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No pharmaceuticals import ban in Russia, but restricted admission to government procurement system sends mixed messages

22 September 2014 Kavita Rainova

In the last few days, various government officials in Russia have been issuing statements saying that the import of pharmaceuticals will not be banned as part of Russia's response to various trade restrictions from the EU and other countries following the Ukraine events. The country's Prime Minister, Dmitry Medvedev, was quoted as stating "No one should have doubts- there can be no blockades, embargoes in this area {pharmaceuticals], it is the health of our people, but, on the other hand, there are lots of drugs that can be produced in our country, including originator." In the same statement, the Prime Minister did, however, note "The main task is to ensure a certain level of drug independence, but it does not mean that we should abandon the imported drugs. There are lots of imported drugs, which were imported and will be imported because they are advanced, because there is no analogue in our country."

The statements, which in a way serve as a re-assurance that the import of pharmaceuticals will not be banned, come shortly after the Ministry of Industry and Trade (Minpromtorg) published a draft document for consultation which proposes restricting the admission of foreign drugs to the government procurement system.

Specifically, it proposes that in cases where the same product is produced by at least two Russian manufacturers (or manufacturers from the customs union which also includes Belarus and Kazakhstan) foreign products will be banned from taking part in the auction.

Considering all the recent events (particularly the counter sanctions imposed by Russia and the aforementioned proposal)the "buzz" surrounding these statements is not surprising.

However, are the proposals put forward by the Minpromtorg really that out of the blue or completely unexpected? In my view, there is nothing surprising about these latest developments. For instance, in 2012, there was a proposal to bar foreign medicines from participating in tenders for state purchases if there are two or more domestically-produced or Belarusian drug alternatives. With that in mind, the current draft document is not altogether unexpected. However, while perhaps not surprising, the proposal does point to the determination of the Russian government to support the domestic manufacturers. This makes the country's market an increasingly challenging environment for foreign companies to operate in. I should also add that support for the domestic industry is, in itself, a trend that has been ongoing for some time now. For instance, the government programme "Pharma 2020" - set in place in 2009 - involves measures for increasing the share of domestic drugs on the market, In particular, it ensures domestic production of certain strategically important drugs. The move towards increasing support for the domestic industry is thus not altogether out of the blue.

In all, while the statement rejecting a ban on import of drugs would be positive for foreign companies, the proposal by the Minpromtorg, although not unexpected, would come as a setback for some foreign manufacturers. Nevertheless, when considering the potential impact of the proposal (if and when approved) it is necessary to take into consideration that a substantial number of multinationals have been preparing for such an outcome: setting up local manufacturing capabilities or transferring more of the production process to local facilities. In the last few months, it was reported that US-based Vertex Pharmaceuticals intended to launch its St. Petersburg facility next year. Compatriot company, Eli Lilly, is looking to commence the full-cycle production of Humulin (human insulin) and Switzerland's Novartis is also set to launch its USD140 million facility in St.Petersburg--to name just a few. Localising, or moving more of the production process to Russia, would allow the products to be considered domestic thereby enabling the companies to access the auction system.

It would seem that multinationals have been adapting their strategies and investing in the production facilities in the country well in advance of the proposal coming into place- thus allowing them to maintain their market position. Nonetheless, the complexity of the market, and what looks like increasing protectionism, and push for increasing self-reliance, are challenges that are here to stay in the Russian market.

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