Away from the "big pharma"

Alexey Gorichensky, "Expert North-West"

There is no pharmaceutical business in Russia yet," says Rodion Kolesnikov, PhD, Commercial Director of Pharmsintez CJSC.

From the mouth of one of the leaders of perhaps the most promising Russian pharmaceutical company, the statement sounds unexpected. In fact, the factory facilities of Pharmsintez were originally created in 1996 for the production of complex pharmaceutical substances – the initial product for finished medicines. The very structure of production includes the possibilities of laboratory research and development of schemes for the industrial synthesis of new biologically active molecules. The company has three own original drugs in its arsenal, and only a few Russian manufacturers can boast of this. Over the past five years, the company's sales have been growing by an average of 25% annually. It seems that there are all the prerequisites for a more positive view.

Quantity that does not translate into quality– Why such rigor in the assessment of the Russian pharmaceutical business?

– The global pharmaceutical business is primarily the development and production of medicines to meet the needs of the population. Moreover, the emphasis should be placed on the development. The multibillion-dollar turnover of domestic pharmaceutical companies, relatively high percentages of market growth, called by analysts, relate mainly to its distribution segment. So far, only a more or less functioning commodity distribution system has been created in our country, but the state of the distribution sector eloquently indicates that the market is at the stage of primary capital formation. In particular, about 2 thousand distribution companies are still registered in Russia and have licenses for pharmaceutical activities. Why our market needs so many of them is unclear. For comparison, there are only about 10-12 such companies in the USA, two in Germany, three in France, six in Italy, and one in Finland. The number of 2 thousand is an indicator that the Russian pharmaceutical business is still in its infancy. Until now, the main and only purpose of this activity is to make money in the short term, and money remains the only criterion for the success or failure of an enterprise.

– But why should we necessarily copy the US model? Let's assume that Russia is mastering the original path of development of the pharmaceutical market and the presence of a large number of distributors is good because it increases competition.

– That's the paradox, that it does not increase. The functions of the distributor are strictly limited, accordingly, there are a very small number of points of differentiation – signs and indicators by which companies could differ from each other. Thus, the presence of a limited number of distribution companies is dictated by the very logic of the market. A large number of organizations in the B2B sector is impractical. Moreover, this leads to the loss of control over the quality of products, the development of various corruption schemes, including counterfeit production and smuggling.

Under the carbon copy– If there is no pharmaceutical business in Russia, how do you feel and position yourself?

As a company dealing with something that doesn't exist?

– "Pharmsintez", unfortunately, does not define the face of the Russian pharmaceutical business. It was originally created as an innovative manufacturing company. We managed to attract good specialists in the field of organic synthesis to work, and several interesting developments in varying degrees of readiness were inherited from Leningrad-St. Petersburg science. All of them were analyzed for possible market prospects.

As a result, the company's specialists have developed and put into production three original pharmaceutical preparations. These are the Neovir immunomodulator, the Phenazid anti-tuberculosis drug and the Sigedrin antitumor agent, unique for the Russian market. In our opinion, each of the products in its niche is at least as good as its domestic and foreign counterparts. For example, "Sigedrin" is the only drug produced in our country for palliative care for cancer patients. It is used in cases of far-reaching pathological processes, with relapses and metastases, as well as when the possibilities of any treatment accepted in oncological practice are practically exhausted.

Scientific developments are continuing now, already manufactured drugs and substances are being improved, as well as the creation of fundamentally new products. I can't talk in detail about the direction of research yet: a set of products that are under development in varying degrees of readiness, in our opinion, is one of the main values of the company and one of the most protected trade secrets.

– As far as I know, the Kapitolovo Chemicals plant, which is part of the company's structure, is a low–tonnage pilot production for the synthesis of pharmaceutical substances. Why has Pharmsintez not become an experimental platform for the introduction of new pharmaceutical substances for the entire domestic industry? Why was a different course taken – to create original drugs, orders for the manufacture of which had to be placed at contract production facilities?

– Because, I repeat, domestic pharmaceutical companies overwhelmingly produce generics. Copying is everything that the young Russian pharmaceutical industry was able to do until very recently. In order to do this, Pharmsintez is not needed – cheap substances for the production of generics are supplied in huge volumes by Chinese enterprises.

As a manufacturer of substances, our company has been of interest only to Western customers since the launch of its own production. Now, for example, we are successfully implementing a joint project with a Canadian partner. The essence of the project is not just in the synthesis of the ordered substance at our facilities, but in the refinement of a previously known molecule, the creation of new consumer properties. Accordingly, it assumes the most active participation of our chemists in scientific and technological developments. Previously, we successfully completed similar projects with a Swedish-Irish concern and with partners from the USA.

– Why do Western companies place their orders with you, and not in China, since the production of substances is cheaper there?

