Scheduled to break ground in April, AstraZeneca PLC's investment of more than $150 million into construction of a drug manufacturing plant in Russia indicates the U.K.-based firm's confidence and long-term commitment to the emerging Russian market.

Located in the industrial park Vorsino in the Kaluga region, an auto industrial center in Russia, the full cycle production site will employ up to 145 employees who will handle processes from preparation of dosage forms to packaging.

AstraZeneca plans to produce drugs for cancer, cardiology, gastroenterology, mental health, respiratory disease, as well as severe hospital infections. First products will roll out in about two years, and the manufacturing plant meet all international quality standards such as good manufacturing practices, says the company.

"The decision of such a large long-term investment project reflects the company's confidence in large prospects in Russia as a steadily developing economy," said Nenad Pavletic, president of AstraZeneca Russia. Pavletic added that the plant also supports the Russian government's policy of upgrading and improving its pharmaceutical industry and enhancing research capabilities.

"In addition to the localization of production, the company intends to invest in research and development. In our immediate plans - project support for Russian innovation in basic science."

A largely self-pay market, in which patients pay 80-90% of medical expenses out-of-pocket, the government has stepped up measures to improve healthcare standards and access across Russia. In 2008, the Federal government announced its Health 2020 plan with the goal of improving life expectancy and expanding insurance coverage for the population of 139 million.

Pharma 2020 Plan Means Local Production A Must

As part of its Pharma 2020 plan, Russian Prime Minister Vladimir Putin has singled out the pharmaceutical industry as a key component of economic diversification measures to encourage local production. The Putin administration has pledged nearly $4 billion and set a goal for 90% of its roughly 500 essential drugs to be manufactured locally by 2020. Currently imports account for about 85% of the market share (Also see "Russia Pledges $3.9 Billion For Local Pharma Growth, As Big Pharma Scrambles To Set Up Shop" - Scrip, 22 December, 2010.).

Alex Ablaev, VP of Russian Technology Platform at the Russia Biotechnology Society, told PharmAsia News that the clear policy preference for local production of pharmaceuticals and biologics means drug makers have no choice but to set up shop in Russia.

"Drug makers could lose significant market share soon without local production, so they have to find a place in Russia," he said.

Compared to countries like China and India, Russia has a relatively small population of 139 million, but it offers a sizeable growth opportunity, and the recent public financial stimulus package to drum up local investments has made Russia a battleground for multinational drug makers eyeing new revenue streams.

Pharmaceutical sales in Russia reached $12.5 billion in the first quarter of 2010, accounting for 1.4% of world market shares, according to IMS Health. The market is projected to increase at a compound annual growth rate of 15.5% by 2014, doubling the rate of U.S. and European markets, IMS said.

MNCs Heed Kremlin Call

The Eastern promise has many multinational companies heeding the call from the Kremlin and rushing to set up local production. Russia's leading foreign drug maker, Swiss company Novartis was the first to dive in, with a $500 million investment over five years, including construction of a new manufacturing facility in St. Petersburg. Novartis' Sandoz unit also saw double-digit growth in Central and Eastern Europe, Asia-Pacific, Middle East, Turkey and Africa ('Abbott, Eli Lilly, Novartis: Emerging Markets Earnings Round Up (Part 1),' PharmAsia News, Feb.8, 2011).

As the largest drug maker in Russia with 7.4% market share, Novartis' move is being closely watched by competitors.

French maker Sanofi-Aventis, with the second-largest market share after Novartis, in January appointed a new emerging markets management team and promoted its Head of Russia Patrick Aghanian to Head of the Eurasia Region, with a goal of boosting its market share in Russia and commonwealth of independent states such as Belarus and Kazakhstan, which is considered one of its key markets.

Sanofi has been seeing significant growth in the market, growing 19.9% to €654 million in the fourth quarter, due largely to the acquisition of Zentiva in Russia. The company anticipated further volume increases in Russia "for years to come," Global Operations President Hanspeter Spek said during the company's year-end earnings call Also see "Sanofi-Aventis Emerging Markets Sales Exceed U.S., Europe: Emerging Markets Earnings Round Up (Part 2)" - Scrip, 11 February, 2011.).

Another major foreign player Nycomed has built a €75 million plant in Russia's Yaroslavl region, 270 miles away from Moscow. The combined markets of Russia and the Commonwealth of Independent States are Nycomed's largest market with sales of €343.4 million reported in 2009 (Also see "Nycomed CEO Hakan Bjorklund On Emerging Markets As Core Focus For Growth: An Interview With PharmAsia News" - Scrip, 6 October, 2010.).

India's Ranbaxy also signed a memorandum of understanding with the Yaroslavl regional authority to build a medical and pharmaceutical center Also see "Russia Attracts More Multinational Pharmas As Emerging Markets Continue To Bloom" - Scrip, 9 February, 2011.).

Branded Generis And OTC To Benefit

The Russian pharma market will likely see the most growth in retail prescription sales and over-the-counter drug sales.

For example, Sanofi-Aventis led Russia's OTC sector in 2010 with a 5.2% share ($720 million) of total drugstore sales, according to Moscow-based pharmaceutical consulting firm PharmExpert.

The company's sales structure is dominated by treatment of alimentary tract and metabolism, accounting for 52.1% and cardiovascular diseases, 19.2%. The bestsellers are Essentiale (phospholipids with vitamins), No-spa (drotaverine), Magne B6 (magnesium, vitamin B6), and Lozap (losartanum), which accounted for 44.6% of Sanofi-Aventis' total sales. Essentiale in particular, boasted a 1.1% share ($148 million) of total drugstore sales in value, growing 30.6% year on year.

However, Russia's poor history of patent protection and limited enforcement has many worried about the risk of intellectual property violations and infringement.

"For now there is a credible growth opportunity for branded as well as OTC medicines from international pharmaceutical companies, but stated government favoritism for local producers means investments should be made with eyes wide open, and IP/know-how firmly locked away in home markets," said Deutsche Bank analysts in a Feb. 4 report.

- Brian Yang (pharmasia@elsevier.com)

AstraZeneca To Break Ground In Russia As MNCs Build Stronger Base In The Country

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