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Russian Revolution

Once a world superpower, Russia and its pharmaceutical industry now find themselves in a peculiar situation, emerging from the ashes of a state-controlled model. But aggressive new government initiatives, a large population and signifi cant health issues among the wider patient base are luring Big Pharma into what is potentially a billion-dollar industry

We’ve become accustomed to seeing Russia packaged with Brazil, India and China as part of a top tier of developing markets across the globe. These economies are all undergoing some level of industrial revolution. Indeed, China and Russia share similarities, particularly their recent economic awakening from relatively introverted forms of government. Russia itself though, having emerged from the Soviet Union just over two decades ago, can still be viewed as trying to find its feet. Its accession to the World Trade Organization (WTO) in mid-2012 feels like a long overdue development for the world’s 10th largest economy, reflecting the difficulty that the nation has faced in weaning itself off a state-controlled model and onto a more global outlook. However, in contrast to China’s approach when joining the WTO in 2001 – which was based around enabling export-led growth – Russia’s £155 billion trade surplus as a result of its extensive fossil fuel reserves has led to a more import-driven mindset. Breaking down leftover trade barriers from the Soviet era should stimulate growth through increased competition in consumer markets, resulting in higher spending power among the general population. At least, that’s the plan.

However, while China is able to draw on its low wage structure and strong manufacturing tradition to encourage foreign companies to set
up operations, Russia’s lack of these elements is a considerable barrier to foreign investment. Furthermore, an imbalanced tariff structure on foreign companies looking to trade, poor infrastructure and over-reliance on volatile commodities have contributed to its continuing reputation as a tricky place to do business. Indeed, at the end of 2012 it sat at 122nd on the World Bank’s list of economies ranked
by ease of doing business, 21 places behind China and below several former Soviet states (1). It has also received some fairly negative press over the last year, including suspicions of rigged elections and political instability (2). The country’s population should place
it as the clear leader in the Central and Eastern Europe region, but the country has long felt collared by these economic and political issues, many of which are of its own making.

Russian Pharma’s Potential

Nevertheless, the Russian economy has experienced growth, with gross domestic product currently higher than before the global financial crisis of 2008, and estimates of a three per cent annual boost from WTO membership  have been suggested going forward (3). There is also the greater potential for transparency that this will bring, including stronger intellectual property (IP) protection and more accountability on the part of manufacturers, which should galvanise their standing in both domestic and export markets.

The pharmaceutical market in Russia continues to reflect these trends. The market has experienced about 17 per cent annual growth since 2005, but there are suggestions that this growth will have stagnated by 2015, with the analyst Business Monitor International currently projecting an 8.63 per cent compound annual growth rate (CAGR US$) for the 2011-2016 period (4). Even so, the Russian population provides clear business potential, with extensive market opportunities in preventable diseases. Fatalities from cardiovascular conditions account for approximately 57 per cent of all deaths. The country also has an estimated 570,000 cases of tuberculosis, ranking 12th worldwide, with similar numbers for HIV infection. Another significant scourge on the populace is the high rate of alcohol and tobacco use. It is estimated that alcohol abuse contributes to 570 deaths annually, according to Russia’s Ministry of Health and Social Development, which also reports that more than 40 per cent of Russia’s 142 million people are smokers, leading to 330,000 to 400,000 deaths annually from tobacco-related diseases.

So despite a relative slowdown, there is significant cause for progress with regard to foreign Big Pharma investment. The expected growth curve has also been supported by Prime Minister Vladimir Putin’s Pharma 2020 initiative. Recognising the lack of selling knowledge in the industry, a hangover from the state-controlled systems of old, he announced a $3.9 billion manifesto in 2010 that aims for 90 per cent of medicines to be produced locally by 2020. In effect, the country is throwing open its doors to companies from the US, Europe and East Asia to come and do business, and subsequently to bring the knowledge and investment that the industry requires to move in line with the western nations.

Manufacturers Lead the Way

International manufacturing companies are responding. In September 2012, Takeda announced the completion of the construction phase of a pharmaceutical manufacturing facility in Yaroslavl, 280km from Moscow. Costing around €75 million, the 24,000m2 production plant is expected to be fully operational by 2014, supplying tablet and sterile liquid products. According to President and CEO Yasuchika Hasegawa: “Strategic investment into key emerging markets such as Russia is a major part of [our] strategy...The Yaroslavl facility will enable us to provide locally produced pharmaceutical products to patients and clinicians” – a statement closely aligned with Pharma 2020’s targets. Equally, the construction of a new $150 million manufacturing facility in the Kaluga region by AstraZeneca, due to open in spring 2013, has been presented with the initiative in mind, with David Brennan, AstraZeneca’s Chief Executive, stating: “Russia is a dynamic economy where our growing investments will help us to offer [a] portfolio of innovative medicines.” Russian drug producer Akrikhin has signed a manufacturing and packaging agreement with MSD to produce six key MSD products for the Russian market, covering different dosages and formulations. Other examples of Big Pharma activity include Sanofi-aventis’ 2011 agreement to invest in Russian pharmaceutical manufacturing and R&D off the back of its polio vaccine operation; and Roche’s out-licensing of several HIV R&D assets to Viriom, a Russian pharmaceutical start-up, from which it will draw royalties on future sales of the drugs.

