pharmaceuticals russia report 2011

RussiaPharma reportNovember 2011

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Special SponSoRed Section

Russia Report

noVeMBeR 2011 FOCUS REPORTS S2

This sponsored supplement was produced by Focus Reports.

Project Publisher: Ines Nandin.Project Director: Elyse Deutscher.Editorial Coordinator: Andrey Muntyan. Contributor: Fleur Richard.

For exclusive interviews and more info, plus log onto or write to [email protected]

RUSSIA:More spotlights on pharmaceutical markets worldwide at

Artwork by Vladimir Chaika provided by Boehringer Ingelheim.

Build and Create – The Reinvention of a Screwdriver Assembly Industry

Gennady Shirshov, executive director of the Society of Professional Pharmaceutical Organizations (SPFO), was recently a guest on a national television program. “You might know,” he starts, “that many such pro-

grams are strictly controlled by the government.”Shirshov continues: “All of a sudden, in the middle of the

session—and it was live!—they started asking these ugly questions about integrity; about why a government offi cial would promote a specifi c drug, and things of that nature. I could not believe it. And the fact that it was being spoken about, live, on a government-controlled program, is a great sign of where we are heading.”

3Nov 2011

Changing Diabetes in Russia

Changing Diabetes® is a commitment to answer the needs of people with diabetes in every decision and action. This means delivering targeted treatments based on deep understanding of individual needs, and doing so with financial, social and environmental responsibility. Establishing the most up-to-date GMP production, both in terms of the state-of-the-art technologies used and the final product, as well as energy efficiency is part of our Changing Diabetes® strategy in Russia. It will ensure that Russian patients have access to most advanced treatment. This is our commitment to the patients and society in general.

By leading through collaboration with individuals, organisations and governments to drive prevention and provide holistic support, we will break the curve of the diabetes pandemic and empower people to live fuller, healthier lives until a cure is found.

To learn more please visit novonordisk.com or novonordisk.ru.

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Changing Diabetes in Russia

Changing Diabetes® is a commitment to answer the needs of people with diabetes in every decision and action. This means delivering targeted treatments based on deep understanding of individual needs, and doing so with financial, social and environmental responsibility. Establishing the most up-to-date GMP production, both in terms of the state-of-the-art technologies used and the final product, as well as energy efficiency is part of our Changing Diabetes® strategy in Russia. It will ensure that Russian patients have access to most advanced treatment. This is our commitment to the patients and society in general.

By leading through collaboration with individuals, organisations and governments to drive prevention and provide holistic support, we will break the curve of the diabetes pandemic and empower people to live fuller, healthier lives until a cure is found.

To learn more please visit novonordisk.com or novonordisk.ru.

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Russia Report


Russia is a country of insistent vicissitudes—in fi ts and starts, through monetary crises, oil surpluses, shifts in geopo-litical trade policies, corruption scandals, seasons of animated economic development, and over and again. When asked how much has changed since 2007—when Focus Reports produced its fi rst overview of the Russian pharmaceutical market—man-agers, coy, simper widely. Where, really, to begin?

For investors, the central indicator should perhaps be atti-tudinal. The general manager of Pierre Fabre in Russia, Pavel Chistyakov, offers simple words: “Do not be afraid of the Rus-sian market.” It is an invitation, a reassurance, a solicitation, and—even this—a warning. No aspirational multinational, nor hitherto self-effacing domestic player, can afford to be bearish about Russia. Not anymore.

And is there anyone now afraid of the Russian market? In-ternational industries are veritably jostling for position here. Russians themselves are upending their image problem; the country is “on the verge of breaking away from its past and entering the global economy with full sail,” maintains the presi-dent of the American Chamber of Commerce in Russia, An-drew Somers.

There are caveats; Somers goes on: “Russia is the largest market not yet in the WTO, which can intensify certain trends towards ‘over-nationalism’ and isolation. And moving forward, the country needs to diversify its economy and one of the pri-orities needs to be the pharmaceutical and healthcare sector.”

Pharmaceuticals and healthcare, indeed, are starting to en-joy the very highest of priority. Both President Medvedev and Prime Minister Putin are regularly seen, across all forums and media, speaking with impassioned gravel about improving the state of the healthcare system, and boosting the productivity of the domestic pharmaceutical industry.

As Frank Schauff, CEO of the Association of European Businesses (AEB), notes, there is no other choice. “This industry is a political priority here, and rightly so. When you consider the demographic situation in Russia, the statistics with regard to healthcare, and the pharmaceutical environment, the cir-

cumstances are quite disconcerting. In a country where life expectancy is very low in comparison to European neighbors, and where we are still battling communi-cable disease on a wide scale, things have to be done.”

According to the Russian Federal State Statistics Service (Rosstat), the population of 141.9 million has been in decline since 1994 (apart from a rather negligible increase last year), and early mortality rates, especially for males, are troubling at the least: average male life expectancy is 62.8 years. Not to speak of Russia’s famous lifestyle problems, such demographic blight is in large part attrib-utable to treatable disease. Milos Petro-vic, managing director of Roche in Rus-sia, estimates that an astounding 80% to 90% of Russian patients, especially those with severe therapeutic needs, do not receive adequate treatment.

Andrew Somers, AmCham President & CEO

Gennady Shirshov, SPFO Executive Director

Russia’s Pharmaceutical Market Indicators

Total market value: $14.86 billion in 2010 (IMS), with a growth rate of 11.3% over 2009 in value terms

Growth forecast: 15-21% in value terms in 2011 (Pharmexpert)

Generics-based: Averaged across all sectors, generics account for about 75% of the market by volume, and about 33% by value (Pharmexpert, 2009)

retail-driven: Out-pocket-sales account for 70.1% of the market (IMS, 2010). 50% of these sales are attributable to OTC. IMS splits the market into Retail, DLO, and Hospital segments. Retail also had the strongest growth over 2009, at 14.4%.

import-dependent: ~75% of drugs were imported in 2010 (Pharmexpert)

Total market value: $14.86 billion in 2010 (IMS), with a growth

www. c e l g ene . com

Committed to improving the lives

of patients worldwide

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5Nov 2011

Russia ReportSpecial SponSoRed Section

S5 FOCUS REPORTS noVeMBeR 2011

GSK Russia’s area director Michael Crowe provides an illustration. “We es-timate today,” he says, “that out of 1.5 million registered asthma sufferers, only approximately 300,000 receive a mod-ern combination product.” In chronic obstructive pulmonary disease (COPD), there are “anything from 2.5 to 10 mil-lion sufferers, but less than 100,000 pa-tients receiving an optimal treatment.” Patient inaccessibility to effective medi-cines, most acute outside of the nation’s major cosmopolitan centers, is fast eat-ing away at the Russian citizenry.

One of the greatest causes is lack of public funding: as a proportion of GDP, the World Bank estimates that state ex-penditure on healthcare approaches 4%, relative to 7% to 10% in many Western economies. Most people still pay for medicine out of pocket and, by calcula-tion of pharmaceutical research group IMS Health, drugs sold through retail

constitute 70.1% of sales. Furthermore, ‘prevention,’ a notion well worn in the West, is only now coming to popularity in Russia.

Therein lies the woe; therein lies the good. Nycomed Russia’s president Jos-tein Davidsen points out, “There is a long way to go. But by looking at all of this, you can see that as a healthcare company, these are all upsides. These are

all growth opportunities.” It’s rather a matter of making lemonade. Every year, companies can well expect to reach more patients, bring new products to the mar-ket, and broaden participation as state reimbursement becomes better funded. Celgene’s country manager Victor Fer-kovich, to wit: “Russia is one of the best places in the world for the pharmaceuti-cal industry to help patients.”

Failing healthcare is not only a social problem, but an economic problem, as well. So too is an undiversified economy. Finance Minister Alexei Kudrin declared in a 2010 Moscow news conference that oil and gas accounts for 25% of the Fed-eration’s GDP, and that the number must fall to 14% within 10 years. In the phar-maceutical sector, this means giving up a decades-old reliance on imports, which in 2010 approached 75% of drugs sold, according to domestic market research group Pharmexpert. As Viktor Geisler,

Nycomed Russia President Jostein Davidsen presents Russia’s Prime Minister Vladimir Putin Nycomed’s future plant in Russia.

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Russia Report


country division head of Bayer Healthcare in Russia, main-tains, it is perfectly reasonable that Russia should want to con-ceive a true domestic pharmaceutical industry: “You may call it strategic interest, or, more simply, you may say that a de-veloped country with over 140 million inhabitants deserves its own pharma industry.” In response, the authorities are taking sweeping, ambitious action.

