BMI View : Proposals submitted by the ARPM to the Russian state will reward local drugmakers and offer those with local manufacturing capacity better contract terms in supplying the Russian state. Issues around the quality and efficacy of Russian made drugs may lead to further appeals by patient groups to overturn these decisions, especially if patient safety is compromised. We view protectionist measures as being negative for the development of the industry in Russia and combined with an incoherent policy towards foreign drugmakers, potentially damaging to foreign investment in Russia's pharmaceutical sector.
The Association of Russian Pharmaceutical Producers (ARPM) has submitted a proposal to the Russian government on introducing a system of preferences for Russian pharmaceutical companies that threatens to introduce significant barriers to foreign drugmakers hoping to enter contracts to supply medicines to the Russian state. As part of the Pharma 2020 programme, the Russian government intends to reduce the country's dependence on imported medicines and boost the market share of local companies.
The ARPM's proposals offer tiered preferences for medicines, depending on the level of manufacturing carried out in Russia. Drugmakers that package imported drugs in Russia will be paid 15% above the listed contract price from the government than non-local importers. Drugmakers that import active pharmaceutical ingredients and formulate them in Russia will receive 30% higher than listed contract prices and those who perform the full spectrum of drug manufacturing will receive a 40% bonus on top of listed prices. The ARPM also proposed that Russian drugmakers supplying medicines produced locally should be offered 3 year contracts by the Russian state, as opposed to the current annual tendering process. Other proposals include offering an accelerated review process for approving Russian made drugs into the Registry of Medicines and the Vital and Essential Drugs (VED) List.
The ARPM has also suggested that Russian producers should be offered tax breaks, customs exemptions and reimbursement for VAT and custom duties. While these proposals have been submitted and not made into active legislation yet, an upcoming meeting between ARPM representatives and state officials in September may see further announcements on policy guidance, and potentially result in an Order being signed off by the Russian state.
Protectionist proposals do raise major concerns amongst patient groups in Russia who are concerned as to the extent that local manufacturers can manufacture and supply high quality medicines in large volumes. Patient groups have already reacted negatively to earlier proposals that would prevent importers or foreign drugmakers from entering state contracts if two2 or more Russian companies manufactured the same medicine. They have highlighted the inconsistent quality and availability of Russian medicines compared to imported counterparts. According to official data, only 10% of Russian drugmakers are Good Manufacturing Practice (GMP) compliant, despite a law being passed that required all drugmakers to be compliant by January 1 st 2014. As a result, patient groups and medical professionals have insisted that the priority of the state should be patient care and not protecting the domestic industry, at least until Russian drugs achieve a level of quality and efficacy comparable to imported counterparts.
We expect that patented drugs will not be impacted by these proposals; generic drugmakers, however, will definitely be at a comparative disadvantage, especially if they do not have local manufacturing capacity. While there has been a flurry of drugmakers breaking ground on greenfield sites in Russia, the Russian state's incoherent and ambivalent policy towards attracting foreign drugmakers and protecting its local industry will hamper future investment in the country.
|Long Term Prospects Still Attractive|
|Pharmaceutical Sales, 2008-2022f|
Nevertheless, Russia's pharmaceutical market will continue to be one of the most attractive in the Emerging Europe region, primarily due to its sheer market size, growing economy and increasing government investment in healthcare. We expect Russian pharmaceutical sales to grow by 11% in rouble terms and 9.3 % in US dollar terms to RUB765bn (US$24.29bn) in 2013. Over the long term, we forecast a ten year compound-annual growth rate of 8.6% in US dollar terms and 8.1% in rouble terms to a value of RUB1.51tn (US$50.5bn). Key growth drivers include the planned introduction of national drug insurance, an ageing population and rising incomes.