Growth Point for Pharmaceuticals is Formed in Russia

| By | Pharma 2030, Russian Pharma
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Today, the pharmaceutical industry in Russia needs a new incentive for development. Launched in 2009, the state industry support program Pharma 2020 gave a strong impetus to the development of the medical and pharmaceutical sectors at the initial stage, which showed significant growth in both production and financial indicators. However, now this impetus is gradually dying out – the pharmaceutical sector growth rate has started to decline since 2018, which is not surprising – the stimulating state program expires next year. However, the Russian government has already prepared a new instrument – the state program Pharma 2030, which should get the positive trends back to the pharmaceutical sector. The results of the past decade, the expectations for the new program, and the most promising areas and locations for investments in pharmaceuticals are described in the material of the Moscow Region Development Corporation (MRDC).

The MRDC is an institution created by the government of the Moscow region for investment attraction and investment projects support in the territory of the region. The Corporation provides investors with informational support, selects locations for localization of industrial facilities, assists in preparation of supporting documentation for investment projects, and provides GR-support. The services of the Corporation are available to investors without charge.

Decade Results

In the very near future, Russia will start the implementation of the state strategy of pharmaceutical industry development Pharma 2030. The strategy reflects the main industry directions, the development of which will be stimulated with the help of the state support mechanisms. The previous state program Pharma 2020 gave a strong impetus for the development of the medical and pharmaceutical sectors, especially at the initial stage of implementation. Industry players can expect a good start from the new state program.

The main objective of the state program Pharma 2020 was to create the base for the development of the domestic pharmaceutical sector. As a result, the instruments stimulating the development of individual industry areas were developed and introduced from scratch. First of all, these instruments were all kinds of state support measures for investments in the pharmaceutical sector – subsidies on investment expenditures, co-financing, tax benefits, and much more. The external factor, which was expressed in the form of import substitution program in pharmaceuticals was of great importance. In particular, Russia’s policy of import substitution stimulated both domestic players to take a more active position on the investment market, and foreign manufacturers to consider the possibilities for localization of their enterprises in Russia. As a result, for example, 12 new large production sites were opened in Russia last year alone.

Due to the state support measures, which were aimed at subsidizing a part of investments in the development of pharmaceutical production, a large-scale modernization and technical re-equipment took place within the industry framework. As a result, Russian pharmaceutical companies launched the production of a wide range of drugs from generics to complex biotechnological products, which significantly increased the turnover of the Russian drug market. Thus, as of the launch of the program Pharma 2020, according to the Ministry of Industry and Trade of the Russian Federation, the total volume of the Russian pharmaceutical market was under 300 billion rubles. In 2018, according to DSM Group research, the volume of the pharmaceutical market in Russia exceeded 1.6 trillion rubles. At the same time, the share of Russian drugs accounted for almost a third of this volume in monetary terms and over 61% in packages.

Success Stories

The growth in the cash flow of Russian enterprises made it possible to enhance the financing of scientific developments in the pharmaceutical industry. This provided for significant progress in the development of new drugs. Russian manufacturers have brought to the market a number of revolutionary pharmaceutical drugs over the last year alone. For example, a completely new drug for hepatitis C treatment was developed by R-Pharm. Sanofi-Aventis Vostok plant has launched the production of an innovative sugar-lowering drug to treat diabetes. NanoBrahiTek, the Moscow region company, introduced a new drug to treat inoperable liver cancer. In total, almost 90 new medical drugs were introduced to the market by Russian manufacturers in the framework of the state program of the pharmaceutical industry support. Most companies took advantage of the state support measures in the implementation of their research and production projects.

For example, NanoBrahiTek is a resident of the Special Economic Zone (SEZ) Dubna, which is located in the Moscow region. Residents of such territories in Russia receive an extended privilege package from the government: tax preferences, favorable terms of land plot renting or buying, reimbursement of expenses for enterprise equipment, and much more. Financial support from the state in the form of federal and regional programs allowed NanoBrahiTek to increase R&D funding (research and development and design and experimental work). In addition to a liver cancer drug, NanoBrachiTek, in particular, has developed a unique drug to treat prostate cancer. At the same time, the cost of new drugs production allows the company to bring them to the market with a significantly lower price than that of foreign analogs. NanoBrahiTech is just one example that demonstrates the results of the program Pharma 2020.

Pharma 2030 – A New Season

Considering that today Pharma 2020 has almost depleted its resources, the market needs new support formats. Therefore, a new state strategy Pharma 2030 considers the changing market conditions, as well as the changes in the internal structure of the pharmaceutical market. If Pharma 2020 is, first of all, the modernization and expansion of production capacities, then the priority of the new program is the creation of our own innovative products. In this regard, the example of NanoBrahiTech is very illustrative – in fact, this is a new benchmark for the Pharma 2030 strategy, which is designed to ensure the replication of this success.

