PART TWO: The future of Russian pharma. Why does China (among so many others) surpass Russia when it comes to pharma/biotech innovation?

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In examining why Russia is behind its neighbor China in pharma and biotech innovation, one must keep in mind that Chinese medicine is a style of traditional treatment built on a foundation of more than 2,500 years of Chinese medical practice that includes various forms of herbal medicineacupuncture, massageexercise, and dietary therapy.

Even as far back as 1956, there were about 500 privately-owned pharmaceutical factories, more than 300 privately owned factories of medical devices, more than 7,000 privately owned pharmacies, and more than 100,000 merchants of Chinese traditional herbal medicine.

Russia has no such history.

So, just how has Russian biotechnology performed among the 54 countries studied on the 2018 Biotechnology Innovation Scorecard?

Get ready for a possible brain cramp.

OVERALL SCORE (Compiled by thinkBiotech)

Russia scored 23.0/100, which places it 44th of the 54 countries studied. Russia scored below Greece and Mexico. Russia scored ahead of Thailand and Turkey.

The overall innovation score is the simple average of the Category Scores shown below, normalized to a score out of 100. For more details on the scoring, see the Methodology page.

The data below highlight Russia in the overall rankings.

Category Scores

These individual category scores are averaged to produce the overall score shown above.

1. IP PROTECTION

Russia scored 2.29/10 in IP Protection, which places it 50th of the 54 countries studied. Russia scored below Argentina and Ukraine and ahead of Indonesia and Kuwait. Strong intellectual property (IP) protection is central to biotechnology. In fact, it is said that the scope of IP protection defines the scope of biotechnology innovation. IP protection is so important in biotechnology because of the years of research, and substantial financial investments are required to produce novel biotechnology products. Without protection from competition or from reverse-engineering, innovators and their financiers would have no certainty of recouping their investments.

But IP protection also goes beyond encouraging domestic development. It can also be an important factor in encouraging foreign companies to develop products for domestic needs. For example, a company may elect not to pursue development of a drug if it can only be sold in countries where development costs are unlikely to ever be recovered.

2. INTENSITY

Russia scored 3.03/10 in Intensity, which places it 9th of the 54 countries studied. Russia scored below Israel and Spain and ahead of Sweden and South Africa. The Scorecard uses a combination of absolute and relative metrics. While some metrics, such as productivity, are measured in absolute terms, the Intensity category uses relative metrics to account for each country’s population and economy size.

Because of the use of relative metrics, the Intensity category allows one to compare large countries to each other, and it also identifies small countries with strong biotechnology activities.

The Intensity metrics also focus on inputs. Accordingly, countries that rank highly in this category may represent ideal locations for research facilities or for potential partners.

3. ENTERPRISE SUPPORT

Russia scored 3.38/10 in Enterprise Support, which places it 44th of the 54 countries studied. Russia scored below India and Kuwait and ahead of Turkey and Indonesia. Beyond gross measures of inputs and outputs it is also important to consider factors which impact commercial operations in a country. The metrics in the Enterprise Support category evaluate a country’s business friendly features and the availability of capital in various forms.

Consider that even if other metrics such as R&D intensity or IP protection are strong, without Enterprise Support, it may simply be unfeasible to start or grow a company. Alternatively, countries with low activity in biotechnology may enact policies creating a more-supportive business environment, whereas countries with strong biotechnology sectors may leverage their strength to levy taxes.

4. EDUCATION AND WORKFORCE

Russia scored 2.67/10 in Education and Workforce, which places it 30th of the 54 countries studied. Russia scored below Italy and Norway and ahead of Belgium and the Netherlands. Biotechnology is a technical field by its nature. Even non-research activities require an understanding and appreciation of the science behind a company’s products and services. In some industries, while an MBA or law degree may suffice for management-level positions, it is not uncommon for lawyers and managers in biotechnology to have master’s or doctoral degrees in science.

Advanced education degrees are thus an important measure of a country’s capacity for biotechnology innovation. So, to answer the question of how to improve a country’s ranking on the Scorecard, the first place to look is often the quantity and quality of science graduates the country produces.

5. FOUNDATIONS

Russia scored 3.02/10 in Foundations, which places it 38th of the 54 countries studied. Russia scored below Italy and Saudi Arabia. It was tied with the Slovak Republic and scored ahead of Kuwait and Poland. This metric considers factors such as national spending on R&D from government and commercial sources, as more spending will more likely lead to spillover effects that enable home-grown innovation.

The quality of a country’s infrastructure can be also an important consideration in doing business in a given country.

For example, biotechnology R&D requires something as basic as robust and stable electrical capacity. Frequent brownouts or blackouts, or poor transportation infrastructure which limits the utility of backup generators can have a severe impact on research. The efficiency of various ports is also crucial as import of research materials, or export of perishable, finished products, can be time-sensitive.

While weak enterprise support can potentially be overcome by large foreign enterprises with sufficient capital, infrastructure weaknesses, in particular, may go beyond the ability of foreign investors to solve.

6. POLICY AND STABILITY

Russia scored 1.75/10 in Policy and Stability, which places it 52nd of the 54 countries studied. Russia scored below Indonesia and India and Russia ahead of just Argentina and Ukraine. Hard measures of research output or IP protection may provide a useful overview of how favorable an innovation environment a country may possess. But it is also important to consider policy factors and a country’s overall stability. After all, weak enforcement of laws, or political instability, can and often do eclipse other positive characteristics.

Bottom Line:

Despite this abysmal record, Russia did host the 21st European Biotechnology Congress in Moscow, held last month from October 11-13, 2018. Perhaps that’s evidence of its belief it is among the nations pursuing at least some rational pharma/biotech policy. After all, isn’t Russia a “super power” on the world’s global stage in other arenas? Why not pharma?

The relationship between the Russian government, regulators and private manufacturers in the market will likely change over the coming years, and the ability for the Russian market to self-regulate is already looking like a monumental challenge. Drug shortages and logistical issues are a common occurrence in Russia, with many patients suddenly finding that the drug they rely on has suddenly vanished from the shelves.

Other issues such as misleading advertisement, rampant price fluctuation and low R&D expenditure will likely have to be dealt with before any major, positive change can take place. The pharmaceutical industry is constantly evolving, and a thriving pharmaceutical industry requires innovation, plenty of financial support, and the right government legislation that facilitates rather than hinders growth.

While the Russian government continues to show signs of fostering a modern and competitive pharmaceutical market, growing pains have already become apparent. How the Federal Antimonopoly Service of the Russian Federation (FAS) and the Russian government react to these challenges is anyone’s guess.

Pharma 2020 didn’t account for the collapse of the Russian ruble and the wave of sanctions that followed the annexation of Crimea. It will take time for the Russian economy to stabilize, and that depends on the Kremlin’s ability to repair relations with the West and improve foreign investment. Market growth, as strong as it has appeared at times, is never too far from disaster in Russia. Experts suggest that recent US sanctions imposed Russia have led to the ruble becoming one of the worst performing major currencies in 2018. Without improving foreign affairs, Russia’s ability to support a fully-fledged domestic pharmaceutical industry is tenuous at best.

However, this is an issue for Russian policymakers: Exactly when will the Russian pharma industry begin to catch up with the rest of the West and Asia? Will it be 2020, as established by the country’s policymakers?

How about 2030?

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