(Jon Han) 

Rebuilding Russian Pharma

The derelict old antibiotics factory on Nagatinsky Boulevard in Moscow symbolizes the rise and fall of the Soviet Union. Once, this sprawling campus served as the nucleus of a domestic pharmaceutical industry that served the world’s largest country and its satellites. Today, it is a grey, rusting shell, occupied only by a few small enterprises, day-care centers and struggling researchers. But there also are signs of a new awakening.

In the basement of one of the disused buildings, Viktor Dmitriev sits under framed photographs of Vladimir Putin and Dmitri Medvedev, the post-Communist commissars of the new Russian mercantile free-for-all. Dmitriev is the general director of the Association of Russian Pharmaceutical Manufacturers, representing an industry that avidly, but cautiously, expects its rebirth.

“When the Soviet system ended,” Dmitriev says, “all of our medicines were being provided by the socialist camp, and a few came from India. Once the U.S.S.R. fell apart, the pharma industry here was not prepared.”

For one thing, Russian pharmaceutical companies knew nothing about selling products, which was not part of the Soviet system. However, the industry is learning.

No one knows the therapeutic power of a dollar sign better than Prime Minister Putin. In 2010, he announced a $3.9 billion manifesto to resurrect the Russian pharmaceutical sector, and unveiled “Pharma 2020,” a plan that calls for 90 percent of medicines to be locally produced by 2020.

Pharma is paying attention. European giants that include Nycomed and Stada have bought into existing Russian producers or funded the construction of joint-venture factories. Leading the charge is Novartis and the half-billion-dollar pledge it made last December to build a manufacturing plant in St. Petersburg.

Novartis Leads the Way

A few kilometers from Nagatinsky Boulevard, beyond the serpentine bends of the Moscow River in the heart of Europe’s largest city, the 21st century rises in towers of audacity and steel. The Moscow International Business Center makes the city’s famous Stalinist wedding-cake skyline seem like mere stalagmites. With Europe’s tallest building as its centerpiece, the complex reverses the Kremlin’s historic role as citadel and fortress, proclaiming the new Russia’s eagerness to engage with its neighbors, rather than defend against them.

Interviewed in Tower One of this center, Tatyana Loginova—head of strategy and business coordination for Novartis Group Russia at the Moscow headquarters of parent company ZAO Sandoz—says, “The magnitude of the plant that we’re planning to build is going to be one of the largest in Russia, but for us the whole idea is not to be the biggest. Our uniqueness is that we are doing our investment project in Russia in a very comprehensive manner.” That investment will include R&D and support to regional health systems.

Asked why Novartis chose to move into Russia now, Loginova says, “The Russian market is growing rapidly. We’re business people. We are interested in such a market.” She adds that the Russian government’s interest in healthcare also makes the country more inviting.

Despite the government changes, as in many emerging markets, trust remains an issue. Loginova, however, says that Novartis does trust the Russian government. “Their intellectual property and patent laws are very good laws,” she says.

But not everyone in Russia expresses optimism over Novartis’s promises. At a repurposed shoe factory on Moscow’s wind-scoured southern rim, industry analyst David Melik-Gusseynov of Cegedim Strategic Data says, “So far, it’s only a declaration that Novartis has made.” And one reason for suspicion, he explains, is that “the current tendency around the world is optimization, which implies closing factories, not opening them. To me, Russia doesn’t stand out as a country that would not follow this global tendency.”

Required Renovations

At a partially refurbished Soviet office complex a block off Lenin Boulevard, geneticist Valeriy Danilenko shows off a modern laboratory where he and his colleagues search for compounds that might attack antibiotic-resistant tuberculosis, a scourge of Russia’s streets. Danilenko is the scientific secretary of the Council for Coordination in Medical Equipment, Technology and Pharmaceutics of the Russian Academy of Sciences.

“A huge country must produce drugs on its own, just for unpredictable situations, like September 11th,” Danilenko says. “Twenty years ago, we were manufacturing our own strains of antibiotics. We were in second place after the USA, and fulfilling the needs of many countries in Asia, Africa and Eastern Europe.” He adds, “Now, we have six former large factories and 15 smaller ones that don’t produce anything anymore.”

Other experts share his concerns about this lack of production. “If the situation stays the same, in 10 years Russia will only manufacture generics and none of its own products,” warns analyst Ivan Danilov, founder of Moscow’s GlobalMedia communications firm and managing editor at Pharmexpert.ru. “Russian pharma is incapable of going through the entire process from discovery to clinical trials and manufacturing. Only 10 percent of Russian factories meet GMP [good manufacturing practice], and these are the factories that produce only the most primitive products: very old medicines, bandages and vitamins.” Danilov concludes, “There is a near-complete lack of Russian innovative products.”

Despite the need for innovation, Danilov sees several obstacles for Pharma 2020. For one thing, Russia lacks qualified personnel. “We have 48 colleges of pharmacy, but only two of them could possibly produce people ready for modern standards,” he says.

Another problem in Russia is corruption. “Nobody talks out loud about it, but everybody knows it’s there,” Danilov says. When the government asked Vladimir Shipkov—the first Russian executive director of the Association of Foreign Pharmaceutical Manufacturers—if pharmaceutical companies haven’t built manufacturing plants in Russia because they are afraid their patents will be stolen, he responded, “Yes, without a doubt.”

Back on Nagatinsky Boulevard, Dmitriev lays out a three-part timetable in line with the Putin government’s manifesto. “First will be the generic replacement of imported goods,” he says. “Second, the localization of manufacturing by foreign companies. And third, bringing in innovative technologies and R&D to Russian territory.”