Potential For Success - There is great promise for innovative R&D, generics and active pharmaceutical ingredient (API) manufacture in Russia and the countries that make up Central and Eastern Europe (CEE). The development plan for Russia's Pharma 2020 outlines a pathway towards an increase in innovative drug development as well as domestic manufacturing output for internal and export use. Generic medicines will take up a majority of market volume and approximately 20% or greater of market value share. In response, there has been a cohort of companies seeking to start establishing platforms for production that will promote the initiative.

The Russian market is set to grow at twice the pace of the global pharmaceutical market, with growth estimates around 10-15% annually reaching an approximate market value of $43-60 billion by 2020 while the rest of the CEE forecasts exceptional growth as well. The Russian government intends to invest over $3.9 billion to incentivize companies to increase total domestic medicine sales and production to a level of 50% or greater within the Russian pharmaceutical market.

The most promising CEE markets, based on market size and potential revenue, include Poland, Romania, Hungary and the Czech Republic. All four have been incorporated as EU member states, which allows for regulatory and marketing authorization harmonization under the European Medicines Agency (EMA). With a number of developed companies like Zentiva (Sanofi), Gedeon Richter, Polpharma, Egis and other subsidiaries of larger multination corporations (MNCs), these countries have the most experience in producing pharmaceuticals for their regions. The CEE region also can serve as a contract manufacturing and research hub as well. Based on data from Thomson Reuters Cortellis Clinical Trials Intelligence, there are currently over 2,260 clinical trials in phases I-III within this region. The leading CRO locations are Poland with 682; Russia with 642; Czech Republic with 505; and finally Hungary with 431 ongoing trials.

Recent Investments into Infrastructure

With the promise of government funding and several tax incentives, especially in Eastern Europe, there has been an increase in recent investments into the CEE and Russian regions. Most recently, Cadila Pharmaceuticals has vouched to setup a new manufacturing plant in Russia's Astrakhan region at a cost of $150 million that will most likely be for API manufacture. Additionally, MSD (Merck) and Akrikhin just extended their line of local production to include five additional MSD drugs covering therapeutic areas including diabetes and asthma that will start in the beginning of 2014.

The news of Pharmstandard's recent acquisition of Singapore's Bever Pharmaceutical shows a shift in mentality that not every company will try to position API manufacturing at the local level. It is likely that Russia will continue to rely on companies in India and China to aid in the materials and imports needed to produce many of its drugs. Most of the substances needed for pharmaceutical production are still being imported at this time, but this may start to decrease as other major drug companies build capable plants in these regions. Figure 1 shows some of the other notable deals, which are comprised mostly of manufacturing investments and joint ventures into these regions. Joint ventures into Russia and CEE are necessary in order to create a relationship with local parties, in order to utilize expertise in their respective territories and also circumvent language constraints (fig.1).

Points To Address

With any of the emerging markets, there are barriers to entry. Russia's regulations differ from the rest of the CEE region, and many of these countries have been trying to improve regulation and authorization procedures. In part with the groundwork laid out by the New Collaboration Agreement between Drug Regulatory Authorities in Central and Eastern European Countries or (nCADREAC). In order for pharmaceutical companies to continue their investment, however, the Russian regulatory authority must continue to improve upon the Law on the Circulation of Medicines passed in 2010. It currently stands that if a drug maker wants to register a generic medicine in Russia, that bioequivalence studies must be repeated in Russia and also that the reference drug should be purchased at the local level. This could inflate the cost of registering products drastically.

Historically, there have been intellectual property and transparency issues as well, which hopefully will be alleviated with Russia's ascension into the World Trade Organization (WTO) and the creation of a specialized IP court earlier this year in February. There are some additional barriers that will ensnare companies looking to produce such as protectionist penalties, which directly go against standards of the WTO. The ban that is being addressed would block participation of foreign pharmaceutical companies with respect to the tenders for the public procurement of medicines. This is only the case when there is a presence of at least two similar therapeutic drugs produced by local manufacturers already available to the market. Although protectionist efforts may deter interested companies, Russia and certain CEE countries will also need to consolidate and revise internal reimbursement schemes to allow pharmaceutical companies to time the release and pricing of drugs appropriately.

Along with the issues mentioned above comes the fact that there are still less than 50 Russian-owned companies with the capability to produce API and only a fraction of finished-dose companies when compared to India and China (figs. 2-3).

Looking Ahead

Russia and CEE might seem overshadowed by the number of API manufacturers in India and China, but it also contains room for companies to set up infrastructure in the coming years and establish themselves, especially for clinical trials. Clinical trials and R&D spending have traditionally been an inherent necessity for drug development by the pharmaceutical industry, but these future costs will need to be contained and countries within the CEE offer a skilled workforce with a less costly location to do so, in comparison to Western Europe and the U.S. Patients are often more willing to participate in clinical trials for access to newer medicines and thus the recruitment process is overall quicker than in western countries. As the population ages and the middle class expands, the most influential therapeutic segments will typically be oncology and cardiovascular medicines for these regions.

If the Russian government continues to provide funding and can improve upon regulations that will invite foreign investors to support domestic production of pharmaceuticals, Russia could become a renowned hub for the industry.