Again, again, therein lies the good! Russia’s GDP growth—4% in 2010 (World Bank)—is nothing to sound the trumpets about—at least not today. But its pharmaceutical market, currently valued at 14.8Bn USD, easily outpaces world growth rates. (Globally, IMS Health expects a 5-8% compound annual growth rate through 2014.) This year is looking up: to quantify, Pharmexpert forecasts 15-21% growth in 2011. While some are less optimistic, barring disaster, a minimum growth rate of 11% is all but guaranteed—the charming ‘BRIC’ double digits.

Ivan Blanarik, managing director of Boehringer Ingelheim in Russia, speaks to what the entire industry believes. “I think the one logical headline, for emerging markets, and Russia, is, simply, ‘Growth,’” he says.

Reckitt Benckiser Russia general manager Bruno de Labarre is a bit more blithe: “In a Western European country, you might oscillate between -2% and +2% growth, and perhaps you are a hero if you grow the business by 2.5 percent. What is the fun in that?”

The Main ViolinMarina Veldanova, general manager of Ipsen Russia, describes an unfamiliar scenario. “This is the first time, in the last 20-year history of the Russian pharmaceutical market, that a new player has appeared: government. This is a very big new player! Of course, the government played some role before—regula-tory functions, customs, certification, etc. But now they took the main violin in this orchestra,” she says.

It is widely acknowledged that in the vacuity created by the fall of the Soviet Union, healthcare was ancillary. However, since 2005’s oil-bought budgetary surpluses brought about the introduction of the National Priority Healthcare Project (Rus-sia has long prospered when the barrel has), the authorities

have executed, with dizzying purpose, re-form after reform. First, the development of the drug reimbursement system (DLO) for Russia’s neediest—and, after spectac-ular and public failure, the program’s rei-magining and restructuring. Subsequent-ly, the Vital & Essential Medicines list delineated the strategic medicines of the territory, controlling their market prices.

Then, of course, we come upon to-day’s twin whales-in-the-room: The

Strategy of the Development of the Pharmaceutical Industry in the Russian Federation Until 2020, a cumbersome name précised to Pharma 2020; and the Law on Circulation of Medicines. The former is a striking design to turn a generic market with questionable domestic production standards and little globally marketable innovation, into a player. The latter takes a classically semi-regulated market and brings it under strict supervision.

These are colossal steps, but not all is well in a progressive Russia. For one, change is neither predictable nor incremen-tal. Olessia Akimtseva, senior associate at the Russian affili-ate of CMS Legal, illustrates the legislative quandary: “After the Law on Circulation of Medicines passed, changes were adopted several times, almost monthly. This is a specific situa-tion to Russia; you will not see this in every country.” Akimt-seva continues, “There are few certainties upon which we can totally rely. We have new rules, new methodologies, approved every year. That is life.”

Unequivocally, volatility hinders the operational mecha-nisms of a traditionally long-cycle business. AstraZeneca Rus-sia president Nenand Pavletic explains the industry perspective: “If we as pharmaceutical players want to ensure the quality of

Olessia Akimtseva, CMS Senior Associate

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An oil-driven surplus enables the government to focus on social issues, among them national health. The ‘National Priority Project: Healthcare’ is born, invigorating and modernizing the healthcare system on a number of fronts. Areas like oncology, cardiovascular disease, and noncumminicable disease receive unprecedented government attention.

The DLO, or Additional Medical Supply Program, is introduced. It is a federal reimbursement program meant to compensate Russia’s disadvantaged and gravely ill for the cost of treatment. It is immediately plagued by logistical and fi scal setbacks, approaching bankruptcy. Nonetheless, suddenly, a major avenue for high-tech, innovative drugs is opened in Russia.

The DLO is split into two major programs: the ONLS (essential drug coverage) and the VZN or ‘Seven Nosologies’ (high-cost drug coverage). According to the SPFO, in 2010, these programs received 28 billion RUB ($970 million), and 43 billion RUB ($1.5 billion USD), respectively, in funding. The VZN, in particular, strengthens the demand, and availability, of high-technology drugs in the region.

Introduction of the Vital and Essential Drugs List (VED) regulates the maximum price registration for drugs deemed to be of particular signifi cance to Russian patients. Prices for non-VED drugs continue to be regulated by market laws.

Authorities announce the federal target program ‘Strategy of the Development of the Pharmaceutical Industry in the Russian Fed-eration Until 2020’—colloquially Pharma 2020. With the aim of ultimately creating an innovation-based, export-ready, domestic pharmaceuti-cal industry where there was little semblance of one before, this program is a clear entreaty for the localization of multinational pharma, the modernization of local pharma, and greater collaboration between the two. To be rolled out in stages, its parameters include the evolution of Russian manufacturing, import substitution, and advancement of Russian R&D.

2005

2005

2008

2009

2009

5 YEARSLEGISLATION

IN RUSSIA 5 Years of Legislation in the Russian Pharmaceutical Industry

The sweeping market reform law, ‘On Drug Circulation in the Russian Federation’—Federal Law #61-FZ—is approved. The legislation brings a new level of regulation to a historically semi-regulated market. Among other elements, it introduces new, more transparent registration and approval procedures, attempts to make drugs more available for rural citizens, changes the roles of the regulatory authorities, initiates federal control of VED medicines, and demands that local producers harmonize facilities with international GMP standards by 2014. Along with the positive forward momentum, the industry is faced with a slew of new bureaucratic challenges.

The government introduces a list of 57 strategic medicines to be manufactured domestically by 2015—an ambitious catalog of high-tech medicines, to be sure. It cements the government drive toward reducing reliance on imports.

➨ Russia looks to join the WTO, lessening trade barriers, and guaranteeing new legislation in areas like IP rights.

➨ The prospective law on Healthcare Protection, currently making its rounds in the Duma with the expectation of fast-track, will set the rules of engagement among pharmaceutical companies and healthcare specialists. It looks to put severe limits on how pharmaceutical companies can promote their products, causing both doctors and marketers to fear that there will be signifi cant barriers to educating the healthcare community on the benefi ts of innovative drugs.

➨ The government touts the coming of a universal system of healthcare coverage, for each Russian citizen. When, how, and how big is yet to be seen.

2010

2010

2011 and beyond

our products, the quality of our regula-tory fi lings, the quality of our produc-tion standards in line with GMP, and the quality of our clinical activities, we need to have a predictable environment. In Russia, the environment is not fully predictable, and this makes it quite dif-fi cult for us to ensure the highest qual-ity for our patients. Non-planned and unpredictable changes create signifi cant barriers for our activities.”

Many of these changes, moreover, con-volute the process of selling products on the market, wrapping additional red tape.

Are the authorities taking note? To what degree has government, relatively in-experienced in the pharmaceutical sphere, and suffused in an overpowering heritage of long-defunct Soviet law and consuming bureaucracy, consulted the industry?

Vladimir Shipkov, former head of the pharmaceutical inspectorate of the Rus-sian Ministry of Health and executive director of the Association of Interna-tional Pharmaceutical Manufacturers (AIPM), whose 52 members produce 55% of the medicines sold on this mar-ket in value terms, is displeased. “Unfor-tunately,” he says, “the key specifi city of the Russian pharmaceutical market—in-deed, not only the pharmaceutical mar-ket, but the Russian market at large—is a lack of transparency, and a lack of communication with the business com-munity—especially with the foreign fac-tion of that community.”

Shipkov emphasizes the necessity of an international contribution in build-ing this market. He may be right: the authorities are nigh on starting from

scratch, and this moment is exhilarating, and vulnerable. As Merck KGaA’s Rus-sia managing director Rita Bobro puts it, “When many of our politicians discuss the restoration of our pharma industry, I am quite surprised. I do not believe that we have something to restore. Instead, we need to build.”

The multinational industry appreci-ates the nature of its position. Boehringer Ingelheim’s Blanarik stresses, “Our role is not to question this or that; our role is to understand, to make a contribu-tion.” Indeed, multinationals are self-admittedly guests on the market—yet it was arguably these very companies that brought advanced medicine to the terri-tory as the authorities turned away in the 1990s. Blanarik believes that “together with Russian government, different asso-

8 Nov 2011



Russia Report

ciations working on the market, and our colleagues,” Russia can “shape health-care into something that will be the most suitable solution for the Federation.” There is a chance, in Russia, to combine the best practices from around the world, and create something paradigmatic.

Besides, the matter at hand is not just about sensible industry regulation, but about working to continue to modernize this country’s therapeutic frameworks, which today loiter well behind those of the West. This is a shared goal, public and private. “We can help overcome one of the key barriers in healthcare, which is the scarcity of physicians who know how to utilize new technologies; who know how to provide advanced and novel treat-ment,” says Arman Voskertchyan, man-aging director of Johnson & Johnson in Russia. As the authorities intensify their scrutiny of the industry and their involve-ment in the system, working in concert with business is paramount.

