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President of Russia Dmitry Medvedev: Mr Khristenko, one of our priorities in technological modernisation is the development of the pharmaceuticals industry cluster. You and I have visited many manufacturing sites, and I have held sessions of the Commission for Modernisation and Technological Development to address this matter. How do things stand? What’s new, what can we boast about, and what are our problems?

Minister of Industry and Trade Viktor Khristenko: Mr President, first of all, I would like to report that your instruction on drafting a federal targeted programme to develop pharmaceuticals and medical industries has been carried out. At its final session of last year, on December 29, the Government approved a new federal targeted programme. This is certainly a very serious element in the overall support to develop this sector, since the particular goal of this programme is to help close the gap between the fundamental explorations and implementation of innovations into production, i.e. the market commercialisation of the research results which we are currently lacking.

The programme is unique in its structure. It is al large-scale programme for 188 billion rubles [over 6 billion dollars] to span ten years. Out of this amount, 122.5 billion rubles are coming from the federal budget. Given the technological nature of this programme, 154 of the 188 billion rubles are going toward research and development; in other words, its principal purpose is advancing in science and technology aspect.

Dmitry Medvedev: Where will this money be directed?

Viktor Khristenko: These 154 billion rubles are split between two areas: modernisation and innovation. If we look at the breakdown, about one third is going toward modernising current production facilities and modernising technologies of the level already reached – in other words, producing pharmaceuticals that can replace imported products.

Dmitry Medvedev: Hence, these are not new medicines.

Viktor Khristenko: This is the application of existing cutting-edge technologies.

Dmitry Medvedev: Which, incidentally, is another area where we are lagging, because apart from producing almost no brand-new pharmaceuticals, or producing very few, we currently have to purchase most of the common pharmaceuticals abroad as well, therefore in the first instance we should launch production of the existing medicines in Russia, is that right?

Viktor Khristenko: Absolutely right. In this sense, the modernisation component of our overall efforts and of the federal targeted programme in particular is aimed at improving the potential for substitution of imported medications on the one hand, and at advancing our technological level on the other. Meanwhile, the innovative aspect is aimed at reaching the next goal, which is not merely catching up, but rather, getting ahead. And here, the ratio of funding is one to two: one third is going toward modernisation, while two thirds are going toward innovative development.

Dmitry Medvedev: And who will work on innovation?

Viktor Khristenko: Our production and research companies will be promoting innovations – in other words, the interested Russian entities, sometimes with foreign capital. I can say that there is much more interest than there are opportunities, partially since the gap between exploratory work – the fundamental research – and commercialisation is caused by the high level of risk at this phase.

Dmitry Medvedev: Considerable investments versus doubtful results.

Viktor Khristenko: That’s right. And based on the scale of its development, a company may not be capable of facing this level of risk, or if it does so, it does it very locally. In this regard, referring to the pharmaceuticals industry in Russia, the programme’s purpose is to launch an innovative cycle of the industry development, of the biotechnologies and chemical industries.

Dmitry Medvedev: When I was looking into the specifics of this sector, I was initially surprised that creating a new-generation pharmaceutical requires such enormous investments.

Viktor Khristenko: And an enormous amount of time.

Dmitry Medvedev: Yes, an enormous amount of time. How are we planning to deal with this? Because naturally, we cannot develop the pharmaceutical and medical industry through state financing alone. Here, we should attract private investments in addition to funding from the budget.

Viktor Khristenko: Within the programme itself, we have different approaches to different issues. For example, the technology modernisation envisages a 50–50 ratio when 50 percent of the R&D funding is coming from the state and 50 percent is invested by businesses.

As for innovation, where the risks are higher and it is harder for companies to accumulate sufficient funds for these purposes, the state will provide 75 percent of the financing, while the businesses will invest 25 percent. This applies to the pre-clinical and clinical pharmaceuticals testing phases that consume enormous amounts of time and resources.

What’s most important is that eight to ten years are needed to launch a new medicine. In this regard, at its first phase the programme will be primarily aimed at substituting imported products. We expect that by 2015, by the mid-term of this programme, 90 percent of strategic, vital medicines will already be produced by Russian companies.

