Pharmaceutics in Russia after Sanctions
July 04, 2015
Long has Crimea been a territorial hotspot. There is no need to look far back into history to corroborate this. In the past twenty-four years alone, the peninsula changed hands from Soviet to Ukrainian to – most recently, in either a legitimate referendum or illegal annexation, depending on whom you ask – Russian. At the outset, it is worth noting that the Russian media use the word “joining” or “reunification” (присоединение or воссоединение, respectively) rather than “annexation” (аннексия) to describe Crimea becoming part of (or being occupied by, again depending on the point of view) the Russian Federation.
By Andrew Parsons
Government is not the only thing that has changed over the years. The pharmaceutical industry, in particular, has seen big changes. Most traumatizing was the economic transition from Soviet communism to tempered market liberalization, which shocked the industry as foreign pharmaceutical companies began operating in the region.
The state of the industry following March 2014 is less clear. Russian journalists have not published detailed coverage of industrial and infrastructural changes in Crimea, instead focusing on tourism, national identity, and geopolitics. In the absence of thorough news coverage of the subject, it is difficult to comment on pharmaceutical quality and availability in the new Crimean healthcare system without being on the ground, access to which is restricted for westerners.
Let’s turn to the second best option, then, and look at the industry in mainland Russia. Since last March, the West has levied several sets of economic sanctions on the country. Altogether, they target hundreds of individuals, a handful of companies, and Russia’s energy, defense, and financial sectors.
Sanctions, and Russia’s response to them, have indirectly affected the pharmaceutical industry in a number of ways, two important of which follow. First, the Kremlin has levied its own sanctions on the West, enacted import bans, and advocated import substitution – that is, replacing foreign imports with domestically produced goods. By lessening dependence on imports, it is thought, the country will become more self-sufficient. Accordingly, the Russian government has begun to lessen dependence on foreign drug imports, encourage domestic production of generic drugs, and centralize drug supply and retail distribution. Unfortunately, it is becoming increasingly difficult to find foreign-made drugs in certain parts of Russia, some foreign pharmaceutical companies have left the country due to low profits, the quality of some generic drugs has been put under question, and there have been drug shortages where foreign supply has been cut off too soon for domestic supply to take its place.
Second, devaluation of the ruble – at its worst in December 2014 and January 2015 – combined with an economic recession exacerbated by low oil prices has led to drug price increases, 25% to 30% (and in some cases up to 100%) as of early 2015 for nonregulated drugs. For regulated drugs – that is, those that fall under Russia’s list of “vital and essential” drugs (VEDs) – tight price controls and licensing have kept prices from rising to the extent that those of nonregulated drugs have. Nevertheless, the government has allowed VED prices to rise according to price indexation plans and inflation. However great the increases, consumers and medical facilities are concerned that they will not be able to pay for the medicines they need. For their part, some drug companies are struggling to stay afloat given price controls, especially on VEDs, that lower the profit margin of drug sale revenue over production costs.
The situation is especially worrying in light of current infectious disease epidemiology in Russia. While overall incidence of tuberculosis (TB) has decreased in recent years – due in part to strong efforts, especially targeted toward prison populations, by the Russian government and NGOs to improve antibiotic treatments, patient adherence to medications, and public health – the incidence of HIV/AIDS, co-infection with both TB and HIV/AIDS, and multidrug resistant (MDR) infectious diseases has increased. That the antibacterials and antiretroviral therapies needed to treat them are often foreign-made and unprofitable for pharmaceutical companies (relative to cancer and cardiovascular medicines) does not bode well for afflicted patients. While the U.S. congress and Angela Merkel in the E.U. are exploring options to create incentives for companies to produce the drugs at lower costs, it is unclear these efforts will help Russia.
In addition to the interventions mentioned above, the Russian government has brainstormed other possible solutions to better the situation. Among them are parallel import and compulsory licensing strategies. Parallel imports (or gray market goods) are imports of a patented or trademarked product from a country where it is already marketed. Compulsory licensing allows production of a patented product without the consent of the patent owner. It is hoped that these strategies, if pursued, would help keep drug prices low, a claim that raises much controversy among economists. While neither strategy has yet been implemented, both remain viable options, and the government may consider pilot programs to assess their efficacy.
So where does this leave Crimea? If we use induction, it is likely the peninsula is facing the same problems as mainland Russia, perhaps more acutely given the aging population. Although it is difficult to say more, it can only be hoped that Russia’s efforts to maintain access to high-quality medicines will be successful. Regardless of the geopolitical situation, patients in need deserve quality healthcare.
Total number of people infected with HIV/AIDS in Russia (blue). Number of deaths annually from HIV/AIDS in Russia (red) *None of the above necessarily reflects the position of the U.S. Department of State.
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