But perhaps not all is so cheerless. Al-though none would wax idealistic about this country, many believe that the trend, nonetheless, is towards increased trans-parency and exchange. To be sure, with profits abounding, why not take a posi-tive outlook? Shipkov notes, “Although at the beginning, the Ministry of Health was one of the most ‘closed’ ministries in the Russian government, it is gradually opening up.” Health Minister Golikova is taking meetings—selectively.

Celgene is op-timistic. “Looking at the drive toward increased regula-tion at the Minis-try of Health—the registration system in Russia became much more trans-parent and pre-dictable as com-pared to previous years. This effort is very much appreci-ated, at least by Celgene. Certainly, there will always be difficulties involved in a transition period, but once this period is over, then things will become more ‘us-er-friendly,’” says Victor Ferkovich. For many managers, a relativist perspective is heartening.

As Ferkovich explains, “Our Ministry of Health and our government has been making much effort, since 2005, to sup-ply patients in need with the products that will help them.”

Ultimately, even if particular gov-ernment decisions prove discomposing, managers would do well to make note of the broader tendencies. Take Pharma 2020’s drive for the localization of the industry. CMS’s Akimtsova says, “Local-ization is a trend that is not going away. In spite of some pieces of legislation that appear rather controversial, overall leg-islative development is still going in a direction that is quite clear. “ She empha-

sizes that “businesses, as well as lawyers, need to be very active, and very reactive.”

“If we understand the trend,” Akimtso-va concludes, “we are well positioned.”

expaTriaTe’s Guide To russian inVesTMenTFour years ago, when Vladimir Shipkov came to head the AIPM, the former Min-ister of Health of the Russian Federation asked him, ‘Why are your member com-panies not building manufacturing facili-ties in Russia?’ Shipkov recalls: “My an-swer was that such a question should not be addressed to the industry—it should be addressed to the government. The Minister and his superiors should them-selves address the question.”

In Pharma 2020, their answer is cat-egorical. With the strategy, authorities are developing a system of preferences, aid projects, investment arms, and importa-tion barriers. Intentions are unambiguous. The initiative falls under the Ministry of Industry and Trade, and Viktor Khris-tenko, minister, said the following in a speech at the ChemRar Innovation Center in Moscow: “The challenge for the fed-eral program is the transition of the Rus-sian pharmaceutical and medical industry to an innovative development model. In other words, we are talking about going from screwdriver assembly to a full-cycle industry that spans from development to production and meets compulsory inte-gration into the global markets.”

Vladimir Shipkov, AIPM Executive Director

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9Nov 2011

12CIS countries

What distinguishes Nycomed as a partner?

Russia-CIS has a unique track record in partnering

− 12 new partnerships since 1999 − Agreements range from developing brands to market leaders − Successful re-launches of partners' products

Responsive, reliable and focused attention to partners'

products

− We treat partners' products as we would our own

Flexibility in meeting partners' requirements

− We offer range of different business models − We work in close collaboration to tailor product strategies to local needs

Compliance with both local legislation and global standard

for business integrity

Multi-area expertise

Strong experience and extensive market knowledge

− “Best in class” Marketing & Sales teams − Medical, Regulatory and Pharmacovigilance expertise − Pioneers in Health economy − Reliable Logistics and Quality Assurance capabilities − Long-term approach to alliance management − Well-developed public and government relations functions

120 offices in Russia

and the CIS

2013/2014 Nycomed’s new Russian

manufacturing plant goes live

€75 millioninvestment in a pharmaceutical

manufacturing plant in Russia’s Yaroslavl region

1,200 employees

in Russia-CIS

Nycomed’s market position in Russia-CIS

Russia1 8

Ukraine2 5

Kazakhstan1 4

Belarus3 5

Uzbekistan4 5

Azerbaijan5 7

Georgia5 7

Armenia5 3

Source: 1. IMS (RMBC) (Retail , Hospital and DLO Audit, WS prices, 2010). 2. Pharmstandart (Retail + Hospital Audit, sale out, Retail price, 2010). 3. PharmExpert (Retail and Hospital Audit, WS prices, 2010). 4. Europharmis (Import + local production, Manufacturer’s prices, 2010). 5. PharmExpert (Retail Audit, WS, prices, 2010).

№1 market for Nycomed

(by sales revenue)

Partnering with NycomedYour key to business in Russia and the CIS region

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12CIS countries





products










and the CIS





1,200 employees

in Russia-CIS


Russia1 8

Ukraine2 5

Kazakhstan1 4

Belarus3 5

Uzbekistan4 5

Azerbaijan5 7

Georgia5 7

Armenia5 3



(by sales revenue)



12CIS countries





products










and the CIS





1,200 employees

in Russia-CIS


Russia1 8

Ukraine2 5

Kazakhstan1 4

Belarus3 5

Uzbekistan4 5

Azerbaijan5 7

Georgia5 7

Armenia5 3



(by sales revenue)





Materia Medica – The New IdeaMateria Medica is an entirely unique venture. What started as a homeopathy company 19 years ago has become the world’s first propo-nent of an innovative

class of ultra-low-dose medicines, de-veloped using a studied and assidu-ous scientific approach. Oleg Epstein, CEO, explains that Materia Medica produces “original pharmaceuticals, using nontraditional methods, but with demonstrable mechanisms of action.”

The company’s medicines start with the principle of ultradilution of a sub-stance. While this has been classically

dismissed as dissolving the active ingredient in a drug, Materia Medica researchers have found that the resul-tant substance in fact acts as a cata-lyst or modifier with tangible effects on the body, and their studies have demonstrated that such products can be used for treatment of even severe diseases such as chronic heart failure, stroke, diabetes, influenza, and AIDS.

Having proven efficacy in Russia, Ma-teria Medica was successful in hav-ing the state label of ‘homeopathy’ removed from their products. Since then, Epstein says, the company “has created a very strong in-house clinical department, and this year will likely be the leader in clinical stud-ies on the Russian market—among

Russian companies certainly, and perhaps among all companies on the market. For one of the company’s products, if trials go as planned, it is possible that we will apply for registration with the US FDA.” The enterprise is seeking to market its medicines across developing mar-kets, as well; their brands are already widely recognized at home.

Epstein emphasizes, “In pharmacol-ogy there is a crisis in the field of new drug discovery. I think that in medicine as a whole, and in pharma-cology in particular, interesting ideas are needed. Niels Bohr said that ideas must be crazy enough. Our idea is crazy enough—and at this stage, it is proven to work.”

Oleg Epstein, Materia Medica CEO

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Russia Report

As Marina Veldanova of Ipsen—who is head of the AIPM taskforce for govern-ment and public communication—notes, by 2020, 50% of total-market medicines (by value) should be locally produced, under European GMP standards; within the reimbursement segment, 90%; and 60% of medicines should be innovative. Khris-tenko is not bashful: “As you can see, we have set quite am-bitious goals.”

sTep 1: ManufacTurinGAdmitedly, the Pharma 2020 strategy is just that—a strategy. Many of the details have not yet come to power—or to the fore-ground. The meaning of ‘local producer status,’ for example, is a bit of a melanchol-ic lark among the industry. Veldanova ex-plains, “There is no official explanation of what ‘local status’ will legally imply. Does it mean just packaging? Or formulations? Which stage of production must be com-pleted in Russia so that a product may be called ‘locally produced’?”

Nycomed’s Jostein Davidsen worries that the current discussion is perhaps leaning toward full-cycle production—including APIs. If this is true, Davidsen believes that it “will be very difficult to fulfill: to attract foreign companies to produce their APIs in Russia. It is quite unlikely that they will do that here.”

No one yet knows what is to come, and whether late-stage production will be enough to garner state-endorsed local status is to be seen. With elections com-ing up, the situation is delicate—as ev-erything else—and may fall to either side. Yet, Dejan Jovanovic, general manager of Astellas in Russia, is perhaps quite right: “With a market that could likely become one of the top 10 in the world, take it or leave it. If you do not want to participate in the race, you participate somewhere else.”

Moreover, as CMS’s Akimtseva de-scribed, the broader trends are unmistak-able—none seem to doubt the authori-ties’ sincerity when they say they aim to

saturate at least 50% of the market with locally manufactured drugs. An ambitious multinational operating in Russia perhaps must, sooner or later, think of local pro-duction, whether alone or by contract. In response, several companies have taken

the greenfield leap, and are preparing the ground to bring manufacturing here in stages. AIPM member organizations have pledged in excess of $1 billion to plant construction.