Dmitry Medvedev: And here, we are talking about substituting the most required, most critical imported medicines that are widely used by average people.

Viktor Khristenko: Yes, including medicines that are very sophisticated and which are prescribed to patients at the expense of the federal budget. An example is government procurement under the so-called seven nosologies, or serious illnesses, programme which is fully financed through the federal budget.

Dmitry Medvedev: The most expensive pharmaceuticals for treating serious illnesses are financed through the federal budget.

Viktor Khristenko: That’s right. As a result of changes in approaching this issue, the participation share of Russian manufacturers in federal government procurement programmes has gone up from practically zero in 2008 when their share was 0.07 percent to 0.3 percent in 2009 and 9.6 percent in 2010. A whole range of companies have started production of sophisticated pharmaceuticals for the seven major nosologies.

This is very indicative too, as with clearly identified goals, plain risk sharing between the state and business, and fair government regulation mechanism in place, the businesses find themselves in a most favourable environment. That is precisely what happened in 2010: the market regulation rules changed significantly, a new law went into effect, we drew up new objectives by identifying strategically important pharmaceuticals, and we offered a new set of preferences for government procurement of domestic pharmaceuticals. We do not have the 2010 figures yet, but over 11 months the pharmaceuticals industry output grew by 37.7 per cent. This rate of growth can hardly be seen in any other industry in the country, especially in a year which has not been very easy at all. Respectively, the market share of Russian manufacturers is also growing.

Dmitry Medvedev: In your view, what may be that share?

Viktor Khristenko: It was 22 percent in 2009.

Dmitry Medvedev: Then, in practical terms, our manufacturers are only meeting one fifth of the market demand.

Viktor Khristenko: For the entire 2010, I think the share will grow to one fourth, i.e. 25 percent.

Dmitry Medvedev: In other words, the market share has started to grow.

Viktor Khristenko: Yes. Our goal is to increase it to 50 percent of the market in a situation when the market itself is growing rapidly, something that is important to note.

Dmitry Medvedev: It seems to me that it is also important to attract foreign investments, first of all because it’s generally good to attract them, and second, because we have some very good ties with a number of producers in various countries. Take the Indian market, for example: they traditionally supply us with many medications and we have good ties overall, but if our partners are ready to come to Russia to launch joint ventures and produce the same pharmaceuticals in Russia for the domestic market, that is possibly the best.

Viktor Khristenko: Mr President, in this regard, you had set a special goal and I can report that in 2010, I personally met with the CEOs of nearly all the largest companies in the world, I even met some of them more than once, and such meetings have become common practice as elements of identifying their interests and opportunities in the Russian market. I must say that today, we already have a variety of participation formats for foreign companies in the Russian market. Some of such companies develop their own production facilities and register subsidiaries in Russia while others acquire existing assets, launch joint ventures or grant licenses to Russian manufacturers.

There are some very interesting, advanced formats of cooperation when cooperation is established at every production stage – I now refer to our cooperation with the top three global players in the industry — starting with joint research and joint financing of a new pharmaceutical and then the market sharing for the product marketing when the markets of Russia and neighbouring countries will be supplied by a Russian participant, whereas promotion to the global markets will be assigned to a foreign partner. This variety of cooperation formats evidences that the process is advancing steadily. Hence the declarations currently announced and the investments made are most valuable for this industry, which is not yet very big.

It should be noted that the aggregate investment bids by foreign and Russian market players stand at about 1.3 billion dollars with the Russian businesses’ plans being rather modest at 15 billion rubles [about 500 million dollars], but nevertheless these are real investments and real projects, some of them, by the way, have been supported by the Commission for Modernisation [and Technological Development of Russia’s Economy], and I can show you how these projects are progressing which I think is very illustrative.

The first meeting the Commission held on pharmaceutical issues took place in Pokrov, Vladimir Region, when there was absolutely nothing out there, and here is a photo of the site today with a huge research and manufacturing facility.

