In September 2022, the Council of the Eurasian Economic Commission (EEC) approved the extension of zero rates of import customs duties and tariff concessions for a number of critical import goods. Raw materials for the production of pharmaceutical and chemical products, as well as drug products, medical equipment and reagents for laboratory tests were among the first to be included in this list. The preferential terms for the transportation of goods are valid until 31 March 2023 and may be extended. In the same autumn, the EAEU Law also introduced clauses dedicated to accelerated and simplified registration of a number of the most important groups of drug products. The purpose of these changes is to move from unified principles and rules to unified mechanisms for regulating the pharmaceutical market of the Union member states: Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, as noted by the Commission.
What is happening in the pharmaceutical market of the Eurasian Economic Union countries at the end of turbulent 2022? How have approaches to shaping regulatory strategy changed? Which countries have already managed to reach an agreement? And how will this help Russian and Eurasian pharmaceutical manufacturers? We discussed these issues with Viktor Dmitriev, Chairman of the Public Council under Roszdravnadzor, Director of the Association of Russian Pharmaceutical Manufacturers (ARPM).
– Viktor, If we sum up the past year: how much of an impact did external circumstances have on the domestic pharmaceutical market?
The most important thing happened not only in the pharmaceutical market, but in the economy as a whole. These are, of course, the unprecedented sanctions that were imposed on Russia last spring. Although they did not directly affect drugs and medical devices, logistics were significantly affected. In addition, the transportation of most ingredients for making medicines, dyes, fillers, leavening agents, even the varnish used to treat the inner surface of tubes, was soon banned as these goods were recognized as dual-use items. Nevertheless, any crisis, even a crisis of this magnitude, remains a window of opportunity. After all, firstly, it pushed us to look for more reliable partners, and secondly, we began to analyze our own resources more carefully, to consider what we can produce in Russia, so that we do not have to depend on someone abroad. Thirdly, this situation has greatly facilitated cooperation within the Eurasian Union.
– Does the threat of secondary sanctions complicate this cooperation?
You have to realize that not only pharmaceutical companies are involved in the production chain, but also financial institutions and banks. Yes, of course, some countries are afraid of secondary sanctions, but on the other hand, we are talking about a pure economics. Each new venture is beneficial to all parties. Competition benefits everyone, and primarily the consumers, the patients in these countries.
– Which markets are now becoming the most attractive in terms of business? Do Russian manufacturers manage to negotiate favorable terms there?
We have been discussing the idea of creating a common Eurasian space for the pharmaceutical market for many years, many national and supranational documents have been adopted, but so far the process of adapting these new norms - starting from registration of drug products, harmonization of regulatory documents and so on down the chain - is unfortunately going rather poorly. If this process were to move faster, it could move the business forward significantly.
That is why today business is even more interested than regulators in making the single space work. In fact, in the EAEU, only Russia and Belarus have production facilities that are ready to actively compete in terms of filling their markets independently. The rest of the markets mostly depend on imports, about 90% being the average percentage in other CIS countries. There are some large plants in Kazakhstan, Kyrgyzstan and Armenia, but we cannot say that they are seriously filling their markets.
The Uzbek market has recently become quite attractive for Russia. There is a decent economic growth of this market, the solvency of the population is growing, and Uzbekistan, for example, is larger than Kazakhstan in terms of population. Many companies are considering the possibility of establishing joint ventures and partnerships in Uzbekistan, but there is still a problem with labeling. Among the Eurasian countries, where free circulation of goods and finances was envisioned, there is still no agreement on unified labeling. These requirements remain different for each country, which, obviously, reduces export opportunities. Whether we like it or not, politics still interferes with the economy. It does not always depend on the desires of business and regulators in any particular country: some are afraid of secondary sanctions, everyone has their own reasons, and I understand them.
Nevertheless, we hope that the issue of introducing common labeling standards will be resolved most quickly with Uzbekistan, especially since the prerequisites for this are already in place. We have written relevant letters to the Ministry of Industry and Trade and the Ministry of Health of Russia, received positive feedback, and I believe that next year we will proceed to the level of intergovernmental agreements. I think this will be a positive example for the entire Eurasian community.
– What are the key features of pharmaceutical market regulation in the EAEU countries? Are most domestic manufacturers ready to enter these new markets and what are the advantages for them?
Firstly, for any company, expanding the market and sales audience is always a good thing. Secondly, cooperation with neighboring countries has historically been a matter of strategy. We are not welcomed in Europe, Latin America, Africa, but here everything is close, the audience speaks Russian, the older generation studied under the unified medical program, knows our medications well, and so on. This market is attractive and exciting for us, so companies are eager to enter it.
However, there is a nuance here. Again, it is connected with politics. For instance, those companies that have been successfully operating on the markets of Georgia and Moldova for many years, now, when updating their registrations, are subject to requirements to obtain European GMP certificates. In the current situation, they cannot obtain them, and, consequently, they cannot update their registrations and, in general, continue to operate in this markets. This is an example of obvious pressure. It should be understood that competition in the pharmaceutical market is very tough, someone else is bound to take the place of the departed domestic companies and offer their products at a higher price, taking into account the new registration costs. For the population of these countries there will be nothing good in such a changeover, they will get the same drug, with the same active ingredient, but at a higher price.