However, Jérôme Gavet, general director of Servier Russia—a company that has had a plant in the country since 2007, before the an-nouncement of state strat-

egy—is forceful: unless you are sure of your market, do not invest. “It is true that the position of the authorities is to encourage investment without providing transparent legislation on the definition of local producers—but for now, the bar-

riers to importation are still acceptable for those who wish to keep production abroad,” he says. “The decision must be a business-driven decision. If you have demand that warrants a large volume of production and your aim is to produce for a significant segment of the popula-tion, your investment is well founded. To expect fiscal exemption and inclusion in reimbursement lists must not be the rea-son to invest in local manufacturing. This must be considered as an additional ben-efit but must not drive the investment.”

Gavet’s final remark is ominous: “You can expect only one thing with certainty—barriers to importation will increase with time.”

Some are yet taking a ‘wait and see’ ap-proach. Others are partnering locally in-stead of investing in a manufacturing site—and transferring production tech-nology and expertise. For instance, both Janssen and Roche have established such a partnership with domestic generics giant

Jérôme Gavet, Servier Head of the Representative Office

Laboratoires Pierre Fabre

Contact: Communication Depar tment • Tel : +33 - (0)5 63 62 38 50

www.pierre -fabre.com

Leading-edge research for future therapies

DRUGS FAMILY HEALTH DERMO-COSMETICS

x117GENERALE-2011GB.indd 1 21/06/11

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13Nov 2011



Pharmstandard. Where needed, this kind of transfer addresses the capabilities of the local industry: national standards by no measure equal international standards.

Gennady Shirshov of the SPFO, rep-resenting 36 of the largest companies on the market, is brutally honest: “Let me give you two figures that are self-explanatory. Everyone, including government officials, keeps on stating that about 75% of the market share is dominated by foreign man-ufacturers. That is true—but these are in monetary terms. In unit terms, it is the do-mestic companies that dominate the mar-ketplace—they account for about 60% of the market share. But when you analyze what they sell, the picture is totally differ-ent. In quite a lot of cases it is not a medi-cine in the modern sense of this word. So the challenge is to turn the local industry into a quality- and value-based industry.”

There are exceptions: local innovators like Materia Medica and Petrovax are up to snuff. Pharmstandard has modernized, line by line. However, within three years, they must be the rule rather than the ex-

ception; according to the Law on Circula-tion of Medicines, Russian producers have until 2014 to harmonize manufacturing standards with European GMP, or risk los-ing their production licenses—after all, the authorities mean to make the local indus-try export-ready. Some will not survive the transition. The clock is ticking.

sTep 2: research and innoVaTionShirshov shares another an-ecdote. “There will be many changes in the marketplace,” he says. “It is not only about building facilities. I remem-ber a business breakfast with Viktor Khristenko, the minis-ter of industry, in June of last year, when he said, ‘When we say localize, we do not mean build. We mean create.’ It is more about establishing R&D infrastructure, and supporting it, rather than just constructing buildings.”

Companies such as AstraZeneca and

Nycomed have formally factored R&D into their plans, in addition to localizing production. As Davidsen emphasizes, “It is not enough to simply set up a produc-tion facility, plant your flag, and do sales and marketing.”

Perhaps especially for those whom building a manufacturing site, is simply, not pragmatic, R&D is the focal route to well position themselves amongst their peers as Pharma 2020 unfurls. Roche,

for example, is not in the busi-ness of high volumes, and uti-lizes just a few global produc-tion facilities to supply their operations worldwide. Russia does not warrant the criti-cal mass for another—here, Roche products lead the high-cost reimbursement sector, and their portfolio is geared toward a small and gravely ill portion of the population. “Besides,” Milos Petrovic,

Russia head, says, “while I think manu-facturing is quite important for building

AstraZeneca – Nenand Pavletic: Strategy. “Our orga-nization sees Russia as one of the key global markets for any multina-tional. At AstraZeneca, we decided that we would like to develop a local manufacturing facility via our invest-ment in the Kaluga region, so that we can improve this nation’s access to AstraZeneca medicines. Our investment does not end with manufacturing. As a company, we believe that AstraZeneca’s R&D capabilities will help to address Russia’s healthcare needs. We believe that we can leverage the expertise of Russian scientists and medical profes-sionals. In this line, we are also investing in research and development. The third element of our strategy is the continuous education of healthcare professionals.”

Novo Nordisk – Sergei Smirnov: Ethics. “One of the most important ac-tivities of Novo Nordisk is the establishment of production facilities in countries where diabetes is increasing rapidly, such as Brazil and China. Our leadership position and our understanding of the principles of social responsibility require contributing to the development of national health systems. Construction of the plant for the production of modern insulins in Russia is the realiza-tion of this strategy and our contribution to the modernization of the health system of Russia in accordance with the program ‘Pharma 2020’. We do this both because it helps grow our business and because the need for more and better diabetes treatment is real and urgent.”

Nycomed – Jostein Davidsen: Economics. “For us, we did this not because we feel there is a forceful message from authorities saying, ‘If you want to have success in Russia, then you better do this.’ We did this because we have many high-volume retail products here that are not dependent on the essential drug list, not dependent on reimbursement, not dependent on state procurement, etc., etc. Our products are dependent on the demand of the market. So we can defend our investment in the factory independent of any government procurement strategies. It is purely something we need to ensure product availability, logistic streamlining, and efficacy.”

We ask three managers building Greenfield plants to rationalize and defend their decision.

Milos Petrovic, Roche General Manager



Russia Report

a viable, thriving pharmaceutical indus-try, for an innovative company establish-ing research capability should be the top priority.” Petrovic stresses, “For me, re-search is the key to progress!”

Minister Khristenko praised Roche in a December 2010 address for having transferred several preclinical HIV as-sets to a local Russian startup, Viriom. Viriom will develop and commercialize the assets in Russia and the neighboring Commonwealth of Independent States (CIS); Roche will retain the right to mar-ket the finished products elsewhere in the world. This is precisely the sort of collab-oration the Russian government hopes to see—the international industry offering

its expertise to do-mestic enterprises, with the aim of de-veloping globally marketable, inno-vative medicines in Russia. Petrovic explains the col-laboration thus: “The Viriom proj-ect was something that was done quite rapidly; we

gave them the molecules, the expertise, the scientific board for help. It was a real commitment, and it was beneficial to all concerned parties.”

What are the benefits? Petrovic is emphatic. The project “means jobs for new scientists and it means help for universities; in short, it means develop-ment of local capabilities. Who knows, 10 or 20 years from now, Viriom could become a big regional or even global player. Not all countries are interested in developing research capabilities; Rus-sia, on the other hand, historically has a rich scientific pedigree. We believe in Russian science, and want to contribute to returning Russian scientific prowess back to levels comparable to the US, Eu-rope, and Japan.”

Viriom is a company of the Chem-Rar Innovation Center, which is in the business of creating innovative spinoffs,

and in the habit of collaborating with Big Pharma. ChemRar recently received a collaborative nod from Johnson & Johnson (JnJ) and its biopharmaceuticals division Janssen. Janssen Russia’s man-aging director Naira Adamian reiterates Petrovic’s sentiments regarding Russia’s scientific capacity: “Russia is very strong in fundamental science, and strong in developing chemical and biological com-pounds at their initial stages.”

“However,” Adamian continues, “Moving forward in the development process, there is an unmet need in this market to commercialize research into marketable products.” In Russia, there has long been a commercialization gap: after the fall of the USSR, academia and industry developed on divergent orbits, with precious little interaction between idea-men and financiers. Of course, the great ’90s brain drain was particularly injurious as well.

JnJ Russia’s managing director Ar-man Voskertchyan believes that Russia “must develop routes and infrastruc-ture to commercialize ideas. This is one area where companies can really help.” Indeed, JnJ, together with Janssen and ChemRar, as well as Russia’s ‘Silicon Valley’—the newly built Skolkovo In-novation Center—are considering a number of possibilities, along the

Serdix, production site of Servier in Russia

Naira Adamian, Janssen Managing Director

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Russia Report

a viable, thriving pharmaceutical indus-try, for an innovative company establish-ing research capability should be the top priority.” Petrovic stresses, “For me, re-search is the key to progress!”

Minister Khristenko praised Roche in a December 2010 address for having transferred several preclinical HIV as-sets to a local Russian startup, Viriom. Viriom will develop and commercialize the assets in Russia and the neighboring Commonwealth of Independent States (CIS); Roche will retain the right to mar-ket the finished products elsewhere in the world. This is precisely the sort of collab-oration the Russian government hopes to see—the international industry offering

its expertise to do-mestic enterprises, with the aim of de-veloping globally marketable, inno-vative medicines in Russia. Petrovic explains the col-laboration thus: “The Viriom proj-ect was something that was done quite rapidly; we

gave them the molecules, the expertise, the scientific board for help. It was a real commitment, and it was beneficial to all concerned parties.”

