what can medicinal sovereignty lead to?

With the outbreak of Russian military operations in Ukraine, the pharmaceutical industry faced serious problems with the import of raw materials, which led to higher prices for medicines. This prompted the state to launch the next stage of import substitution in the industry. Manufacturers of substances were promised new support in the form of preferential loans and priority access to government procurement of drugs based on local raw materials. But companies are not yet in a hurry to take advantage of the help. They are also concerned about the lack of mass production of many chemical components in the Russian Federation. Market participants doubt the prospects of competition with leaders such as China and India, emphasizing that drug sovereignty does not guarantee affordable prices and the competitiveness of the industry.

Although the Russian pharmaceutical industry was not subject to Western sanctions, its participants, with the outbreak of the military conflict between the Russian Federation and Ukraine, faced serious problems when importing substances. According to RNC Pharma, the dependence of drug manufacturers on foreign raw materials reaches 80%. More than two-thirds of imports come from China and India. And although they generally remained on good terms with the Russian Federation, supply chains collapsed in these areas as well.

The problems were added by the sharply fallen exchange rate of the ruble, which led to an increase in prices for raw materials and, consequently, for locally produced drugs, and for a number of drugs – to a permanent shortage. At the end of 2022, according to DSM Group estimates, for example, painkillers increased in price by 18.9% year-on-year, and immunostimulants by 17.5%.

Prices for substances are also rising due to a new round of ruble weakening in 2023: according to RNC Pharma, in the first half of the year they rose on average by 25%, to 11.6 thousand rubles. for 1 kg. In response to the complicated situation, the authorities in June adopted the “Pharma 2030” strategy, which had been discussed since the pandemic, which, among other things, included plans for import substitution of substances, promising new government support measures for the industry.

A number of companies have already announced the launch of production of substances. Thus, Promomed, which launched the plant in March 2023, told Kommersant that it had developed full-cycle technologies for more than 150 drugs. Pharmasyntez announced the construction of a plant in Kaluga by 2026 with a capacity of up to 1 thousand tons per year. “PIK-Pharma” is going to produce 24 types of substances, “Endopharm” – 30. This year “Protek” bought the manufacturer of substances “Bion” in Kaluga Obninsk, and for the implementation of joint projects in the segment – a stake in the company “Active Component”, which produces raw materials for the pharmaceutical industry.

However, market participants emphasize that such projects are associated with significant risks, despite demand and government support.

The terms of benefits raise doubts

The companies surveyed by Kommersant that are establishing the production of pharmaceutical raw materials note a high volume of required investments – an average of 2-4 billion rubles. for the project.

To attract financing, for example, PIK-Pharma and Pharmasyntez are negotiating with VEB.RF.

Back in the fall of 2022, the state corporation and the Ministry of Industry and Trade launched the “Substances of Russia” program for preferential lending to producers of raw materials. In 2023, it became part of the cluster investment platform (CIP) created by the authorities in the same year for preferential lending to projects worth more than 2 billion rubles. up to 100 billion rubles. to create production facilities for a wide range of priority products. This list also includes vital medicines produced from Russian substances.

So far, only one project worth almost 12 billion rubles has been approved on the platform, the Ministry of Industry and Trade told Kommersant, without specifying details. According to the first deputy chairman of the board of the state corporation, Alexander Braverman, this fall it intends to submit “the most developed projects in the pharmaceutical industry” for consideration by an interdepartmental commission, which approves them for financing through the platform.

However, not all companies want to apply for government support. “The terms of the benefits raise doubts,” explains the head of the Association of Pharmaceutical Manufacturers of the Eurasian Economic Union, Alexey Kedrin. “Manufacturers are subject to too many obligations to provide guarantees and all the risks associated with the projects.” The association is now preparing proposals for the government to share these risks with the state.