– Are there any consumption and demand patterns in these countries? Can we say that some drugs will be more or less in demand?
By and large, there are no pronounced consumption patterns associated with the use of medicines in these countries. There is a trend characteristic of Islamic countries, but we have seen it not among our neighbors, but, for example, in North Africa: where the level of alcohol consumption is low, people more often consume sweets, the incidence of diabetes is higher than, for example, in European countries. Accordingly, the demand for sugar-lowering drugs, insulins is somewhat higher.
However, I would advise manufacturers to pay more attention to such a criterion as solvency. It is generally lower in the Eurasian countries than in Russia. One more thing: sometimes a company is ready to lower the price of a certain drug in a certain country in order to occupy a particular position there and move forward, but no one does this, because in Russia the prices for VEDs are strictly regulated, and if this price turns out to be lower than in Russia, we will be forced by the Federal Anti-Monopoly Service to lower prices in Russia as well. This is a serious barrier to exports. We have talked about this many times, raised this topic, and we very much hope to be heard.
– Are there still opportunities to bring Russian innovative drugs to the Eurasian market, for example, as was the case with vaccines in 2020?
Essentially, yes, but you need to have a good understanding of the mechanism and an appreciation of the perspectives. I was talking about solvency for a reason.
An innovative drug, as a rule, costs tens of hundreds of thousands of dollars, it is paid for not out of pocket, but from the state budget or at the expense of insurance companies. If a company wants to bring an innovation to a foreign market, it must be sure that such a drug will definitely have a buyer. We certainly take these markets into account, but only if we are guaranteed to receive funds.
– Viktor, what trends in the development of the pharmaceutical market do you expect in 2023? What should manufacturers be preparing for?
As you know, it is particularly difficult to make any predictions right now because we cannot predict at all what the situation will be in the future. This concerns not only Russia, but the whole world: dollar fluctuations, changes in oil and gas prices, global logistics crisis.
The current situation has become something of a man-made crisis for many. I recently spoke with a representative of a German company that builds cement plants. He told me that for the Germans, the planning horizon has never before been less than six months. Now they cannot get guarantees to maintain the price even for a month, as energy costs are rising dramatically, production costs are increasing, the usual logistics are disrupted, sales markets are changing, and equipment supplies are becoming less and less predictable. Big projects have become a very serious challenge for absolutely all players in a wide variety of industries around the world. This all applies to the pharmaceutical industry in one form or another.
We cannot influence these factors, but we are preparing for them as much as possible: we are trying to buy materials that can be stored for a long time, we hope for subsidized support for purchases from the state, and we will closely monitor what is happening in the Eurasian countries that are cooperating with us but are not under sanctions.
Connect to stay up to date!
What is happening in the pharmaceutical market of the Eurasian Economic Union countries at the end of turbulent 2022? How have approaches to shaping regulatory strategy changed? Which countries have already managed to reach an agreement? And how will this help Russian and Eurasian pharmaceutical manufacturers? We discussed these issues with Viktor Dmitriev, Chairman of the Public Council under Roszdravnadzor, Director of the Association of Russian Pharmaceutical Manufacturers (ARPM).
– Viktor, If we sum up the past year: how much of an impact did external circumstances have on the domestic pharmaceutical market?
The most important thing happened not only in the pharmaceutical market, but in the economy as a whole. These are, of course, the unprecedented sanctions that were imposed on Russia last spring. Although they did not directly affect drugs and medical devices, logistics were significantly affected. In addition, the transportation of most ingredients for making medicines, dyes, fillers, leavening agents, even the varnish used to treat the inner surface of tubes, was soon banned as these goods were recognized as dual-use items. Nevertheless, any crisis, even a crisis of this magnitude, remains a window of opportunity. After all, firstly, it pushed us to look for more reliable partners, and secondly, we began to analyze our own resources more carefully, to consider what we can produce in Russia, so that we do not have to depend on someone abroad. Thirdly, this situation has greatly facilitated cooperation within the Eurasian Union.
– Does the threat of secondary sanctions complicate this cooperation?
You have to realize that not only pharmaceutical companies are involved in the production chain, but also financial institutions and banks. Yes, of course, some countries are afraid of secondary sanctions, but on the other hand, we are talking about a pure economics. Each new venture is beneficial to all parties. Competition benefits everyone, and primarily the consumers, the patients in these countries.
– Which markets are now becoming the most attractive in terms of business? Do Russian manufacturers manage to negotiate favorable terms there?
We have been discussing the idea of creating a common Eurasian space for the pharmaceutical market for many years, many national and supranational documents have been adopted, but so far the process of adapting these new norms - starting from registration of drug products, harmonization of regulatory documents and so on down the chain - is unfortunately going rather poorly. If this process were to move faster, it could move the business forward significantly.