What are the benefits? Petrovic is emphatic. The project “means jobs for new scientists and it means help for universities; in short, it means develop-ment of local capabilities. Who knows, 10 or 20 years from now, Viriom could become a big regional or even global player. Not all countries are interested in developing research capabilities; Rus-sia, on the other hand, historically has a rich scientific pedigree. We believe in Russian science, and want to contribute to returning Russian scientific prowess back to levels comparable to the US, Eu-rope, and Japan.”

Viriom is a company of the Chem-Rar Innovation Center, which is in the business of creating innovative spinoffs,

and in the habit of collaborating with Big Pharma. ChemRar recently received a collaborative nod from Johnson & Johnson (JnJ) and its biopharmaceuticals division Janssen. Janssen Russia’s man-aging director Naira Adamian reiterates Petrovic’s sentiments regarding Russia’s scientific capacity: “Russia is very strong in fundamental science, and strong in developing chemical and biological com-pounds at their initial stages.”

“However,” Adamian continues, “Moving forward in the development process, there is an unmet need in this market to commercialize research into marketable products.” In Russia, there has long been a commercialization gap: after the fall of the USSR, academia and industry developed on divergent orbits, with precious little interaction between idea-men and financiers. Of course, the great ’90s brain drain was particularly injurious as well.

JnJ Russia’s managing director Ar-man Voskertchyan believes that Russia “must develop routes and infrastruc-ture to commercialize ideas. This is one area where companies can really help.” Indeed, JnJ, together with Janssen and ChemRar, as well as Russia’s ‘Silicon Valley’—the newly built Skolkovo In-novation Center—are considering a number of possibilities, along the

Serdix, production site of Servier in Russia

Naira Adamian, Janssen Managing Director

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lines of Western collaborative models. Among them, Janssen’s Adamian men-tions seed-fund creation for innovative startups, early-stage asset exchange, and, certainly, competency transfer. Just as Russian industry needs GMP standards for finished forms to be export-ready, it needs GLP standards further upstream in the development stage. Adamian resolutely comments, “If this country is to export medicines, then from the very beginning of de-velopment—and this is something we stressed during our negotiations—we need to set up capabilities that exceed current Russian standards, and meet FDA and EMA requirements.”

Janssen’s director believes that Russia needs to begin to appreciate the value of palatable innovative products—legally, politically, and culturally. Perhaps as the domestic industry begins to itself inno-vate in earnest, this will come. “Innova-tion is vital. The pharmaceutical industry is highly knowledge-intensive and inno-vative by nature. We do more than stamp tablets and sell them in pharmacies!” Adamian exclaims.

Her colleague Voskertchyan adds, “Our position is to find out what com-petencies Russia has that can enable its incorporation into the value creation chain.” For Voskertchyan, who oversees a diverse enterprise that prominently in-cludes medical devices, this manner of incorporation is substantively impor-tant. Of the significance of localization, he says the following: “I am speaking of localization beyond a manufactur-ing standpoint. I believe that, if we want to be successful, we need to localize. We need to localize our competencies and try to become a player across each segment of the market. The logistics of developing this kind of capability is a question each company should think about. Each company should figure out how to become a local company.”

one pood of salTFocus Reports first met Manfred Paul in 2006, when he was head of Bayer

Healthcare in Russia. At the time, Paul mentioned an expositive Russian prov-erb, which states that two people can only really know one another after they have eaten one ‘pood’ of salt together—one pood being an antiquated measure approximately equal to 16.8 kilograms. That is, close relationships in this country are realized through sore and protracted cultivation. Since our first conversation, Paul ‘retired’ from the industry—but, like many, could do little to stay away from Russia. Paul is now an independent consultant for Naari, a women’s health startup that is looking to penetrate this market. In his official capacity as Naari’s Director for Russia and the CIS, he re-members the proverb well. Expression alight, he says, “This indeed remains a very difficult challenge.” Very much so,

for a new player.It is those with history here that are

most conspicuously successful. Those that have weathered market fluctua-tions, even when they were world end-ing (think, 1998 financial crisis). We see that in Russia, the Top 25 has little re-semblance to the global Top 25, and this with good reason.

Baker & McKenzie Russia’s founding partner, Paul Melling, took up residence in Moscow in 1989 and specializes in pharmaceutical litigation. He observes, “Companies that have always been very positive about Russia, that have always invested in Russia, and that have ex-panded in Russia even in trying times, have done very well. I think that is one of the reasons why the listing of top compa-nies in this market, relative to the listing

Novo Nordisk – The Triple Bottom LineNovo Nordisk thinks in threes. Sergei Smirnov, Russia head, explains: “We have chosen to translate our com-mitment to sustainable development as the Triple Bottom Line principle: balancing financial, social, and environmental considerations in a responsible way.” These elements are each present in a new Novo Nordisk manufacturing plant, currently under construction in Kaluga—which, in addition to bringing Novo Nordisk closer to its local patients, will serve as an example to the industry of GMP and energy efficiency, and will provide working places and taxes for Kaluga communities.

Let us look beyond the plant. Novo Nordisk has long been committed to diabetes treatment in Russia—a disease ubiquitous in government priority, as well—and expresses this commitment through a broad range of corporate social responsibility (CSR) work. Smirnov again speaks of three principles—this time in CSR: “The first level is to make sure that our products are available. This is

not a problem in Russia anymore. The second level is to ensure that a product is used properly—here, we are speaking about the education of doctors, and education of patients. The third level is to help develop dia-betes care and the healthcare sys-tem in general. Our Mobile Diabetes Center is a good example of that.” Indeed, Novo’s familiar diabetes cen-ter has been an industry staple since before Focus Reports’ first Russian overview in 2007.

In recent years, Novo has rolled out a slew of new initiatives, including the local implementation of a global proj-ect called “Changing Diabetes.” The company’s programs are largely aimed at awareness. Smirnov tells Focus Reports, “Awareness is key when you talk about a disease like diabetes. The responsibility is shifting from doctor to patient. The more the patient is edu-cated, the better the outcome of treat-ment. And decision makers should also be aware about the burden that diabetes lays upon society—then they make wiser decisions.”

16 Nov 2011



Russia Report

of top companies in Europe or the US, is quite different. “It is a bit of a truism, but it is still true all the same, that

Russians tend to remember those who did not falter during ad-verse economic periods. They also tend to run from those that did. Hence, a company is in a stronger position if it can prove a long-term commitment to this market.”

Case in point: Jostein Davidsen, conceivably the longest-standing foreign manager in the Russian pharmaceutical indus-try, set up the Nycomed affiliate here in 1993 and has served as president since. He has done something absolutely unusual: turn Russia into the top market for a Swiss healthcare com-pany. Melling describes Nycomed as exemplary: “Globally, Nycomed is quite a way down the list of the top 50 pharma-ceutical companies [according to Pharmaceutical Executive, in 2011, Nycomed ranks 48th]; but here in Russia, the com-pany is very highly positioned [according to IMS in 2010, 8th]. There are numerous reasons for Nycomed’s success, but one of the pivotal components is its commitment to the Russian market through bad times and good.”

Much of Nycomed’s success has been based on a strategy of in-licensing. Davidsen posits, “In the early 2000s—in the early post-crisis after the collapse of the economy in 1998-99—very many companies had no interest in entering this market; they found it corrupt, non-compliant, or just generally unattractive. So we worked extremely hard from the early 2000s until 2005 to get in-licensing partners.” Proudly, he declares, “That has been a successful model, and we have been building on success after success.” Many companies are now clamoring to establish af-filiates in Russia, but they are rather late to the soiree. As for Nycomed, Davidsen expects his business to surpass €1 billion in revenues by 2014—if not sooner.

Nycomed is not the only company that can credit its ac-complishments to pertinacity. Servier, for example, is 25th globally (Pharm Exec, 2011); in Russia, it is the fourth-larg-est pharmaceutical enterprise by sales (IMS, 2010). Jérôme Gavet, Russia general director, speaks of an early, unsatu-

rated market. “Unlike many other markets,” he says, “where we entered and had to face existing competition, in Russia, we penetrated the market at the same time as many of our competitors—or even earlier.” This is the foundation; what of the crisis? Gavet goes on: “One time period that was particu-larly significant was the crisis of 1998. Many foreign compa-nies decided to leave, but we decided to stay. This was a firm decision from our top management and Dr. Servier himself, and he was recognized at the time as manager of the year in Russia. We stayed, and we kept our employees. Today, we have people with a truly extensive history in the company, and they are the pillars of our activities. I recently looked into the figures, and we have nearly 50 people with more than 15 years in the company.”

