical manufacturers satisfy international good manufacturing practices, which can be especially challenging for prescription medicines. Lastly, Russia’s domestically manufactured medicines are mainly characterised as immunomodulators, antioxidants, vitamins, and probiotics, and cannot replace imported Western medicines that treat severe illnesses, such as various cardiovascular diseases and cancers.
The future of Russia’s pharmaceutical industry may not be as straightforward as Pharma 2020 makes it out to be, partly due to Western sanctions in response to events in Ukraine. In the first half of 2014, capital flight totaled nearly $70 billion and is projected to reach $160 billion by the end of the year. Russia’s ruble has declined in value more than 10%, and Russia rapidly has become less desirable in the eyes of foreign investors. It has also been argued that Pharma 2020 was driven by national security motives in lieu of economic ones, and that Russia had been planning to extend its isolationist policy to the pharmaceutical industry long before tensions arose with the West.
In the end, the ever-evolving pharmaceutical industry, coupled with Russia’s geopolitical future, will directly dictate the course of Pharma 2020. Russia’s desire to become more independent of the international pharmaceutical community must be juggled carefully with continuing to attract multinationals to partner with Russian firms or establish R&D sites on Russian soil. Likewise, such multinational corporations will only succeed if they fully comprehend local market and political dynamics.