That is why today business is even more interested than regulators in making the single space work. In fact, in the EAEU, only Russia and Belarus have production facilities that are ready to actively compete in terms of filling their markets independently. The rest of the markets mostly depend on imports, about 90% being the average percentage in other CIS countries. There are some large plants in Kazakhstan, Kyrgyzstan and Armenia, but we cannot say that they are seriously filling their markets.
The Uzbek market has recently become quite attractive for Russia. There is a decent economic growth of this market, the solvency of the population is growing, and Uzbekistan, for example, is larger than Kazakhstan in terms of population. Many companies are considering the possibility of establishing joint ventures and partnerships in Uzbekistan, but there is still a problem with labeling. Among the Eurasian countries, where free circulation of goods and finances was envisioned, there is still no agreement on unified labeling. These requirements remain different for each country, which, obviously, reduces export opportunities. Whether we like it or not, politics still interferes with the economy. It does not always depend on the desires of business and regulators in any particular country: some are afraid of secondary sanctions, everyone has their own reasons, and I understand them.
Nevertheless, we hope that the issue of introducing common labeling standards will be resolved most quickly with Uzbekistan, especially since the prerequisites for this are already in place. We have written relevant letters to the Ministry of Industry and Trade and the Ministry of Health of Russia, received positive feedback, and I believe that next year we will proceed to the level of intergovernmental agreements. I think this will be a positive example for the entire Eurasian community.
– What are the key features of pharmaceutical market regulation in the EAEU countries? Are most domestic manufacturers ready to enter these new markets and what are the advantages for them?
Firstly, for any company, expanding the market and sales audience is always a good thing. Secondly, cooperation with neighboring countries has historically been a matter of strategy. We are not welcomed in Europe, Latin America, Africa, but here everything is close, the audience speaks Russian, the older generation studied under the unified medical program, knows our medications well, and so on. This market is attractive and exciting for us, so companies are eager to enter it.
However, there is a nuance here. Again, it is connected with politics. For instance, those companies that have been successfully operating on the markets of Georgia and Moldova for many years, now, when updating their registrations, are subject to requirements to obtain European GMP certificates. In the current situation, they cannot obtain them, and, consequently, they cannot update their registrations and, in general, continue to operate in this markets. This is an example of obvious pressure. It should be understood that competition in the pharmaceutical market is very tough, someone else is bound to take the place of the departed domestic companies and offer their products at a higher price, taking into account the new registration costs. For the population of these countries there will be nothing good in such a changeover, they will get the same drug, with the same active ingredient, but at a higher price.
– Are there any consumption and demand patterns in these countries? Can we say that some drugs will be more or less in demand?
By and large, there are no pronounced consumption patterns associated with the use of medicines in these countries. There is a trend characteristic of Islamic countries, but we have seen it not among our neighbors, but, for example, in North Africa: where the level of alcohol consumption is low, people more often consume sweets, the incidence of diabetes is higher than, for example, in European countries. Accordingly, the demand for sugar-lowering drugs, insulins is somewhat higher.
However, I would advise manufacturers to pay more attention to such a criterion as solvency. It is generally lower in the Eurasian countries than in Russia. One more thing: sometimes a company is ready to lower the price of a certain drug in a certain country in order to occupy a particular position there and move forward, but no one does this, because in Russia the prices for VEDs are strictly regulated, and if this price turns out to be lower than in Russia, we will be forced by the Federal Anti-Monopoly Service to lower prices in Russia as well. This is a serious barrier to exports. We have talked about this many times, raised this topic, and we very much hope to be heard.
– Are there still opportunities to bring Russian innovative drugs to the Eurasian market, for example, as was the case with vaccines in 2020?
Essentially, yes, but you need to have a good understanding of the mechanism and an appreciation of the perspectives. I was talking about solvency for a reason.
An innovative drug, as a rule, costs tens of hundreds of thousands of dollars, it is paid for not out of pocket, but from the state budget or at the expense of insurance companies. If a company wants to bring an innovation to a foreign market, it must be sure that such a drug will definitely have a buyer. We certainly take these markets into account, but only if we are guaranteed to receive funds.
– Viktor, what trends in the development of the pharmaceutical market do you expect in 2023? What should manufacturers be preparing for?
As you know, it is particularly difficult to make any predictions right now because we cannot predict at all what the situation will be in the future. This concerns not only Russia, but the whole world: dollar fluctuations, changes in oil and gas prices, global logistics crisis.
The current situation has become something of a man-made crisis for many. I recently spoke with a representative of a German company that builds cement plants. He told me that for the Germans, the planning horizon has never before been less than six months. Now they cannot get guarantees to maintain the price even for a month, as energy costs are rising dramatically, production costs are increasing, the usual logistics are disrupted, sales markets are changing, and equipment supplies are becoming less and less predictable. Big projects have become a very serious challenge for absolutely all players in a wide variety of industries around the world. This all applies to the pharmaceutical industry in one form or another.
We cannot influence these factors, but we are preparing for them as much as possible: we are trying to buy materials that can be stored for a long time, we hope for subsidized support for purchases from the state, and we will closely monitor what is happening in the Eurasian countries that are cooperating with us but are not under sanctions.
Connect to stay up to date!