IHS Global Insight Perspective | |
Significance | The bill was approved in a 393–1 vote, and its main aims are to improve regulation in the market and ensure the Russian pharmaceutical industry complies with international production standards. |
Implications | The most controversial elements of the bill—namely plans that additional clinical trials for innovative drugs be conducted in Russia—were scrapped. For domestic companies, the mandatory introduction of clinical trials by 2014 will prove to be a significant cost. |
Outlook | The bill is set to become law by September. Government price control will only be limited to the essential drugs sector, which accounts for just 30% of the market. Pharmaceutical companies can therefore expect to maintain their margins in the rest of the market. |
Bill Approved in 393-1 Vote
The new Russian pharmaceutical bill has been approved by the lower house of the State Duma in a 393–1 vote. The bill is now set to become law by 1 September; however, it still needs to go through the Federal Council—the upper house of the Duma—as well as the Russian president. The bill seeks to replace the 12-year-old pharmaceutical law. After months of heated debate, 45 out of the 312 proposed amendments were incorporated into the final version of the bill.
Main Provisions
Drug Registration Procedures and Fees
Under the new bill, registration fees for new drugs in Russia will be cut from 670,000 roubles (US$22,828) to 300,000 roubles. The same fees will apply to both domestic and local companies. The bill also stipulates that the drug registration process should take no more than 210 days.
Introduction of GMP Standards by 2014
A key feature of the bill is that all pharmaceutical companies operating in Russia who have not already implemented European Good Manufacturing Practice (GMP) standards in their operating facilities will be required to do so before 1 January 2014. Any companies who have not already implemented GMP standards by this date will have their licence revoked. According to Russia's health minister Tatyana Golikova, only 30 of the 400 pharmaceutical companies operating in Russia are GMP compliant. In the original version of the bill, the introduction of mandatory GMP status for drug makers in Russia was set for 2012; however, companies will now be given more time to comply with international standards. According to Russian newspaper RBC Daily, the DSM group estimated that the cost of converting to GMP standards will amount to US$1 billion. However, in previous reports, Pharmexpert estimated that the process of upgrading manufacturing facilities could cost up to US$18 billion (see Russia: 12 March 2010: Russian Pharmaceutical Producers Will Have to Introduce GMP Standards by 2014—New Law).
Clinical Trials
One of the main debates surrounding the bill was the requirement that clinical trials for innovative drugs be conducted in Russia as a prerequisite for registration. This measure was, however, dropped during the second reading of the bill, following concerns voiced by the Association of International Pharmaceutical Manufacturers that the new rules would affect the rate of entry of innovative drugs in the Russian market. According to the bill, additional clinical trials in Russia are not necessary as long as the results of the clinical trial for the drug are mutually recognised by Russia and the country of origin. In terms of clinical trials conducted in Russia, mandatory insurance will be required for all participants. Compensation payments for any death during a clinical trial will stand at 2 million roubles, with payments of 1.5 million roubles for any disability incurred, and 300,000 roubles for health deterioration as a result of a clinical trial.
State Regulation of Essential Drug Prices
A major provision of the bill is that the government will play a greater role in monitoring prices set for essential drugs. To this end, the government has developed a new pricing methodology that will serve as a guide to the wholesale and retail limits set on trade margins to be applied on drugs. Ahead of the bill becoming law, pharmaceutical companies are now required to register the prices of all drugs that fall under the vital and essential drugs list. Regional authorities will be responsible for setting wholesale and retail mark-ups for drugs. Prices of drugs will be made publicly available on the internet.
Reduced Role of Distributors in Providing Drugs to Hospitals
Hospitals will now be able to source their drugs directly from the manufacturer, instead of through distributors.
Improved Access to Drugs in Rural Areas
In rural areas where there are few pharmacies operating, doctors and paramedics will be given the right to sell drugs.
Outlook and Implications
Overall, international pharmaceutical companies will not be affected significantly by the new bill. The main point of contention—the requirement that clinical trials be conducted in Russia—was quickly dropped by legislators, following intervention from the State Duma committee on economic policy and entrepreneurship, which advised that this proposal would do little to reduce administrative barriers for registering new drugs. It would instead have had a negative effect on the rate of entry of innovative drugs in the Russian market. The reduction of registration fees will come as a relief for both domestic and international companies, more so for the latter group, which faces registration fees of 1.2–1.3 million roubles, almost double the amount charged to the former under the old rules. The new drug-registration deadlines will also mean that new drugs may be launched more quickly, as the current registration process takes up to 18 months.
In terms of the state regulation of drug prices, this will come into force sooner rather than latter. According to the latest reports, virtually all companies with products on the essential drugs list have now registered their prices, ahead of the 1 April cut-off date. The main driver of this proposal is the need to control price inflation in the pharmaceutical market. According to the Federal Antimonopoly Service, in 2009, domestic and imported drug prices were up by 8.6 year-on-year (y/y) and 23.4% y/y, respectively. However, this price regulation will only cover an estimated 30% of the market, so its effect may therefore be limited. Prices of drugs listed as essential rose by 19.9% y/y in 2009, while prices of non-essential drugs increased by 21.2% y/y, providing more evidence that if the government wants to implement price control in the wider market, it may need to target the non-essential drugs market as well, something for which the bill makes no provision. It is possible that the bill would then have faced even further criticism from the international pharmaceutical industry, as this is where it generates higher profit margins. The new bill may also lead to lower drug prices for hospitals. Prices of hospital drugs rose by 16.07% y/y over the year; thus, the new provision enabling hospitals to buy drugs directly from manufacturers is an important way in which the government can control prices in the hospital sector, and in turn, drug expenditure.
Finally, although GMP compliance is indeed good for the Russian pharmaceutical industry, especially in terms of developing the export market, it remains uncertain at this stage whether the government will provide financial assistance to domestic companies in order to assist them with what is bound to be an expensive process. The fact that the date for GMP compliance has been extended by two years should provide companies with more time to comply; whether or not this is sufficient time is questionable.