Innovation – to the forefront
Dmitry Fialkovsky, "Expert Northwest"According to the analytical company "Pharmexpert", drugs of domestic production in monetary terms occupy only 20% of the Russian pharmaceutical market.
But in the physical, their share is about 80%. Statistics convincingly illustrate the situation that has developed in the country over the past 20 years.
Most Russian pharmaceutical companies produce generic analogues of Western branded drugs, the validity of patents for which have expired. Their production does not require large costs, however, it does not provide high profitability (no more than 5%). Nevertheless, the release of generics turned out to be a simple way, which was followed by almost all Russian pharmaceuticals.
Only in recent years, "big pharma" – the companies "Nizhpharm", "Masterpharm", "Pharmsintech", "Domestic Medicines", "Biocad" – began to invest in R&D and started looking for its own "panaceas", although it does not intend to focus on this area of work. "We are not focused on creating truly original tools. This, in my opinion, is the task of small companies," says Dmitry Efimov, CEO of Nizhpharma.
Nevertheless, Russian scientists did not interrupt attempts to say a new word in pharmaceuticals – medium and small companies created on the basis of research institutes and universities were engaged in research in this area. According to Alexey Kovalenko, Director of Science at the pharmaceutical company Polisan, 15 original drugs that are domestic developments have been registered in Russia since 2000.
In St. Petersburg, despite the high scientific potential of the city, only four companies invest in the earliest stages of the development of innovative products: Biotech, Allopharm, Geropharm and Polisan. Each of them has from one to three registered original drugs on their account. Now the moment of truth is coming for them: on the one hand, it is more difficult for "kids" in any industry to survive economic shocks, on the other – due to fluctuations in exchange rates, prices for foreign medicines, analogues of which are not produced in Russia, have already grown noticeably. Using the example of St. Petersburg companies, the correspondent of Expert S-Z tried to figure out what the crisis will turn out to be for a few Russian developers of innovative pharmaceuticals – a catastrophe or a chance to be noticed by the market and Big pharma.
Two approachesThe mentioned four St. Petersburg companies differ in terms of revenue, number of employees, amount of investment in development and business organization scheme.
What they definitely have in common is the genesis. Each owes its origin to the achievements of scientists from the Soviet years. So, Polisan appeared in the early 1990s as a result of the collaboration of scientists at the Institute of Antibiotics and Enzymes, who dreamed of bringing their development to the market, and businessman Alexander Borisov, who was interested in promising investments. "Allopharm" and "Biotech" were created on the basis of the former Biological Research Institute of St. Petersburg State University and are still firmly connected with it. The history of Geropharm is somewhat out of the general series – there were no scientists at its origins who tried to bring their offspring to the market. Geropharm was created by businessmen to commercialize developments, the rights to which were purchased from the Military Medical Academy.
Polisan and Geropharm are medium–sized companies with retail sales of about 1 billion rubles per year. They have a well–established business operating on the principle of a full cycle - research laboratories, a production site, marketing and commercial services. In the line of sales there are several promoted drugs that bring a stable income. "Our ideology is as follows: the development, production and sale of only original drugs," says Alexander Borisov, director of Polisan.
Biotech and Allopharm are smaller: 60 employees work in the first, only about 10 in the second. The managers and most of the staff are scientists, graduate students, and students. The creation of new technologies is paramount for these companies today. Biotech expects that this will allow it to turn into a large full-cycle company, while Allopharm continues to see the meaning of its activities in development: the company would not like to be sprayed on mastering the skills of doing business "on a large scale". According to Allopharm, Western experience shows that small companies have been much more successful in creating innovative drugs, as they are focused on the main task, easier to manage, and this ensures greater efficiency of investments in R&D.
The old feeds the newThese innovative companies have divisions in their structure that generate ideas for the creation of new molecules, chemical compounds, and the search for ways to deliver drugs to the focus of the disease.
However, they do not focus on their own capabilities and actively monitor the scientific space in search of new solutions. Geropharm actively cooperates with leading Russian and foreign research institutes. Polisan often receives offers to participate in the development of small companies or buy out their developments. "We don't always take development into our portfolio, even if it is promising," says Alexey Kovalenko. The profile of the drug may not be suitable (for example, Polisan does not deal with cardiological drugs, and Geropharm does not deal with oncological drugs), the proposed production technology may not coincide with the capabilities of existing capacities.
By betting on the development of original drugs, companies have put themselves in rather tough conditions. Innovations require constant financial support and the cost of research can be several million dollars a year. At the same time, it is necessary to lay the risk of failure at the stage of clinical trials: it happens that a drug that is successful in preclinical trials, when tested on humans, turns out to be ineffective. "There have been projects in the history of our company when we had to archive the results of ten years of work on a new drug," Kovalenko recalls. Another danger for the developer is that someone will have time before him. Scientific thought is moving in approximately the same direction in the world, and there is no guarantee that by the time the drug is put on the market, your know-how will not collide with a Western or domestic analogue. For these reasons, venture investments in biotechnology are very poorly developed: the investment horizons are too large and the risks are high.