A locally focused response is also under way in the primary packaging sector from players such as SCHOTT AG, which in November laid out plans to increase the production capacities at its plant in Zavolzhe by more than 50 per cent, off the back of growth in the Russian market. Dr Jürgen Sackhoff, responsible for the Pharmaceutical Systems division of the company, has pointed to “demand for locally manufactured primary packaging that also meets all of the international standards for quality. This will result in shorter delivery routes and better export opportunities for our customers. In other words, by pursuing a consistent investment strategy, we will be helping our customers in the Russian pharmaceutical industry to achieve their own growth and quality objectives.” Unsurprisingly, Pharma 2020 has not been simply about offering large multinationals a carrot. The initiative has also come with a warning from Putin: “We will have restrictions for them [foreign pharmaceutical firms] on our market if there are no imports of manufacturing facilities and technologies.” Whether by push
or shove, the message is clearly getting through to those who have decided Russia is the place for pharmaceutical growth.

Obstacles to Growth

The flurry of activity is certainly positive in terms of bringing big players into the fold and providing a framework on which a strong R&D
and manufacturing industry can be built. However, there are several problems still to be solved in order to maintain the levels of interest. For one, Russia does not have a strong university system that can inject the industry with personnel of the quality required, and the effects are being felt. As highlighted by the Association of Russian Pharmaceutical Manufacturers General Director, Victor Dmitriev: “The
greatest shortage of workers today is in research, production, and in quality control areas. Russia will need about 3,500 highly skilled professionals trained at a high level, to work in pharmaceutical production” (5). Another area of concern is corruption – the country ranks particularly high on international indexes, and has a reputation to match. As a result there is a level of fear among foreign companies that patents and IP will not be secured effectively, and may simply be stolen. Recent cases, including Pfizer’s $60 million fine for systemic
corruption over a decade until 2006, have certainly poured fuel on the fire, and the Russian authorities’ apparent apathy has not helped (6).

A further hurdle lies in the current Russian law ‘on the circulation of medicines’. Supposedly created with growth in mind, the legislation
dictates that, among other requirements, medicines must undergo local trials before they can be sold in Russia, even if they have already undergone trials or been approved in a different country or jurisdiction. This immediately adds to the cost of establishing a product in the country, and can delay access to the market significantly for a western company. Ethical concerns have also been raised – statistics show that Russians are genetically very similar to Caucasian European and American populations, so the requirement for subjects to undergo trials that are not expected to generate further knowledge is questionable. The underdeveloped trials industry and lack of qualified clinical investigators can also be seen as an obstacle (7).

A boost may be on the horizon, however. The population is due to have greater access to healthcare as a result of the new, comprehensive Medicines Insurance System, announced in August 2012 by Russian Health Minister Veronika Skvortsova (8). At the time of writing, the full implementation of the system is still to be announced, but it should be employed throughout the country by 2020. Details will include a tiered rate of reimbursement, depending on the nature of the illness and patients’ desire to be treated, with the state covering on average around 50 per cent of the costs of medicines. These are encouraging signs for both the industry and patients, widening access to medicine and encouraging a population to engage with its health more readily.


Over the last few years it has become increasingly clear that Russia is looking at the other BRIC countries (Brazil, Russia, India and China), and China in particular, with a view to enhancing its own growth. It may not be able to achieve this using quite the same economic drivers, but it can boast analogous qualities, such as relatively well-developed systematic government, a nascent but improving national infrastructure, and a large population. This latter element is the key to unlocking the pharma industry’s true potential, and the government strategies currently being employed are gradually providing the impetus needed for the multinationals to move in. Whether growth charts ultimately point up or down will depend on the ability of the Russian pharma industry, along with its associated regulatory
landscape, to overcome patent concerns and an endemic lack of commercial and technical skill, as well as the global downturn as a whole.


1. World Bank Economy Rankings. Visit:
2. Russian Election: Workers ‘Paid to Vote Putin’, Sky News, 2nd March 2012. Visit:
3. BeyondBrics. Visit:
4. Visit:
5. 3rd Student Pharmaceutical Olympics.Visit:
6. Visit:
7. Nature 481: p250, 19th January 2012.Visit:
8. Visit:

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