Recent years in Russia have been increasingly turbulent, and not just in the political realm. Low oil prices, economic sanctions, and currency fluctuations have all put considerable pressure on the Russian pharmaceutical market, causing supply woes and budgetary struggles. Meanwhile, the Russian government have continued to introduce policies to put pressure on foreign manufacturers to invest in the Russian market and to provide domestic manufacturers an absolute advantage. These forces will collide in 2017 and will result in unusual challenges for foreign and domestic pharmaceutical manufacturers alike.
- New pricing methodology for reimbursed drugs
In January 2017, it was reported that President Vladimir Putin has requested that the government “optimize” prices for drugs on the Russian List of Vital and Essential Drugs (ZHNVLP), with the goal of implementing measures to decrease prices. The drugs on this list are the only ones reimbursed by the government, and Putin reportedly wants to have law enforcement agencies inspect companies that have overpriced their ZHNVLP drugs in past public tenders. Though the text of the document has not yet been released, many details are already known.
The rules for the new economic analysis and methodology for ZHNVLP pricing should be in place by the end of March 2017, with a particular aim to develop a formula for the maximum profit a manufacturer can make on a ZHNVLP drug. The drugs will then be re-registered by August 1, 2017 and a report will be issued by the end of the year. All new prices for ZHNVLP drugs will be compared to previous prices used in public procurement, and for any tenders where the price was higher than the newly set price, all of the contracts and materials must be submitted to law enforcement officials by February 2018.
Unsurprisingly, this retrospective look at pricing and punishment has manufacturers concerned. A number of cheaper ZHNVLP drugs suffered from shortages in 2016, as their low prices could not justify their manufacturing – in Russia or abroad – despite subsidies and loans from the government. As a result, the Russian government lessened some controls on the cheapest class of drugs. There is concern that these efforts to change prices across the ZHNVLP will result in shortages in more classes of the drugs in 2017 and would undo all the efforts of 2016 to combat the supply crisis.
- Compulsory licensing
In mid-2016, a proposal for compulsory licensing was introduced and ultimately killed off due to manufacturer concern and intervention from key government officials. However, the Federal Antimonopoly Service (FAS) was not deterred and proposed the idea again in December 2016. Ostensibly, the plan is mainly intended for emergency situations, such as an epidemic. However, there exists a provision where the government can withdraw a patent if the manufacturer refuses to supply a drug to the Russian market without a valid reason, or if they attempt to maintain a monopolistically high price for a drug. According to the head of the Social Sphere and Trade department of FAS, this patent withdrawal could occur even for drugs that are not sold in Russia.
FAS will be responsible for the market analysis that could prompt such a patent withdrawal, but the federal government will ultimately decide how to proceed, for how long and what compensation the patent holder will receive, if any. Though the first proposal compulsory licensing was ultimately rejected, it is unclear whether this one will be. The Ministry of Health has expressed considerable interest in using compulsory licensing legislation changes for antiretroviral drugs, in order to combat the HIV/AIDS epidemic in Russia. It is unknown when these changes would take place exactly, but the goal is for a swift timeline which could result in some drugs losing their patents within 2017. Naturally, there is grave concern that this legislation will be abused. Even if it is not, these sorts of intellectual property machinations could deter manufacturers from investing in the Russian market in 2017 and launching drugs in Russia.
The procurement system for government-reimbursed drugs in Russia provides an absolute advantage for domestic manufacturers at the moment, and the advantages for these companies will not decrease in 2017. In basic terms, public procurement procedure requires for all foreign-made active ingredients to be rejected, only procurable in the event that a drug is not manufactured in Russia or the Eurasian Economic Union (EEU). In order for a drug to qualify as Russian-made, the molecular synthesis must occur in Russia – so merely packaging a drug in Russia or the EEU is not enough. Ostensibly, this procedure is designed to balance maximizing success for domestic manufacturers while also reducing the risk of drug shortages. Despite Russia's recent economic woes, many foreign companies have been opening factories in Russia in recent years, so the government must be reasonably confident foreign manufacturers will continue investing in the Russian market.
As expected, foreign manufacturers have criticized the absolute advantage for Russian-made drugs in public procurement. The manufacturers argue that such procurement rules are unfair, and would lead to price increases for the drugs affected, due to a lack of competition. They further argue that these rules are unlikely to serve as incentive to produce in the Russian market, as the volume of the Russian market would not compensate for the increased cost of producing domestically in Russia instead of purchasing or producing active ingredients abroad. Given that these procurement rules specifically impact drugs on the ZHNVLP reimbursement list, they could actually lead to increased pressure on the state healthcare budget – something it cannot afford.
It is clear that 2017 will not be a respite from the chaos and turbulence of years preceding it. With major changes and challenges in spheres ranging from pricing and reimbursement to intellectual property to public procurement, manufacturers will have to be adaptive and flexible. They will likely also have to make a commitment to the Russian market, perhaps a larger one than they were historically willing to make. However, despite the outlined challenges, the Russian market also provides considerable opportunities for those willing to make the leap.
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This blog is part of a series of posts from DRG’s global market access team examining challenges facing pharmaceutical firms in different countries in 2017. See our other blogs as they are added here (https://decisionresourcesgroup.com/tag/2017challenges/).