Gauging the Potential of Russia's Pharmaceutical Market

By Patricia Van Arnum - DCAT Editorial Director

May 28, 2014

The BRIC (Brazil, Russia, India, and China) countries are important engines of growth for the global pharmaceutical industry, but how does manufacturing activity align with that growth? A look into Russia's pharmaceutical market and the positioning of the pharmaceutical majors and leading domestic players in the country.

Pharma 2020 is the Russian's government plan to increase domestic pharmaceutical manufacturing in the country and to reduce the country's reliance on pharmaceutical imports. To date, several large pharmaceutical companies, notably Novartis, Sanofi, and AstraZeneca, are investing in the country with greenfield manufacturing projects. A look into Russia's pharmaceutical market and positioning of the pharmaceutical majors and leading domestic players in the country.

Evaluating market potential
As with the other BRIC (Brazil, Russia, India, and China) countries, Russia's pharmaceutical market offers strong growth potential. In 2012, the market was valued at $17.1 billion and grew at a compound annual growth rate (CAGR) of 17.7% between 2008 and 2012 (1). The market is expected to grow at a CAGR of between 8% and 11% for the period of 2013 to 2017 and reach between $23 billion and $33 billion by 2017 (1). Although Russia shares strong growth prospectswith the other BRIC countries, its manufacturing base is not as developed as fellow BRIC countries, such as India and China, which have a domestic manufacturing base. In contrast, Russia is largely dependent on pharmaceutical imports. The country is seeking to change that through Pharma 2020, a state-initiated plan that seeks to boost domestic production of pharmaceuticals to 50% by 2020, upgrade domestic pharmaceutical manufacturing operations to GMP standards, and increase the level of innovator pharmaceuticals in the Russian market.

Earlier this month, Russia's Prime Minister Dmitry Medvedev spoke at a meeting of the Presidium of the Council for Economic  Modernization and Innovative Development in St. Petersburg to outline the progress and goals of the country's plan to modernize its pharmaceutical industry and increase domestic pharmaceutical production. "Developing the domestic production of medicines and medical devices is more than just an economic goal," he said. "It's a social project as well. However, it should be approached as a combined project. It has to be a business and an important public undertaking" (2). Currently, approximately 27% of pharmaceuticals in the Russian market are domestic products. By 2018, the Russian government has set a goal that 90% of strategically important medicines, defined according to two lists identified by the Russian government through an Executive Order issued in May 2012, be domestic products. In 2013, domestic companies in Russia produced 65% of pharmaceuticals from the lists of strategically important and the most vital medicines (2). "I suggest thinking about additional measures to develop the domestic production of pharmaceuticals and medical equipment, that is, the element base that will make it possible to launch full-cycle projects," said Medvedev.

Medvedev also spoke about the government's role in supporting pharmaceutical R&D. "One of the most important tasks is to support promising areas. The introduction of innovative approaches should rely on our domestic R&D and products," he said (2). He pointed to research efforts in biotechnology, cell and tissue products, and genomic technology and the need for country's development institutes, such as as Rusnano, the Russian Venture Company, the Skolkovo Foundation, and the Foundation to Promote Small Business in Science and Technology, to further develop activity in this area (2).

"The contractual system should be flexible and encouraging. It should motivate foreign producers to localize their research and production projects in this country, including long-term contracts on the supplies of medicines and medical equipment," Medvedev said (2). "Preferences should be differentiated depending on the stage of production on our territory. Understandably, market leaders grant more favorable conditions to local producers and we should use this experience in our own production. When the development of new medicines is funded by the state, it is important to take into account their specificities and provide for additional time for receiving permission for clinical research, if need be" (2).

Medvedev also spoke of the interest for encouraging exports of Russian pharmaceutical products. "We should look attentively at export support," he said. "I'm instructing the Ministry of Economic Development and other agencies to draft proposals on supporting Russian exporters of pharmaceutical and medical products. We should make use of our EXIAR (Export Insurance Agency of Russia) for export support and to inform the states that will import our products about the requirements of national regulation systems" (2).