– The key competitive advantages over the Chinese have become our law-abiding and the ability to keep other people's secrets. Because in these projects it was about the synthesis of substances for original preparations of European and North American companies, which, as a rule, have patent protection. Meanwhile, it is known that when placing orders at Chinese enterprises, drug production technologies will almost inevitably be copied by local companies. The ethics of the local business is such that it allows you to handle someone else's intellectual property completely freely. At the same time, it is useless to sue them: claims of several Western companies against Chinese manufacturers have been in court proceedings for years, and there are no prospects for successful completion of cases.

Not Pfizer– What is the reason for the lack of innovative drugs in the portfolios of leading Russian companies?

– I will not complain once again about the ruined scientific potential. He is really ruined, but not at the root, not fatally. We have preserved good schools, individual specialists have been preserved, but there is no system to support relevant scientific developments. In the West, such systems have been created for decades – these are entire networks of research centers, universities and small private laboratories in which each link performs its function. These networks are funded, as a rule, by "big pharma" – the largest multinational pharmaceutical corporations. The state participates in financing only individual global projects, such as, for example, the fight against AIDS or avian influenza.

The development of each new drug is a big financial risk. According to statistics, approximately one in ten of the studied molecules of the initial pharmaceutical substances reaches the stage of drug production. It takes up to 15 years from the start of work on the drug to its launch into production, since in addition to the actual development, a large cycle of preclinical, then clinical studies confirming the safety and effectiveness of the drug is required. At the same time, the annual costs of launching one new drug from a company such as Pfizer, for example, can be comparable to the annual budget allocated to healthcare throughout Russia. If we analyze the structure of Pfizer's balance sheet, we see that in 2008, 15.5% ($7.3 billion) of sales revenue is planned to be spent on R&D research of new molecules, 31% ($14.4 billion) on sales and marketing. At the same time, the cost of products sold will be only 14.5% of the balance.

– What is the structure of the actual costs of an average Russian pharmaceutical company?

– Fundamentally different than Pfizer's, and the volume of costs is orders of magnitude lower. Very few of our enterprises are willing to spend more than 2-3% on R&D and more than 15% on sales (promotion) and marketing. If we talk about "Pharmsintez", then our share of R&D in the total balance is 8%. And this, of course, is also not enough. How to make this share higher is a question for the company's shareholders, it depends on their desire and ability to make the maximum bet on innovative development.

Now in our country it is very difficult to find such a business owner who will be willing to risk a lot of money in order to make a profit in 15-20 years – no one looks so far in our country. There are some enthusiasts who invest in development – they can be counted on the fingers of one hand. In our North-West, in addition to Pharmsintez, these are our respected competitors from the Polisan company. The majority of Russian enterprises do not create additional market value, since the costs of developing new drugs are often zero, and the costs of promotion and marketing are minimal. The only thing that can be managed or adjusted in this situation is the price of the drug. Moreover, the price of a generic drug naturally decreases over time, as the number of copies increases. In such a situation, the opportunities for maneuver for Russian top managers are extremely limited. If this is a business, then the business is very primitive.

Strategic industry– It turns out that there is simply not enough money to switch to the innovative path of development of our pharmaceutical industry?

– There will be no money, investments will not come if the company does not create additional market value, if it does not have "differentiating points" that distinguish it in the general series. This is a matter of strategy, which is by no means something abstractly theoretical for Russian pharmaceutical companies. No, this is a matter of business sustainability, increasing its capitalization, and its future. Of course, Pharmsintez cannot be a model in this regard, there are no samples on our market, but our innovative strategy was formulated at an early stage of the company's development.

If we talk about the situation as a whole, then the cost of the vast majority of Russian pharmaceutical enterprises consists solely of the cost of their fixed assets and the cost of inventory. There are no brands on our market, as well as ideas that would make a particular business special. And if there are no features, then there is no additional market value either, and the only thing this business exists for is earning money for the current expenses of its owner. Where do funds for scientific research come from here?

The second component necessary for the innovative growth of the industry, in addition to investments in strategies, is a balanced public policy. Now we are ready to throw all our efforts into the development of nanotechnology, and this, of course, is very important, useful and timely. Just let's not forget that there is still such a thing as organic chemistry, in which innovations are also extremely relevant.

– Maybe it's just worth waiting for the end of the period of capital accumulation in the Russian pharmaceutical industry, after which everything will fall into place?

– We cannot afford to wait for the market to mature by itself to invest in R&D. The survival of individual companies due to niche strategies is possible only at the transitional stage of market development. The continued existence of the Russian "pharma" directly depends on the introduction of its own developments to the market, the synthesis of its own active substances, and the risk of being late with their creation is high. We are already facing a strong lobby of global pharmaceutical giants. We are implicitly given to understand that all efforts to create new original Russian drugs are generally meaningless, because everything is already there, everything is invented, everything can be bought on the world market. Meanwhile, pharma is a strategic industry, and Russia is too big a country with too complex tasks to be able to afford complete drug dependence.

Portal "Eternal youth" www.vechnayamolodost.ru
31.03.2008