St. Petersburg developers have to rely mainly on themselves – they finance research from their own profits, selling ready-made drugs. In other words, the costs of creating new drugs are assigned to the final buyer. "Our slogan is 'The old drug feeds the new one'," says Alexey Kovalenko. However, this resource is not unlimited: the market determines the upper price level. "The niche of drugs has already been formed, they cannot be more expensive than a certain bar," adds Kovalenko. But Polisan, which has three names put on the market in its portfolio, manages to keep the production cost at the level of 40% of the selling price. At Geropharm, which produces and sells two products, this indicator fluctuates at the level of 35%. Part of the difference goes to research funding (20 and 15%, respectively), marketing and sales (30% for both companies).
It is more difficult for "Biotech" and "Allopharm". Their peculiarity is the predominance of scientific potential over financial opportunities. Today, both companies have only one drug, which bears all the costs of research, production, marketing. But, according to Mikhail Smirnov, CEO of Biotech, the cost of Ronkoleikin has such a small margin that it is barely enough to expand the areas of application of the drug. There are no funds left for new research.
Natalia Chernysh, CEO of Allopharma, estimates the company's need for investments in R&D alone in the amount of $ 1 million. "We had to significantly infringe on research in order to somehow establish commerce," Chernysh shared. However, ahead of the "Allopharm" the light began to dawn: Today, he is actively negotiating the financing of new developments with a major domestic manufacturer, Nizhpharm.
By yourself – more reliableAs the comparative characteristics of the business processes of the two types of St. Petersburg companies show, they can ensure further development and investment in scientific research only if there is a full-cycle enterprise, which Polisan and Geropharm have.
Up to a certain point, both companies placed orders on the side. But it was a temporary solution that allowed us to gather the financial strength to buy or build our own factories. So, in the early 2000s, when the volume of drug sales reached a certain level, Polisan had the opportunity to attract loans. The result was the acquisition of the Belgorod plant for the production of medicinal substances "Polysynthesis", and then the construction of its own production site on the outskirts of St. Petersburg (the foundation has already been laid for the second stage of the enterprise).
According to the management of Polisan, this allowed not only to radically reduce costs, but also to ensure stable product quality. The fact is that there were practically no factories in St. Petersburg and the Leningrad Region that met GMP standards (Good manufacturing practice is a modern standard in the pharmaceutical industry). It was the need to produce drugs in accordance with this standard that pushed Geropharm to organize its own production. The company sets itself the strategic task of expanding sales markets. "We want to increase the share of exports from 15 to 50% in the long term until 2015," says Peter Rodionov, CEO of Geropharm. Despite the crisis, one of the company's priorities is to expand production by creating modern sites. In the Moscow region, it is planned to build a technological complex worth 15 million euros for the manufacture of injectable drugs. The idea of building a plant for the production of medicinal substances near St. Petersburg is also being considered. According to the company's specialists, the introduction of new capacities will increase the annual production volume by three times.
Biotech and Allopharm, which have single-product portfolios, do not dream of their own production yet. "Today it is completely unreasonable to create production for one drug," Natalia Chernysh is sure. In 2007, the company "Allopharm" signed an agreement with the Ural plant "Medsintez" on the joint development and production of medicines created by it. The substance, dry matter, packaging and final assembly for Allopharm are also made by various St. Petersburg enterprises. Of course, you have to share part of the income for this. "All this can be done cheaper on our own, but the prices of our partners seem quite reasonable to us," says Natalia Chernysh. However, this is a typical way of developing an innovative company – Polisan and Geropharm also started with contract production.
Advertising is not affordableEven Russian medicines patented and manufactured according to GMP standards are not easy to reach the end user.
The problem is the prohibitively high cost of bringing the product to market. "Promotion and marketing for a five–year period can cost three times more than research," estimates Alexey Kovalenko.
It would be ridiculous for the "kids" to measure marketing and advertising budgets with the giants of the world and even domestic pharmaceuticals. Therefore, you will not see advertising of their drugs on federal TV channels, it occasionally appears in print and electronic media. Basically, companies of this kind focus on working with the medical community, as well as on artificial, lobbying market formation. They are trying to get into the program of additional preferential provision of medicines, to be present in the regional lists of vital drugs, to be included in the standards of medical care. With certain lobbying skills and the investment of some funds, this approach to demand formation brings good results.