As the Minister of Industry and Trade of the Russian Federation Denis Manturov noted, biotechnological pharmaceuticals and biocellular medicines will be the main goal of the pharmaceutical sector support in the next ten years. Thus, considering the effectiveness of the previous state program, in anticipation of the new strategy launching, the best moment to reassess investment opportunities of the Russian pharmaceutical industry is now.

Nuances And Details: Creating A Perfect Investment Environment

In general, innovations in medicine, first of all, are all about long developments and research. Considering that biomedicine is a relatively new direction in the industry, research work is even more significant for it. At the same time, scientific research involves both significant financial expenses and long time expenditures. Therefore, in order to attract investment in biomedicine development, it is necessary to create ideal conditions.

“The state program Pharma 2030, one of the priority directions of which will be biopharmaceuticals development, is a powerful investment incentive,”

says Anton Afanasyev, Director General of the Moscow Region Development Corporation.

“However, this program is just the first line of investment support, which is a signal for market players that Russia has created the conditions for the successful development of biomedicine and biopharmaceuticals. The program indicates the availability of financial instruments to support the industry. However, after the initial interest, potential investors have questions of practical nature: logistics, distributuion, and personnel. The strategy will not solve these problems. Effective solutions are available upon a detailed assessment of certain investment projects at the regional level. Unfortunately, not every region in Russia is able to completely solve all these issues. The Moscow region can.”

Finance

According to Mr. Afanasyev, in the context of the program Pharma 2030, the Moscow region is a perfect place to solve the tasks set in the strategy.

“First of all, this is a variety of opportunities for using financial incentives, which are provided in the strategy and which are already partially operating in the Moscow region. At the moment, three locations with special conditions for investors were created in the Moscow region – these are special economic zones (SEZs). No other region in Russia has such a large number of SEZs. Moreover, now, the government of the Moscow region is working on the creation of two more similar sites. Due to the state subsidies for the development of these territories, preferential terms of land purchase, programs to reimburse a part of costs of certain types of work, the investor saves up to 30% of investments at the initial stage of his project. In the future, after the launch of production, the investor is provided with a long period of preferential taxation. For certain types of taxes, the zero rates is valid for 10 years, and reduced rates are even longer, at the expense of the Government of the Moscow region. According to international standards, these are unique conditions that are extremely important for projects with long payback periods, which include almost all investment projects in the field of medicine and pharmaceuticals,”

says Anton Afanasyev.

He also adds that in addition to special economic zones in the Moscow region there are about 80 production sites that are fully ready for connection of new industrial enterprises, including medical and pharmaceutical ones. There is no other such region in Russia with such scale of industrial infrastructure, and this significantly reduces both time and financial expenditures for investment projects implementation.

Another stimulating financial instrument set in the state strategy is a Special Investment Contract (SPIC). Under such contracts, companies are offered individual terms of investment project implementation. The main SPIC lines are zero income tax rate for the contract duration, as well as a number of other tax benefits. The remaining preferences are developed individually.

“You have to understand that SPICs are individual terms that are developed specifically for the investor, based on the parameters and peculiarities of a particular investment project,”

Afanasyev emphasizes.

”The Moscow region has experience in implementing similar projects: two factories that were built under SPIC are already operating in the region. Of course, not near every investor can be eligible for special terms, but pharmaceutical companies, especially those engaged with their own developments, can count on the conclusion of a SPIC, and the Moscow Region Development Corporation is ready to provide investors with the necessary assistance in negotiation processes on these matters.”

Logistics

Logistics is a no less important marker when making an investment business decision. This is especially true in case an investment project is implemented in the territory of a foreign state. In this regard, the Moscow region also stands out from other Russian regions. The largest transport and logistics hub connecting Western Europe, the countries of the Asia-Pacific region, and the states of Central Asia, is concentrated in the Moscow region. 11 railways and 11 federal highways pass through the region; there are 4 international airports in the territory. All this infrastructure is provided with large warehouse complexes and sorting terminals. The region has the most developed logistics infrastructure in Russia, which allows establishing production and trade relations effectively both within Russia and with foreign markets.

However, the Moscow region itself is the largest consumer market in Russia and the CIS countries. Over 20 million people live in the territory of the Moscow metropolitan area, ensuring stable demand for pharmaceutical products. According to the DSM analytical company’s report, the region ranks first in the consumption of pharmaceutical products in Russia in 2019.

Science and Personnel

Another major advantage of the Moscow region in terms of investment attractiveness is the availability of highly qualified human resources. For pharmaceutical and medical companies that are conducting their own research, this factor is perhaps of paramount importance, says the head of the MRDC.

“Conditions for scientific research development of the pharmaceutical industry are established historically in the Moscow region. For example, nuclear medicine is developed in the special economic zone Dubna. The base of the Joint Institute for Nuclear Research (JINR), working in the science city of Dubna, has already become the basis for a number of international projects in the field of medical research. It is the presence of the institute’s know-hows and highly specialized personnel resources that allowed the already mentioned company NanoBrachiTek to develop and to launch the production of innovative cancer treatment products. In total, 11 investment projects are being implemented on the basis of JINR in the SEZ Dubna. Moreover, the industrial site is interesting not only for investors from the field of nuclear medicine. A number of other medical and pharmaceutical manufacturing companies are located in the SEZ Dubna. Today, the medical and pharmaceutical cluster of 32 residents is formed in the territory of the SEZ,”

says Anton Afanasyev.