Pharmaceutical majors in Russia
To take advantage of the growth in Russia's pharmaceutical market, several pharmaceutical majors are investing in greenfield manufacturing projects in Russia. For example, in St. Petersburg, Novartis built a new solid dosage manufacturing facility with capacity of 1.5-billion units per year divided between innovative drugs and generics. It is expected that the first registration batches will be produced by the end of 2015, and commercial production will start in 2017, after the all necessary testing, including stability and registration. The $140-million investment in the new facility is part of an overall $500-million investment into Russian healthcare infrastructure by Novartis, first announced in December 2010, which covers three core areas: local manufacturing, R&D collaborations, and public health development in Russia. The Novartis St. Petersburg facility will be one of the largest manufacturing investment made by a pharmaceutical multinational company in Russia to date. Novartis began construction of the facility in 2012 and will complete construction and equipment installation by early 2015. The facility is in the Novoorlovskaya Special Economic Zone located to the north of the St. Petersburg city center.

AstraZeneca invested $187 million to build a new pharmaceutical manufacturing plant in the Vorsino Industrial Park in Kaluga, Russia. Over $100 million are invested in the second phase of construction, which includes construction of facilities for full-cycle production of medicines. Currently, AstraZeneca is finalizing works to complete the first phase that includes the packing facility, engineering section, and warehouse. First packs will be produced in 2015. AstraZeneca aims to produce up to 25 million packs of medicines per year. The launch of solid dosage forms manufacturing is expected in 2016. Full-cycle productive capacity of the factory will total half a billion tablets per year. AstraZeneca will produce approximately 30 innovative medicines to treat diseases in such therapeutic areas as oncology, cardiology, metabolic and gastrointestinal diseases, and respiratory diseases. This encompasses around 80% of AstraZeneca's portfolio in Russia. More than 170 employees will work at the plant and they will complete the training in accordance with international standards.

AstraZeneca is also involved in sharing its global R&D expertise with the Russian scientific community through research collaborations, support programs, and clinical trials. The company is developing various models of such collaboration with the Russian scientific community. There are projects in which AstraZeneca invests directly because it sees ample opportunities to directly strengthen its R&D pipeline and capabilities through such collaborations. An example is the partnership between AstraZeneca and the N.N. Petrov Institute of Oncology, one of Russia's leading cancer research institutions, which is focused on identifying genetic mutations in cancer patients. There are also projects in which AstraZeneca contributes via its scientific expertise and track record in drug discovery. For example, the company is helping to establish the first biobank in Russia, which will focus on the ethical collection and analysis of biological samples for research purposes. AstraZeneca's role within the biobank project will be to advise, counsel, and transfer knowledge and expertise to help the company's partners in Russia set up an efficient, ethical world-class operation, according to the company. Overall, AstraZeneca aims to create a more effective infrastructure for biomedical research, which will contribute to the further development of Russian R&D and increase the attractiveness of Russia as a center to conduct world-class life science research and the housing of international operations.

Other companies are investing as well. Sanofi has an insulin-pen production facility in Orel, Russia, which is the company's second largest insulin pen production facility after Frankfurt. Sanofi gained the facility with the 2010 acquisition of a controlling interest in Bioton Wostok and later expanded the facility in 2013. Novo Nordisk invested DKK 550 million ($100 million) for a new facility for the filling and formulation of insulin products in Kaluga, Russia. The packaging facility is expected to be operational in 2014, and the filling and formulation facilities are expected to be ready for use in 2016. The production area of the facility is 16,400 square meters.

