Low Prices Limit Innovation

ITL GROUPThe Russian government promotes drug innovation through a number of venture funds.

The average price of domestic drugs on the russian market is a quarter of that of imports, partly due to legacy products.

Innovation is a much used phrase in Russian industry but with respect to pharmaceuticals industry its meaning is quite precise: 60 per cent of all drugs produced in Russia should be innovative, according to the state program, Pharma-2020.

Currently, the volume of innovative drugs on the Russian market developed by Russian producers is less than 1 per cent of market volume. Most pharmaceuticals produced by Russian companies are based on molecules discovered decades ago.

The average price of a pack of domestically produced drugs in 2012 was 38 rubles (about $1) which is less than a quarter of the average price of imported drugs (166 rubles or $4.30). There is a direct connection between the low price of Russian drugs and the returns from innovation.

Only 10 per cent of pharmaceuticals produced in Russia are exported, primarily to other CIS countries. It is difficult to call these products innovative. Other markets such as Europe are currently under-supplied by Russian drugs, because much Russian production does not yet conform to Good Manufacturing Practices (GMP).

Russian companies spend no more than 1 to 2 per cent of their turnover on the development of new molecules, while American and European companies spend around 10 to 15 per cent, which allows them to fill over half of their product portfolios with innovative drugs.

The government is taking the leading role in spurring innovation in the sphere of pharmaceuticals. Three organizations, the Russian Venture Company, Skolkovo and Rusnano, all with significant state participation, are making efforts to find innovative solutions.

The Russian Venture Company, a $1 billion fund-of-funds, supports entrepreneurship, corporate governance and related infrastructure. The RVC supports three funds focusing on life sciences, comprising a so-called Biofund.

These provide a contract laboratory, and consulting services to biotech, pharmaceutical and medical device companies. The Biofund plans to attract 1.5 billion rubles ($38 million) of investment and so far lists nine projects on its website.

Skolkovo is an institute of science and technology in the Moscow suburbs that cooperates closely with Massachusetts Institute of Technology. Skolkovo provides biotech startups with up to $5 million in matching grants. The main goal of the Skolkovo cluster is to support innovation in the sphere of biomedical technology. About 250 companies are affiliated with the cluster, whose main directions include biomedicine (genome and post-genome biomedical technologies, stem cell technologies, complex methods of diagnosis and treatment, amd medical devices and materials), biopharmaceuticals, systematic bioinformatics and industrial biotechnologies.

Rusnano, a $10 billion state-backed fund founded in 2007, focuses on nanotechnology in the fields of biotech and medical devices among others. Rusnano typically invests $30-to-$50 million into late-stage deals. The organization features 14 companies working in the sphere of pharmaceuticals.

Many big international pharmaceutical companies are also exploring the potential for innovation in Russia. Japan's Takeda Pharmaceuticals has signed a cooperation agreement with the Siberian department of the Russian Academy of Sciences for early-stage drug development.

Takeda also hosts a Russian Innovation Center as one of its departments. The center's main goals include operational support for launching innovative drugs on the Russian market via local clinical and pre-clinical trials, and cooperation with the Russian scientific community and research organizations.

Pharmaceutical Business & Health Care 2014
Pharmaceutical Business & Health Care 2014
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