Market participants interviewed by Kommersant emphasize that state support in its current form solves problems only in a targeted manner. “It is aimed at launching production, but does not help in expanding sales channels,” clarifies a Kommersant source among manufacturers. According to him, domestic demand is small compared to Western markets, exporting to the CIS does not make sense due to the low level of consumption, and in non-CIS countries it is extremely difficult to displace players from China, India and the EU.

While manufacturers of finished drugs can enter into offset contracts with regional authorities to ensure guaranteed government purchases, there are no such agreements for the supply of substances, explains Sergei Morozov, development director at PIK-Pharma. Some players find a way out of the situation – for example, R-Pharma has an agreement on finished drugs concluded with the authorities of St. Petersburg that provides for the localization of substances for several dozen names. However, this practice has not yet been put into practice.

Preservation of the pharmaceutical industry is expensive

To maintain demand within the country, the authorities promised to introduce the “second wheel” rule from September 2024, providing for priority participation in state tenders of companies producing drugs in the EAEU from the list of strategically important drugs in the full cycle – from the synthesis of molecules, production of raw materials to finished forms. It is planned to track the localization depth in an automated mode. Meanwhile, now there is not even an accurate idea of ​​the structure of the industry.

According to the Ministry of Industry and Trade, about 100 companies are engaged in the production of substances in the country. But RNC Pharma development director Nikolai Bespalov claims that there are half as many of them, and some produce “only up to five items, including banal hydrogen peroxide and sodium chloride.” A number of companies are engaged in the synthesis of substances, mainly for their own needs, clarifies Mr. Morozov.

Some players who claim to produce raw materials and medicines in the Russian Federation are heavily dependent on supplies from China. They import the substance under the guise of its components and re-register it as released in the country, explains Alexander Kedrin.

It is also difficult to achieve complete independence from imports because a significant portion of intermediates—semi-finished products for the production of substances—have to be imported from China. In Russia, according to the president of Active Component, Alexander Semenov, they are produced by a “limited range of companies.” Trading House “Khimmed” confirms that in their supplies the share of intermediates and substances from China and India is 90%, local production is only 2%.

Manufacturers of intermediates from China benefit in price due to large volumes. In Russia, they are produced by small chemical companies whose products are aimed at the local market, which is small, notes Mr. Bespalov. According to him, this complicates the development of production, and it is difficult for such players to go abroad.

In 2022, the largest petrochemical holding in the Russian Federation, SIBUR, announced plans to begin producing intermediates for the pharmaceutical industry. But the matter has not yet gone beyond statements, Kommersant’s sources say. SIBUR claims that it continues to analyze projects in this segment, but there are no decisions yet. According to another Kommersant interlocutor, representatives of the holding are not in the RSPP working group to develop joint plans for the pharmaceutical industry and chemists to localize production, although, for example, “Gazprom Neft – Industrial Innovation” is present there. The company’s general director, Mikhail Nikulin, told Kommersant that its specialists are developing technologies for obtaining components from oil for the production of painkillers, sedatives and antipyretics, among others.

In general, about 300 intermediates have been identified at the RSPP site, the production of which can begin in the country. The list is planned to be sent to the Ministry of Industry and Trade with an offer of possible state support, explains Mr. Kedrin. One of the obvious measures is preferential loans for the reconstruction of facilities that once produced components for substances, market participants say. However, they admit that “with the current budget deficit, such projects can hardly count on serious government support, which means that the modernization process will drag on for a long time.”

There is also virtually no global experience of complete independence in the production of medicines – in fact, China can be considered the only example. Even India, one of the main raw material bases of the global pharmaceutical industry, has to import biotechnologies and some drugs, market participants note.

Localization is forcibly high in Iran, but local medicines are more expensive, Rustem Muratov, general director of Binnopharm Group, said in an interview with Kommersant in April. According to him, Iran has imported almost 95% of basic funds, but “due to their high cost, they remain uncompetitive.” In fact, one of Kommersant’s interlocutors in the market emphasizes, the desire to “completely mothball the pharmaceutical industry within itself” is expensive and cuts it off from international technologies.

Polina Gritsenko, Olga Mordyushenko