Takeda Pharmaceutical invested EUR 75 million ($102 million) for a new 24,000-square meter pharmaceutical manufacturing facility in Yaroslavl, Russia. The plant has initial capacity to manufacture 90 million sterile ampuls and more than 2 billion tablets per year. Liquid sterile production includes solution preparation, washing of ampoules, sterilization, filling, inspection, and packaging. Solid production will encompass all stages, from weighing, mixing and granulation through compression, coating, and packaging.The company completed construction in 2012, and the plant is scheduled to be fully operational this year. Teva Pharmaceutical Industries is investing in a new solid dosage manufacturing facility in Yaroslavl, Russia, which is expected to be operational by 2015. The Yaroslavl plant will have the capacity to produce 1 billion tablets per year.

Other multinational companies are positioning in Russia through partnerships. For example, in 2013, the Russian pharmaceutical company Akrikhin and Merck & Co. (known as MSD outside the US) expanded their partnership for product manufacturing, first formed in 2012, to include five additional products: the diabetes drugs Januvia (sitaglipin) and Janumet (sitagliptin and metformin); Singulair (montelukast), a drug to treat bronchial asthma and allergic rhinitis; Noxafil (posaconazole), a drug to prevent fungus infections in patients with weakened immune systems resulting from chemotherapy or stem-cell transplantation; and the anticholesterol drug Ezetrol (ezetimibe). Several product dosages and different pharmaceutical forms (tablets and suspension) are to be manufactured by Akrikhin. In 2012, the companies signed an agreement for the production of six Merck products in various pharmaceutical forms and dosages at Akrikhin's manufacturing site in Russia. The company's manufacturing facility is located outside of Moscow in Staraya Kupavna.

Bayer HealthCare and Russian drug manufacturer Medsintez formed a strategic partnership in 2012 to jointly manufacture and commercialize diagnostic imaging products as well as pharmaceuticals to treat infections and neural disorders. In 2010, GlaxoSmithKline (GSK) and JSC Binnopharm (Binnopharm) formed an alliance to enable the local secondary manufacture of a number of GSK vaccines in Russia. Under this alliance, GSK supplies bulk vaccine and provides technology and expertise to enable Binnopharm to undertake the secondary manufacture, including filling and packaging, of  several GSK vaccines.

Domestic players advance
Domestic pharmaceutical companies in Russia also are expanding organically and through acquisition. In May 2014, OJSC Pharmstandard, one of Russia's largest pharmaceutical company, and Millhouse LLC, the investment company of Russian billionaire Roman Abramovich, announced plans to acquire individual, separate stakes in Biocad Holding Ltd., the main shareholder in the Russian biotechnological company CJSC Biocad, a developer of original biopharmaceuticals and biosimilars. Under the terms of the deal, Pharmstandard will acquire 20% of Biocad Holding, and a Millhouse-affiliated entity will purchase a further 50% stake. Pharmstandard plans to finance the acquisition with its own funds. For the Millhouse-affiliated entity, closure of its deal to purchase a 50% stake in Biocad is subject to approval by the Federal Anti-Monopoly Service. The remaining 30% of Biocad Holdings will be controlled by Dmitri Morozov, CEO and founder of Biocad, who will continue to run the company together with his management team.

Biocad's main production facilities are located in Petrovo-Dalnee outside Moscow. It has a new drug-development and commercial manufacturing facility in the Neudorf Special Economic Zone near St. Petersburg for large-scale commercial production of monoclonal antibodies. Biocad recently received approval from the Ministry of Health of the Russian Federation to market AcellBia (rituximab), the first monoclonal antibody biosimilar registered for approval in Russia, according to the company, which is also is developing biosimilar versions of the monoclonal antibodies trastuzumab and bevacizumab.

Millhouse and Pharmstandard have previously cooperated on the acquisitions of ICN Pharmaceuticals, Inc. and CJSC Masterlek, and on Pharmstandard's initial public offering.

References
1. IMS Institute for Healthcare Informatics, The Global Use of Medicines: Outlook Through 2017 (November 2013).
2. Government of the Russian Federation, "Innovative-Based Expansion of the Pharmaceutical Industries" Transcript at the Meeting of the Presidium of the Council for Economic Modernisation and Innovative Development of Russia (St. Petersburg, Russia, May 16, 2014).