He also notes that in the near future in the Moscow region there will be another location that will arouse heightened interest among investors in the pharmaceutical sector. Considering a new state priority in the field of biotechnology development, the most promising area for project implementation in this direction is yet another science city in the Moscow suburbs – Pushchino.

“Since 1962, the town of Pushchino has the status of the “Scientific Center for Biological Research.” Today, there are 9 scientific research institutes operating in the science city that specialize in research in the field of molecular biology, genetic engineering, cell biology, biophysics, radiobiology, microbiology, biochemistry, and experimental biological instrumentation. 30% of all researches in this field in Russia is conducted here! This is the ideal location for investment in biopharmaceuticals. Highly qualified personnel, as well as many years of experience and field-specific research together with financial incentives within the framework of the state program Pharma 2030 make Pushchino the main attraction point for investments in the pharmaceutical industry not only in Russia, but also in the world,”

says the Director General of the MRDC.

Currently, the Moscow Region Development Corporation, with the support of the regional government, is working on the creation of a biopharmaceutical cluster in Pushchino. The project of a specialized industrial park, which provides for the creation of the necessary industrial infrastructure and communications, is ready. It is assumed that not less than ten large research and production enterprises will be able to accommodate on the park site. Due to the new industrial site, the science city of Pushchino will be supplemented with specialized production facilities. As a result, the existing scientific developments will be launched into mass production within the shortest time possible, and an effective industrial biopharmaceutical cluster will appear in the Moscow region.

“Human and scientific resources harmoniously complement the unique structure of the investment climate in the Moscow region, annually attracting new residents both from Russia and abroad. It’s no coincidence that a quarter of pharmaceutical production sites that opened in Russia last year were located in the Moscow suburbs”,

says Anton Afanasyev.

“This year, two more production facilities of this orientation were opened in the territory of the region: the Russian company “Obolenskoe” launched a new production line for the medicines, and the Japanese-German company Sysmex opened its own experimental production laboratory. In total, about 70 pharmaceutical and medical companies are working in the region, and 26 of them are considered large. About 7 major projects of medical and pharmaceutical focus are currently being implemented.”

Export

Another very important aspect of the new state strategy will be the pharmaceutical products export promotion. The interim target on which the state program orients is $ 2.4 billion by 2024. As of the end of 2018, the statistical agency Ru-Stat estimated this indicator at $ 635 million.

“In terms of export potential, namely the products of biotechnological direction of the pharmaceutical industry are the most promising, which makes the location of the emerging Pushchino biopharmaceutical cluster even more interesting for potential investors. It is worth noting the export opportunities of special economic zones with free customs zone within them in the same context. Let me remind you, that there are already 3 similar sites in the Moscow region, and 2 more will appear in the near future. In addition, the regional government is now exploring the possibility of expanding the SEZ regime to other territories, including Pushchino,”

said Anton Afanasyev, Director General of the Moscow Region Development Corporation.

Readiness For A New Peak In Investment Activity

The pharmaceutical sector in the Moscow suburbs is developing rapidly. Today, 24% of all pharmaceutical products in the Russian Federation are produced in the region. Over the past five years, the financial volume of production in the region has tripled from 40 billion rubles to 120 billion rubles in 2018. This trend should continue in the near future with the support of federal and regional state programs to stimulate investments in the pharmaceutical sector.

In anticipation of a new surge of interest in the pharmaceutical sector due to the launch of the program Pharma 2030, the Moscow region began to introduce special educational programs to train professionals who are able to solve specific industry problems. Since October 2018, special training in construction and medical institutions maintenance for engineers and technical specialists are conducted in the region. Due to this, investors in the field of medicine and pharmaceuticals in the Moscow region will be provided with highly qualified personnel from the beginning of investment project implementation and for its entire life cycle.

Thus, today, in anticipation of the launch of the program Pharma 2030, the Moscow region seems to be the most promising investment location for the medical and pharmaceutical sector enterprises. Moreover, not only on the scale of the Russian investment field, but also within the entire global market. The region has concentrated the necessary resources for the industry innovative development, which with proper stimulation can provide a high-quality scientific and industrial breakthrough in medicine.

The Moscow Region Development Corporation will help investors to obtain the most complete information about all state support measures available for the pharmaceutical industry. The MRDC is also willing to provide complex follow-up support for the investment project, including construction consulting and document flow, as well as GR-support. Being an institution of the government of the Moscow region, the Corporation provides all services without charge.

For all cooperation matters, please contact:

Address: Moscow, Kulakova st., 20, building 1, Business Center “Orbita-2”, bldg. Alpha, 6th floor.
Phone: +7 (495) 280-79-84
E-mail: info@mosregco.ru

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