Polisan has been among the three leaders among domestic manufacturers and exporters of medicines for several years. Sales of its drugs are growing dynamically in the countries of South-East and North Asia, where a representative office of Polisan has been opened with headquarters in Hanoi. The drugs are registered in Vietnam, Laos and Mongolia, and work is underway to promote them to the markets of the ASEAN countries. Geropharm, which is one of the 20 largest Russian pharmaceutical manufacturers, is currently engaged in distribution mainly within the country. Its distribution network includes representative offices in 22 cities of Russia and will soon be expanded to 25-30 branches. The company's drugs are also sold in neighboring countries (in Ukraine, Kazakhstan and Uzbekistan).
The centenarian goes to AfricaThe most well–known drug on the market "Polisana" – "Cycloferon" - is an immunostimulator.
It is an inducer of the release of endogenous (own) proteins of the human immune system – interferons. The drug is active against tick-borne encephalitis viruses, influenza, hepatitis, herpes, cytomegalovirus, human immunodeficiency virus, papilloma virus, various enteroviruses.
Cycloferon was introduced to the market in 1995 and demonstrates longevity, which is uncharacteristic for drugs of this group. It continues to develop and find new markets. According to the price–effectiveness ratio, the ideal countries for promoting Cycloferon are those where there are more infectious diseases and lower incomes, that is, the CIS countries, Southeast Asia, Latin America and Africa, which gives the drug significant advantages over Western analogues.
In the company's portfolio, in addition to various forms of "Cycloferon" (injections, tablets, liniment) two more drugs. "Reamberin" is an infusion solution of succinic acid used for detoxification, and "Cytoflavin" used in the complex treatment of strokes and diseases of the cerebral vessels. Both "Reamberin" and "Cytoflavin" are exported to the CIS countries and Southeast Asia.
Two new drugs are at different stages of clinical trials, and one each – Remaxol – has completed a full cycle of studies this year. In the fall of 2009, its industrial production will begin.
Biotech and Allopharm are once again in a more difficult situation – as already mentioned, the revenue from sales of a single drug is barely enough to continue scientific research, but they cannot afford marketing costs. Often in such a situation, the only way to give an innovative drug a full life is to sell a patented product to a large manufacturing company. This is the path taken by Allopharm, which is establishing partnerships with Nizhpharm. This happened without effort on the part of the Petersburgers – Nizhpharm itself found them in 2006 and offered cooperation. By that time, the company had already managed to bring its first drug, Allomedin, to the Northwestern Federal District market on its own and establish sales. But then there was the question of entering the federal market. The company estimated that the minimum amount to keep the drug on the market is 150 thousand euros per year. According to the agreement signed soon after, since the summer of 2008, Nizhpharm has been buying out almost the entire issue of Allomedin at a fixed price and promoting it on the market at its discretion.
Crisis is a chanceThe crisis is changing the balance of power in the pharmaceutical market.
The intersection of two vectors (falling real incomes of the population and rising prices for imported drugs due to fluctuations in the exchange rate) will lead to a shift in demand to a lower price segment. Of foreign medicines, only vital drugs that have no domestic analogues will be in demand. The so-called non-critical drugs (cough medicines, runny nose, vitamins) that provide the main sales shaft will be bought with an eye to the price. That is, Russian manufacturers that produce them will get a head start over Western ones.
However, the production of generics, as already mentioned, is a low–profit business and uncomfortable in the conditions of growing price competition. The margin, even now minimal, may still decrease. Coupled with factors such as non–payments predicted on the market, the bankruptcy of wholesale pharmaceutical companies (for example, the St. Petersburg Genesis), the closure of unprofitable pharmacies, this will put strong pressure on the economy of generic companies. In the best position will be those domestic manufacturers who, along with generics, guessed at the time to include original innovative drugs in their portfolios.
In these conditions, innovative pharmaceutical companies have a chance to break through. Moreover, some of their drugs have already been recognized as irreplaceable (such as Cycloferon, Polisana and Ronkoleikin, Biotech), which means they will have a guaranteed market. In addition, high profitability creates a kind of strength buffer for innovative full-cycle companies. "We have room for maneuver: we can provide deferred payments and act more flexibly in relations with customers," says Peter Rodionov. In addition, it is possible to suspend expensive trials of new drugs and redirect money for current needs or for the future, that is, for experimental development. Hoping to take advantage of the moment and expand the share of existing drugs, Polisan does not intend to cut marketing costs by a ruble.
Another St. Petersburg couple – Allopharma and Biotech – hopes are connected with attention from representatives of Big pharma or financial investors. The need to increase their own sustainability will finally force Russian generic manufacturers to take a closer look at domestic innovations in the field of pharmaceuticals.
Portal "Eternal youth" www.vechnayamolodost.ru27.03.2009