Bayer Healthcare, just one position behind Servier in the overall domestic rankings—and 14th globally—filled the gaps as more reticent investors fled the market. Viktor Geisler com-ments, “Two years after the Soviet Union collapsed, Bayer, as well as Schering, established their respective representative of-fices here and invested significantly—not in production, but in people, in education, in promotion, and so on. This worked very well, until the financial crisis of 1998. Many companies left in ’98. Yet, during the crisis Bayer decided to stay in Rus-

Janssen signs a cooperation agreement with Skolkovo and ChemRar.

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Our most important

production centre

We’re already looking for

tomorrow’s treatments today.

Our innovations

help millions of people by

alleviating their suffering and

improving their quality of life.

We give them hope.

2011-0247, 04.2011

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18 Nov 2011

Our most important

production centre

We’re already looking for

tomorrow’s treatments today.

Our innovations

help millions of people by

alleviating their suffering and

improving their quality of life.

We give them hope.

2011-0247, 04.2011

363CR1111 Roche FP - approved 18 04 2011_1-1.pgs 10.04.2011 13:28 ADVANSTAR_PDF/X-1a blackyellowmagentacyan



Russia Report

sia. That is why, nowadays, Bayer Healthcare has a strong po-sition. Wherever our competitors left the market, we jumped into the gap. We stayed, invested, and we benefitted from our commitment immediately once the market recovered.”

Many of the investors who flew the coop at signs of dis-sonance were American companies, who have traditionally been guarded in emerging regions—in retrospect, perhaps overmuch. Johnson & Johnson, on the other hand, is an enterprise that has long been confident in the Russian out-look. It is the only American organization in the top 10 in pharmaceuticals; across businesses, it may well be the larg-est healthcare company in Russia and CIS. Arman Voskert-chyan, managing director for the region, beams. According to Voskertchyan, only an interminable history, and resultant understanding of the market, could have facilitated the pur-chase the organization has earned here. “Johnson & Johnson came to the Soviet Union in 1991. Hence, 2011 is a remark-able milestone: We are celebrating our 20th anniversary! This is a momentous achievement for us, because over 20 years, many things have changed—not least of all the fact that the Soviet Union, as a state, has disappeared from the map. We believe that these 20 years helped us not only to establish our business operations here, but also to build an infrastructure that could help us truly understand this envi-ronment and ultimately help our patients gain access to high quality healthcare.”

In 2008-2009, business again found itself in the wilder-ness, as the global financial crisis pummeled the Russian state harder than most. None left; this time, some companies in fact countered the market with a speculative surge. A year removed, most found themselves fittingly recompensed. sMall hapinessesThere can be no question, notwithstanding all prospects and the words of ideologues, that Russia is a difficult mar-ket. Bureaucracy and excessive legislative complexity pres-ent barriers to entry, operation, and expansion. Crises and

TOTAL MARKET

Value, US Millions Growth, %

Rank 2010 Corporation 2010 2010/2009

1 SANOFI-AVENTIS $842.770 21.5%2 NOVARTIS 612.798 12.3%3 PHARMSTANDART 568.566 8.8%4 SERVIER 494.055 7.7%5 BAYER HEALTHCARE 487.918 -1.4%6 MENARINI 466.226 17.2%7 TEVA 456.599 12.9%8 NYCOMED 451.453 19.9%9 JOHNSON & JOHNSON 449.534 -5.4%10 ROCHE 436.991 7.3%11 SANDOZ GROUP 403.815 12.3%12 GEDEON RICHTER 391.434 8.8%13 MERCK SHARP DOHME 336.338 5.4%14 STADA 269.859 13.6%15 SOLVAY PHARMACEUT 257.690 20.2%16 KRKA 255.091 11.0%17 BOEHRINGER I 252.456 11.5%18 ASTRAZENECA 251.805 15.1%19 GLAXOSMITHKLINE 248.394 6.1%20 PFIZER 246.055 28.7%

Top 20 Pharmaceutical Organizations in Russia by Revenue

Source: IMS Health

The road from #20 — How is the world’s decided pharmaceutical leader going to improve their positioning in Russia? Pfizer’s country manager Christian Holmer comments.

Do you believe Pfizer’s brand penetration in Russia is similar to its penetration in the West?

Absolutely. When I meet with governmental stakeholders, the first thing they say is that Pfizer is the largest pharmaceutical company in the world, and that they would definitely welcome Pfizer’s initiatives in Russia. Brand recognition is very strong both outside and in-side the industry here. This is a very valuable opportunity for the company to contribute to the further development of healthcare in Russia, in collaboration with the Government, business, and scientific organizations on the basis of trust and partnership.

Why do you believe that Pfizer, the leader of the global pharmaceuti-cal market, does not currently occupy the leading position in the Russian market, according to 2010 IMS statistics?

In part this can be related to the fact that we have not aggressively participated in the Specialty segment during the last several years. But now, after integration with Wyeth, with the combined portfolio including legacy Wyeth specialty care products, we have a good chance to occupy leading positions here.

Also, if you check IMS data, of the top 20 companies, we were the fastest-growing last year. So we are very quickly turning around our positioning. Our rapid growth continues this year, as well: we are the second-fastest-growing company after Roche.

It is true that your growth statistics are quite impressive. IMS reports 28.7% overall growth in 2010 over 2009, and you have gained nine positions in the hospital segment. What characterizes your growth strategy?

In general I attribute this fast and solid growth to our strong desire for doing business in Russia, our great product portfolio consisting of medi-cines that in some cases lead their therapeutic areas, and an innovative approach to partnerships with local business and scientific organiza-tions that allow us to explore and participate in new opportunities in the Russian market. This principle—development of progressive partner-ships in manufacturing, R&D, and capabilities building—is the core of our investment strategy named MORE THAN, launched earlier this year.

I think our growth is a combination of resources, structure, and strategic focus.

Christian Holmer, Pfizer Country Manager

19Nov 2011



fluctuations are common-place. Of course, there is also the intangible inexplica-bility of the Russian mindset and business culture—that elusive and endlessly ste-reotyped Russian umbra—forcefully unique, and only superficially resembling any-thing European.

Pierre Fabre’s Pavel Chistyakov relates the dif-ficulties of establishing a Russian sub-sidiary—something he was charged to do in 2008: “We faced two significant challenges. First of all, we had to cope with the complexity of Russian bu-reaucracy. Administrative barriers are quite heavy here. Secondly, and related to the first issue, is the fact that our French headquarters was not fully aware of the specificities of this market when we entered. I will give you a con-crete example: To set up a legal entity

in the Russian Federation, we were asked to present a set of 12 or 14 official, notarized documents along with the application form. You must present all of these documents together. If one is missing, you may not submit the ap-plication. While in some countries

you can submit what you already have, and some time later compensate for missing documents, it does not work like this in Russia. This was difficult for our headquar-ters to understand.”

Pierre Fabre headquarters had planned to commence business within two months; in reality, it took six. Can there be no harmony among multina-tional and market?

Astellas’ Dejan Jovanovic offers prac-tical advice; he believes that one must live as the Russians themselves do. To his fellow manager, and fellow émigré, he describes three stages of acceptance:

“Let us imagine that a typical general manager, who does not speak Russian, is parachuted into Moscow. He observes for the first three to six months; he soaks in what is going on and reaches the conclusion that Russians do not know what they are doing and that he will teach them what to do. This is stage one. Most ex-pats who have a two- to four-year contract do not pass the first stage.” And if they do? “The

second stage is deep depression: What am I doing here? Nothing is possible, nothing works, and I must leave as soon as possible.”

All is ostensibly lost, until the man-

Pavel Chistyakov, Pierre Fabre General Manager

Viktor Geisler, Bayer Country Division Head

Over the last half-century, we have brought together a family of innovative pharmaceutical companies all with

one overarching mission: to address and solve some of the most important unmet medical needs of our time.

Janssen companies are focused on developing groundbreaking treatments in five major therapeutic areas:

Neuroscience, Infectious Diseases, Oncology, Immunology, and Cardiovascular/Metabolism, and our product

portfolio addresses other critical areas as well.

We are people helping people - we work closely together to harness our combined knowledge and resources,

leverage the power and promise of outstanding science, and enhance the length and quality of life for people

throughout the world.

At Janssen, we passionately pursue science for the benefit of patients everywhere.

Representative office of Janssen Pharmaceutica NV Krylatskaya str., 17, bld. 3, Moscow, Russia 121614Phone +7-495-755-8357

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20 Nov 2011



Russia Report

ager discovers the third stage. Jovanovic says, “The third stage is a stage of small happinesses: When you arrive to Sherem-

etyevo airport, and you are happy that a jumbo jet from Beijing with 500 passengers did not arrive before you to clog up the customs queue; or that the traf-fic police do not stop you on the way home; or that

no one turned off the hot water in your apartment. When you get to the stage of small happinesses—the stage that Rus-sians themselves are in—you can manage the business very nicely.”

