Pharmaceuticals Among Fastest-Growing Industries
- By Anatoly Medetsky
- Oct. 08 2014 00:00
CEO of Moscow-based R-Pharm
A darling of foreign investors, the automobile industry is withering amid the general economic slowdown, but another star, pharmaceuticals, is on the horizon. The value of medicines produced last year increased 13 per cent, compared to the previous year, according to Industry and Trade Minister Denis Manturov.
The industry's growth rate is much higher than the overall economy, largely due to international pharma giants that have launched their own production in the country or acquired Russian manufacturers.
Vasily Ignatiev, CEO of Moscow-based R-Pharm said the company's output climbed a tentative 11 per cent last year, including drugs it produced for partners like Britain's AstraZeneca and Switzerland's Roche. "The number of joint projects keeps growing. New and existing partners have been coming to us with new drugs." Out of its portfolio of 70 medicines, 43 went into production last year.
In 2009, the government adopted its Pharma-2020 plan to try to build a more robust domestic industry, and government contractors received pricing incentives if their drugs qualified as having local origin. "It created a powerful incentive for businesses to set up new production units and research centers," said Pyotr Rodionov, chief executive of drug maker Geropharm.
This has prompted a number of foreign companies to open plants in Russia. French drug maker Sanofi has been making insulin at its plant in Oryol since 2010, while still importing the main ingredient from Germany. Japan's Takeda Pharmaceutical has been running a production unit in Yaroslavl since September 2012. Novartis may complete its plant in St. Petersburg later this year.
Germany's Bayer has entered into a strategic partnership with Russian drug manufacturer Medsintez, based in Sverdlovsk region. The first Bayer product to roll off the line there will be one of the company's best sellers on the market, Avelox, an antibiotic to treat pneumonia, said Oleg Tyrsin, an executive at Bayer. It will replace a "significant" share of the drug's imports.
Natalia Nikitenko, a senior manager at consulting firm EY, said foreign companies would benefit from a larger profit margin in the long term if they built their own plants rather than contracted local producers.
Russian pharmaceutical companies are willing to make drugs for foreign partners because original research and trial is an expensive and high-risk affair, said Victoria Samsonova, head of healthcare and pharmaceuticals at consultant KPMG. "Multinational companies are more prepared to carry those expenses and risks," she said.
Another reason for expanding local production is that the quality of locally made drugs is improving as companies have adopted Good Manufacturing Practice or GMP, a set of international guidelines for the industry, Ignatiev said. Assured of better quality, the market was treating Russian producers more favorably, he said.
The industry's promise is underscored by recent acquisitions. Billionaire Vladimir Potanin's Interros in November 2013 announced the acquisition of a controlling stake in vaccine maker Petrovax Pharm. This year the banker Roman Avdeev's holding company Garden Hills consolidated more than 98 per cent of Veropharm, one of the largest drug makers in Russia. The American giant Abbott then acquired the holding company, in a deal approved by the government commission on monitoring foreign investments. The deal was valued at up to $650 million.