Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Drug Industry Near-Prostrate With Ills

ST. PETERSBURG -- Russia's pharmaceuticals industry is sick and big injections of cash are needed for the patient to recover, Russian and Western experts say.

"Russia's medical sector is in such bad shape that improvement just has to come," Richard Smith, general director of Geneva-based Eli Lilly Exports, told a recent pharmaceuticals conference in St. Petersburg. "But it will be slow."

Russian drug manufacturers, like most other industrial sectors, suffer from a host of ailments, ranging from underinvestment to outmoded equipment.

Drug shortages are epidemic and distribution networks have all but collapsed since the 1991 breakup of the Soviet Union.

"There are no funds and no distribution systems to replace what was," said Alexander Apazov, president of the Russian Pharmaceuticals Association, which groups Russian drug makers. "We desperately need foreign investment."

But foreign firms have been slow to invest in Russia's 93 pharmaceuticals factories, virtually none of which currently operates under Western-quality standards.

One exception to the investment rule is the St. Petersburg-based October Pharmaceuticals Factory, where California-based ICN Pharmaceuticals traded 30,000 of its American Stock Exchange-listed shares for a 15 percent equity stake last year. In addition, Baxter International has spent $10 million developing a Moscow manufacturing plant.

Other foreign drug manufacturers are looking at exports to Russia, but most complain about bureaucratic customs problems and other barriers to trade.

Mary Pendergast, deputy commissioner of the United States Food and Drug Administration, said a 1993 U.S.-Russian memorandum designed to speed imports of American drugs had done little to simplify the process.

In 1991 Russia imported 20 percent of its pharmaceuticals, mostly critical products like insulin and antibiotics.

Today, with factory output plummeting as manufacturers struggle to adapt to a market-oriented economy, the country must import more than 70 percent of its drugs, Apazov said.

But even so, demand is largely unmet. Imports of the most essential drugs have dropped by over 65 percent since 1991.

The drugs that are available are often offered for sale in unheated street kiosks and underground metro stations. They have no "sell-by" date, little packaging and few instructions for use.

Russian health authorities have complained that low-quality drug imports, mostly from China and the Middle East, have tainted the industry.

"The imports situation has become so chaotic, it's almost unregulatable," Azapov said. "Russia should buy only the most essential Western pharmaceuticals and produce the rest herself." But boosting production at home is impossible without more money, and Russia's Health Ministry has halved its subsidies to factories since 1993. Pharmacies are also struggling through the transition, too cash-strapped to pay their suppliers.

Yury Kalinin, head of the Biopreparat insulin factory in St. Petersburg, said he could not find buyers for much of his output, even though insulin is in short supply in Russia.

Some Western pharmaceuticals makers say the fact that Russia treats its nascent medical industry as a matter of national pride is a big hindrance to direct investment.

"They're looking to protect their own industry, but few will be interested if wholesale protectionism sets in," Smith said. The only bright spot on the horizon is an elite cadre of well-trained medical researchers, who could prove valuable to remaking the industry.

"Most major emerging markets have found the wherewithal to manufacture the core drugs they need," Pendergast said. She added: "Russia may be struggling economically, but with its technical expertise it may in 10 years be able to jump straight into niche markets for specific products."