However, what to do when one finds news of adventitious legislation on their desk on Monday morning? Or the mar-

ket is in a flux, menacing the profitability of the quarter? The silver lining is small comfort; Russian leaders must keep a level head.

Bayer’s Geisler counsels, “You must be relaxed, and refrain from nervous-ness. You must accept that sometimes, there will be problems and setbacks, but you have to believe in the long-term trends. It is simply a fact that Russia does not follow a linear upwards path. There are ups and downs. You must understand the reasons for the downs and be convinced that this is just a temporary effect.”

The gut feeling is sover-eign. “You must have a cer-tain feeling,” Geisler main-tains, “and understanding for the Russian environment. When I say environment, I do not mean simply the pharma

market—because the pharma market is just one part of the entire Russian environment. It is an integrated part, but if you are not willing to understand Russian particularities holistically then you will never be successful here. I can-not describe it better. You must simply have a sort of visceral feeling for what is needed. Perhaps that is why not ev-eryone is suited to manage in Russia. Different markets require different

mentalities.”Reckitt Benckiser manag-

er Bruno de Labarre—one of the ‘well-suited—describes his experience, emphasizing the importance of observ-ing first, and doing second. De Labarre had come to the Russian market with the in-tention of staying for a few years. To date, he has man-aged his affiliate for nine—

Dejan Jovanovic, Astellas General Manager

Bruno de Labarre, Reckitt Benckiser Russia, CIS General Manager

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There are approximately 30,000 different

diseases known today. A satisfactory

form of therapy is only available for one-

third of them.

Bayer HealthCare, a subgroup of

Bayer AG, develops innovative products

to improve health and quality of life for

both humans and animals. In addition to

activities in the fields of Animal Health,

Consumer Care and Diabetes Care,

the company also focuses on specialty

pharmaceuticals. Bayer HealthCare is an

international leader in this sector.

A strong community for a healthy future.

www.bayer.com.au

Bayer Australia Limited, ABN 22 000 138 714. AU.WH.09.2008.0066

BA

27

5

BA275 BSP HealthCare Pharmacy Executive Ad.psd 1 19/9/08 11:01:27 AM

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Russia Report

not an uncommon position for an expatriate to find him-self in, awakening one morning. For one, a sporadic market needs managerial constancy; for another, Russia is a dynam-ic environment that is notoriously hard to part with. “Come for two months, and do not speak—listen,” he says. “Look to the people, look to the market, listen to your customers, and listen to your suppliers. Spend two months just listen-ing! After that, try to put on a piece of paper what you have understood about the market, and then decide what you must do. When we acquired BHI in 2006, I spent two months visiting pharmacies, visiting distributors, suppliers, etc. I always asked them the same question: ‘Tell me what you think of my company, what I need to improve, and what I do well that I should maintain.’

“The best advice I can give is that you must understand that you do not know!” exclaims de LaBarre.

Pierre Fabre’s Chistyakov, a veteran pharmaceutical man-ager who prior to his current position managed Ipsen in Russia, offers his own lessons: “Be active. And importantly, be flexible. In Russia, you must take decisions, and you must take risks, as well. Russia is a developing market—obviously, there are risks. But to gain, you must sometimes accept risk. Multinationals of-ten overevaluate. Sometimes you must act, even if your decision is wrong, because then you have time to do something else.”

Headquarters is watching. — We ask Quintiles Russia clinical and commercial managers Dmitri Pavlovich and Sergey Smirnov to explain the growing importance of Russia to a global organization.

What role does Russia play in Quintiles’ global network?

Sergey Smirnov: Russia is one of the most important emerging markets for Quintiles. We look at Russia both as a country with its own opportunities, and as a hub to access other markets. For instance, Ukraine and other neighboring territories have huge potential.

Nowadays, it has become much easier, and far more strategically im-portant, to aggressively enter and develop emerging markets. In doing so, we are ensuring sustainable growth for the company. It is a common strat-egy for all of Big Pharma to find new opportunities in emerging markets.

To what degree do Russia’s well-known regulatory and bureaucratic challenges, which only seemed to increase after the adoption of the Law on Circulation of Medicines, take away from the attractiveness of doing business here?

Dmitri Pavlovich: Bureaucracy exists everywhere. Perhaps in Russia, the extent is more pronounced; however, despite the difficulties, we are seeing positive trends.

These positive trends are not just abstract, but visible in practical out-comes. We have started to again receive approvals for studies in Russian territory. If we compare the situation that we had in 2010 to the situation today, it is clear that things are moving in the right direction. It is just a question of time.

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Russia Report

not an uncommon position for an expatriate to find him-self in, awakening one morning. For one, a sporadic market needs managerial constancy; for another, Russia is a dynam-ic environment that is notoriously hard to part with. “Come for two months, and do not speak—listen,” he says. “Look to the people, look to the market, listen to your customers, and listen to your suppliers. Spend two months just listen-ing! After that, try to put on a piece of paper what you have understood about the market, and then decide what you must do. When we acquired BHI in 2006, I spent two months visiting pharmacies, visiting distributors, suppliers, etc. I always asked them the same question: ‘Tell me what you think of my company, what I need to improve, and what I do well that I should maintain.’

“The best advice I can give is that you must understand that you do not know!” exclaims de LaBarre.

Pierre Fabre’s Chistyakov, a veteran pharmaceutical man-ager who prior to his current position managed Ipsen in Russia, offers his own lessons: “Be active. And importantly, be flexible. In Russia, you must take decisions, and you must take risks, as well. Russia is a developing market—obviously, there are risks. But to gain, you must sometimes accept risk. Multinationals of-ten overevaluate. Sometimes you must act, even if your decision is wrong, because then you have time to do something else.”

Headquarters is watching. — We ask Quintiles Russia clinical and commercial managers Dmitri Pavlovich and Sergey Smirnov to explain the growing importance of Russia to a global organization.

What role does Russia play in Quintiles’ global network?

Sergey Smirnov: Russia is one of the most important emerging markets for Quintiles. We look at Russia both as a country with its own opportunities, and as a hub to access other markets. For instance, Ukraine and other neighboring territories have huge potential.

Nowadays, it has become much easier, and far more strategically im-portant, to aggressively enter and develop emerging markets. In doing so, we are ensuring sustainable growth for the company. It is a common strat-egy for all of Big Pharma to find new opportunities in emerging markets.

To what degree do Russia’s well-known regulatory and bureaucratic challenges, which only seemed to increase after the adoption of the Law on Circulation of Medicines, take away from the attractiveness of doing business here?

Dmitri Pavlovich: Bureaucracy exists everywhere. Perhaps in Russia, the extent is more pronounced; however, despite the difficulties, we are seeing positive trends.

These positive trends are not just abstract, but visible in practical out-comes. We have started to again receive approvals for studies in Russian territory. If we compare the situation that we had in 2010 to the situation today, it is clear that things are moving in the right direction. It is just a question of time.

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23Nov 2011



no More Bears in MoscowIgor Kouznetsov, general director of domestic distributor Eu-roservice, taunts at an old stereotype. Kouznetsov tells the international community, “Bears do not walk the streets of Moscow anymore!”

Of course, Western media is fond of this country—it has a certain talent for good scandal. However, those living here

find that this side of Russia is unequivocally exaggerated. “Don’t believe everything you read in Western newspapers,” dismisses Baker & McKenzie’s Paul Melling. Melling main-tains that it is plausible, reasonable, and practical for orga-nizations to conduct ethical business in Russia. As one of the

country’s most prominent litigators, Melling maintains, “Compliance, ethics, etc., are no longer abstract issues—they are now truly critical.”

Pharmstandard, Russia’s largest do-mestic pharmaceutical player, illustrates the new Russian compliance. The com-pany went public in 2007 with an IPO on the London Stock Exchange, and has proven a valuable asset for inves-tors. CEO Igor Krylov speaks of repu-tation: “We constantly consider our reputation—and not only do we con-

sider it, but we act accordingly. We try to operate in accor-dance with people’s expectations of this company.” Krylov continues, “We are open, and transparent. It is not easy to be public, especially on the Russian market—but we try to do our best for our shareholders. We constantly think of the investors. This is why our reputation is very important.” Any ethical slip would prove thunderous for the company. Is Rus-sia so familiar, after all?

The economy’s maturation is easily visible in the diversifica-tion and increasing saturation of markets. It is visible in the commercialization of services and mounting specialization. For example, as more companies sell more products across more sales channels, they have an increasing need for market re-search service providers to explain consumer attitudes.