Dmitry Medvedev: It is a beautiful complex.

Viktor Khristenko: The scope of investment there is around two billion rubles.

Dmitry Medvedev: Were they private investments?

Viktor Khristenko: Yes, all private with no government funding. The site includes, apart from the research complex, a specially built town.

Dmitry Medvedev: For the employees?

Viktor Khristenko: Yes, for employees, specialists and researchers. Some 150 specialists of the highest calibre will be employed there.

Dmitry Medvedev: That’s very important, because I recall how we were talking with those scientists and manufacturers. At some moment long ago, they all left the country, for France I think, but then they came back simply because they felt it right to work in Russia. But it’s very important to offer the proper environment for the best-trained and most highly-qualified specialists – who are really many — to return here. Of course, the launch of this new site is a good sign.

Viktor Khristenko: Back in August, a decision was made to launch production of radiopharmaceuticals at a new facility. Based on that and in line with your decision, we will soon submit for approval a new programme for nuclear medicine development which is already today’s objective.

Dmitry Medvedev: Where is that?

Viktor Khristenko: In Obninsk, Kaluga Region. Another facility is also being built in Petrovo-Dalneye, Moscow Region.

Here, too, projects involve mainly private investments, but are partially financed by the government as well. In Obninsk, there is fairly serious budgetary funding and in Petrovo-Dalneye there is limited budgetary co-financing.

Dmitry Medvedev: And what types of pharmaceuticals are to be produced there?

Viktor Khristenko: Monoclonal antibodies, the most advanced line of technologies today. These are new types of technologies and fundamentally new technological platforms for us.

Dmitry Medvedev: These technologies are always impressive to see, when you walk through the production sites and workshops where everything is exceptionally clean and most sophisticated equipment is employed. But this certainly involves very expensive research and ultimately, the pharmaceuticals developed are quite costly.

Viktor Khristenko: In addition to that, past year saw some rigid price regulation and the passing of a series of regulatory documents that obligate manufacturers to report their prices with authorities being able to monitor this situation. In 2010, the prices for Russian-made medicines went down by two percent.

Dmitry Medvedev: Of course, this is the average.

Viktor Khristenko: Of course.

Dmitry Medvedev: There was price decrease for some medicines while that was not the case for the others. I travel a lot around Russia and one of the most frequently-mentioned problems is pharmaceuticals prices. But this is in fact the result not just of macroeconomic problems or systemic disruptions, but also of a regional factor of the lack of competition among various links of the pharmaceuticals supply chain, or sometimes, simple speculation. This must be monitored and that is the Government’s responsibility.

Viktor Khristenko: With regard to government procurements, I can say that due to participation by Russian companies, the state, while providing high-quality pharmaceuticals to everyone in need, has saved serious money on medicines for treating the most severe illnesses.

Dmitry Medvedev: That’s good, and this practice should therefore be continued.

And the last thing I would like to say on this topic: we are to invest in our future, in developing next-generation pharmaceuticals, as we just discussed. This is always a lengthy process, and a very expensive too. As far as I recall, annually, no more than a dozen or even fewer new medications are launched throughout the entire world which are, essentially, new inventions. These are not medicines based on existing products, not generics, but absolutely new breakthrough technologies. For the moment we do not have a lot of capacity to do this, of course, but we need to look in this direction as well, because creating even one such pharmaceutical would be a revolutionary transformation and an opportunity to enter foreign markets.

Viktor Khristenko: Indeed, that is the aim of our cooperation with foreign market participants which we see as a strategic partnership, or as a global partnership allowing to use our opportunities not to merely invest in the Russian market or enter the Russian market, but rather, for us to enter the global markets.

Dmitry Medvedev: Specifically, to enter foreign markets as well.

Viktor Khristenko: In addition, the well established Russian companies now acquire foreign assets, and not only in manufacturing, but also – most importantly – research assets, in order to gain that very expertise of entering global markets with innovative products.

Dmitry Medvedev: The main goal remains as before: to fully supply our domestic market with affordable, high-quality pharmaceuticals.

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