Collaborations between foreign and domestic pharma companies in Russia mark the start of a trend

Print 05 February 2014
Kavita Rainova, IHS Global Insight Daily Analysis

Over the past few months, there has been a steady inflow of news about collaboration between foreign pharma companies and Russian firms, along with news about foreign companies basing production processes in Russia. Collaborations were also a major topic at the conference I recently attended in Moscow entitled – Innovative Drug Research and Development in Russia.

The collaborations reflect both multinationals’ interest in continuing to tap into Russia’s market as well as the Russian government’s interest in attracting foreign investment into the industry. For instance, the Pharma 2020, a large-scale state programme specifically aimed at building up the pharmaceutical industry in the country, has stipulated the creation of pharmaceutical clusters. These pharmaceutical clusters, such as the St. Petersburg cluster and the Kaluga cluster have attracted investments from a range of multi-nationals, all looking to localize, if not the full cycle then at least part of the production process in Russia.

The latter is hardly surprising considering that foreign companies are incentivized to base more of their production in Russia. For instance, a proposal by the Ministry of Industry and Trade suggests that foreign products are to be barred from state auctions in the event when two or more Russian or Belarusian produced alternatives are available. Given that the state contracts present a lucrative opportunity for drug manufacturers, being able to compete for these tenders is crucial.

Related to this is the proposed new definition of a “domestic” product. According to this definition, performing the secondary packaging of a drug in Russia would be sufficient to qualify a product as ‘domestically-produced’ only until the end of 2014. The other criteria that would apply are production of the substance and production of the dosage form.

With this in mind, the interest of foreign manufacturers in localizing more of their production processes, or entering into collaborations with domestic firms for this purpose becomes clearer. However, the transfer of technology requires a significant investment on the part of foreign multinationals, with one of the speakers at the conference suggesting that the government needs to be providing incentives for foreign companies to do so, in particular considering the move of the pharma industry from blockbuster drugs towards personalised medicine where the sales volume is lower. Despite the need for more incentives, the investments made by multinationals in Russian industry have not been insignificant- AstraZeneca is building a factory in Kaluga with investments worth USD 150 million, and Novartis is building a production facility in St. Petersburg with investments of USD 140 million, to name just a few.

Research and innovation collaborations
Supporting and increasing innovation in the industry is one of primary goals of the Russian government through its Parma 2020 programme and BIO 2020 programme. In view of this, funds such as Rosnano and Skolkovo foundation have been active in investing in research. In addition, Russian firms have also entered some development agreements with foreign pharmaceutical and biotech companies.

Nonetheless, it seems that many of the collaborations between foreign and Russian firms at present are geared towards manufacturing rather than research. It remains to be seen, in particular given the government’s interest in boosting innovation, whether more research collaborations will be entered into by domestic manufacturers with international biotechs. In the meantime, what seems to be a growing area of interest is research collaborations between pharmaceutical companies and academic institutions.

However, while the interest in the Russian pharmaceutical market does not show signs of waning, to spur the interest in research collaborations, be it between pharma companies or public-private partnerships, there is a need to establish the necessary infrastructure as well as invest in human capital.

Separately, although there has been support from the Russian government for domestic manufacturers, mainly in the form of financial support, it is yet to be seen whether incentives for foreign manufacturers will be considered. In the meantime, for foreign companies relocating production to Russia and collaboration with domestic firms remain an important mechanism for strengthening their position in Russia’s RUB 921 billion (27.86 billion) pharmaceutical market.

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