Alexander Demidov, managing director of GfK RUS, an af-filiate of the global research giant, studies consumer choice and consumer experience. Prior to the fall of the USSR, Demidov was a pure scientific researcher. As he explains, “Historically,

Euroservice – Know Your Strengths, Then ExpandIgor Kouznetsov founded Euroservice in 1996. From a staff of six, the company has grown to become the ninth-largest importing dis-tributor on the Russian pharmaceutical market (Pharmexpert, 2010). To explain this success, Kouznetsov constantly cites “specialization”—from its inception, Euroservice has been focused on the hospital segment.

However, today, Euroservice is more than a distributor. Kouznetsov explains, “Over time, we began to think about the evolution of our service offering, and decided that beyond distribution, we could offer additional services to foreign compa-

nies. Euroservice was the first hospital products distributor to sign a contract with a foreign producer for product marketing.” Euroservice has successfully marketed drugs for a number of international players, and is most interested in partnering with high-technology small businesses.

Kouznetsov invites foreign businesses to Russia. “We are open to collaboration,” Kouznetsov says. “For like companies, we are strong partners both in marketing and distribution. We want to take products from the registration stage through the marketing stage, and see ourselves as a full-service enterprise.”

Alexander Demidov, GFK Managing Director

Igor Kouznetsov, Euroservice General Director

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24 Nov 2011



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market research was never a business in this country. In the Soviet Union, for example, it was a purely scientific field. In those times, market research took the form of a sociological survey.” It was only with the dawn of the capitalist era, and the internationalization of the terri-tory, that a company like GfK could do business in Russia.

Demidov was himself surprised at the transition. Nonetheless, as the years have gone by, his healthcare research division has reached the fourth position globally

for GfK, and continues to expand its of-fering. The commercial market matures further, services become more dear; GfK will have to expand its offering to in-clude consultation.

Not only is the political and commer-cial environment transformational, but the public is in many ways modernizing, as well. Look toward the indicators of a country in transition. One aspect of Rus-sia’s modernization is practical: the de-monstrable rise of a middle class.

To illustrate, we can consider Reck-

itt Benckiser. The Russian affiliate’s manager, Bruno de Labarre, is in the fast-moving consumer goods (FMCG) business, in addition to the over-the-counter (OTC) pharmaceu-ticals business. His operations are quite directly indebted to middle-class consumers—and business is blooming. De Labarre describes, “The middle class is indeed rising at an expo-nential rate, and this rise is very palpable. Look at our own company; we have 150 people in this office. Two years ago, we had 80 people. Five years ago, we had 50.” In fact, when de Labarre joined the affiliate in 2002, the organization num-bered 32 people in total. Today, across Russia and CIS, it boasts 2,700.

“So we can see from, shall we say, our ‘normal life’,” de Labarre goes on, “that the middle class is growing—because it is driving our need to expand operations. We are not simply speaking of economic figures one might read on a piece of pa-per—it is the reality of business today.”

Galderma’s newly appointed Rus-sia director, Denis Patrashev, describes a transition from a country largely fo-cused on basic disease to a country that begins to consider a more holistic health approach. Patrashev, whose business is dermatological, tells Focus Reports,

Invar – Foreign Player? Choose a Local PartnerFor a Western company looking to enter the Russian market, the question of how best to capture value is daunting, especially if they go it alone. This is true for not only pharmaceutical but also biopharmaceutical enterprises, whose era is just now evolving in Russia.

Invar, a Russian company with over 20 years of experience in pharmaceuti-cal partnership, builds their business model around strategic alliances with owners of innovative products. As Invar’s capabilities and experience in this field grew, the company expanded services to partner with large and medium-sized organizations, and helps them to promote their portfolio or future pipeline in Russia. This year, Invar announced its expansion into the area of biopharmaceuticals.

Ralf Vayntrub, company president, observes, “In Russia, we are living through a period of intense changes on the pharmaceutical market. Nonetheless, the majority of the transformations this industry is undergoing are positive, and interest in the market is growing.

To capitalize on the growth and transformation of the market, Western players need a partner who understands the local environment. In order to capture a piece of this pie, they need a quality, Russian player to collaborate with. We are very much open to such collaboration with new partners.”

Aleksey Nekrasov, Petrovax General Manager

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WORKING TO FILL LIVESWITH MORE YEARS ANDYEARS WITH MORE LIFE.

WORKING TOGETHER FOR A HEALTHIER WORLD.

Copyright ©2011 Pfizer Inc. All rights reserved. Wyeth is now part of Pfizer. The merger of local Wyeth and Pfizer entities may be pending in various

jurisdictions and integration is subject to completion of various local legal and regulatory obligations, including works council and/or union consultations.

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Russia Report

“A growing interest in pure dermatol-ogy, aesthetic dermatology, skin care, etc., is a sign of the population’s well being. Indeed, when a society is poor, it can only think about social diseases like oncology, COPD, etc.—it needs to think about its basic health. However, when you transition toward a health-ful population, and you have money to care about something more than just basic disease, you start to think about not only health but also aesthetics. For me, Russia has reached this stage. The economic situation is quite favorable; people have enough money to consider ‘supplementary’ channels of care.”

Galderma experienced an astound-ing 82% growth in 2010, and Patra-shev is categorically optimistic about the business. As ever, the societal devel-opment propagates outwards from the great cities; and yet all of Russia mod-ernizes, by steps.

The nation is, in exceptional cases, even innovating for the world market. Petrovax, a local enterprise, has managed an admirable landmark: penetrating the highly regulated European Union mar-ket with innovative medicine. Arkady Nekrasov, general manager, believes that his is quite likely the first Russian com-pany to do so.

What does innovation mean to this business? Nekrasov maintains, “Our definition of innovation is analogous to the internationally understood definition of the term, used by the large research-based pharmaceutical enterprises.” In detail: “Innovation is first of all the cre-ation of novel molecules, which have no analogue in the world. It is the patent-ing of these molecules, substances, and compounds. It is the development of these molecules, and their formulation into finished medicinal products. These products, patented in Russia and abroad, are then commercialized, and it is up to our sales and marketing staff to derive an

economic effect from such innovations.” Indeed, we are not speaking of innova-tion in packaging.

Petrovax is exemplary. As Nekrasov describes, the company is an archetype for government ambitions. “With the government announcement of the Phar-ma 2020 strategy toward domestic in-novation, we find ourselves fully aligned with national goals. However, we have worked for over 30 years in this direc-tion—long before the 2020 initiative. We have also long preempted the govern-ment drive toward high technology, high research standards, high manufacturing standards, and international collabo-ration. This fact is well exemplified by our partnership with Abbott, (formerly Solvay Pharmaceuticals) with whom we have been collaborating for approxi-mately 10 years.”

The company recently signed a part-nership agreement with Pfizer, and will undertake contract manufacture with the aim of import substitution—includ-ing technology transfer. “But we do not want to be just contract manufacturers for our partners,” Nekrasov emphasizes. “We want to also engage in licensing deals: for example, wherein a foreign partner licenses a product to us, and we develop the product full-cycle going for-ward. And ultimately, as an innovative company, we are most interested in joint development projects, using our adju-vant platform technology for vaccines and protein conjugation technology to develop next generation biologics.”

“A final portion,” Nekrasov con-cludes, “of the authorities’ strategy is to increase the export efforts of Russia’s pharmaceutical companies. This is again a direction that we are working in. Our high standards, meeting international re-quirements, allow us to compete abroad. While Russia is our main focus, we are actively expanding our horizons.”

While most other domestic players

have a long path ahead to attain Petro-vax’s success, they are indomitable. Vad-im Muzyaev, the president of Protek—arguably the largest pharmaceutical enterprise in Russia, comprising produc-tion, distribution, and retail sales—leaves investors with the following image of the Russian market: “Russia is an emerging economy. In GDP per capita, we can-not yet match Western markets. At the same time, any world economist would maintain that Russia has a great future, and is dynamically evolving. Within this frame, the pharmaceutical industry will too grow very quickly. The greatest impetus for this industry, as defined by government, will be Pharma 2020. Soon, the proliferation of domestic medicines on this market will be quite a bit higher than it is today.

“Furthermore, with the growth of the economy, we expect a rise in the purchas-ing power of Russian citizens. Simultane-ously, the price of medicine will grow—not due to inflation, but because quality will improve. The Russian pharmaceu-tical market will, in our view, grow by more than 10% per year. This will allow companies in our sector to realize their potential. Within the next five years, I suspect that we will see several Russian pharma companies commit to IPOs. This will confirm the attractiveness of the Russian pharma market.”

The SPFO’s Gennady Shirshov offers, simply, and finally, this: “The question you may be asking yourself is, ‘Will Rus-sia succeed or not?’ We will see. It is im-portant to take the first step.”

Correction: Country Report: Romania, Pharmaceutical Executive, October 2011, Volume 31, Number 10: Romania should have been referenced as the 9th largest country in size and 7th largest in population within the EU27 (rather than ranking 27th in population within the EU).

28 Nov 2011

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