By: Evan Bonnstetter
The Russian pharmaceutical industry is rapidly growing and is poised to continue on this trajectory in the next several years. This growth coincides with concerted action by the Russian government to foster development in Russian-manufactured pharmaceuticals as part of its broader strategy to develop its pharmaceutical industry. However, with growth comes growing pains, and in the coming months and years Russian government and industry will encounter challenges, the solutions to which will shape the contours of pharmaceutical market in Russia.
In the past two decades, the Russian pharmaceutical industry has experienced considerable growth. While the Russian market is currently outside the top 10 global pharmaceutical markets, it is closely trailing in 14th place and is predicted to hold this position in the next five years. Recent predictions estimate that the market will be valued at over $36 billion by 2021.
The Russian pharmaceutical market is composed primarily of European imports (80%). Russian officials and industry leaders, recognizing that Russia is a “net importer” of medicines, have sought to shift the market away from imported drugs and towards domestically manufactured pharmaceuticals. The data indicates that this policy of localization is currently playing out, with both Russia-based companies as well as foreign companies investing in new and additional production sites within Russia.
The Russian government’s involvement is not limited to formulating favorable policy for private companies. In August of this year, the Russian State Corporation (Rostec) announced that its planned merger with Russian pharmaceutical manufacturer Marathon Group. The object of this merger was not only, as expected, to focus on growing the Russian-manufactured pharmaceutical market, but also to create a “national pharmaceutical distributor.”
In this context, then, the anticipated outcome of a working group composed of industry and regulatory representatives regarding industry self-regulation in the context of pharmaceutical advertising in Russia bears special significance. The arrangement reached by the working group will be the most recent example of the balance struck between public and private interests in the pharmaceutical market, and may be indicative of the direction the Russian pharmaceutical industry is heading in. The object of the working group is to draft and sign a memorandum of understanding by December 29, 2017.
This year, the Russian Federal Antimonopoly Service (FAS) initiated numerous proceedings regarding violations of the Russian Law on Advertising. Specifically, these cases arose out of a concern that certain pharmaceutical television commercials were making false or misleading claims to consumers. Interestingly, this is not the first time that pharmaceutical advertising has been in the spotlight—almost exactly two decades ago, Russian officials were planning to address “excessive” television advertising of pharmaceuticals, pointing to the pervasive influence the advertisements were found to have on consumers. In 2006, Russia adopted its first law comprehensively regulating the advertising of pharmaceuticals.
The common issue in the 2017 cases involved advertising that used the word, or claimed that drugs had, “fast” effects. These advertisements claiming a drug’s fast effects potentially violated several different provisions within the Law on Advertising. The specific concerns at issue in the case were: (1) such a claim could be unreliable, as the speed of drug absorption may not directly correspond with onset rate; (2) a fast effect for one symptom does not guarantee an equally fast treatment of the disease as a whole; (3) a claim of fast effects is effectively a guarantee of positive effect, in violation of the law. Furthermore, regulatory authorities clarified that a single conclusion of fact, such as the conclusion that information from the advertisement was “undelivered to the consumer’s notice, as required by law, that the company could be liable for multiple penalties, such as “lack of material information, unreliable advertising[,] and even unfair advertising.”
As a response to these cases, the major players in the Russian pharmaceutical industry, including several professional associations, FAS, the State Duma, pharmaceutical and advertising industry executives, and legal consultants have been grappling with complex issues involving the purpose of pharmaceutical advertising regulations, the proper relationship between regulators and private actors in the market, and the ability of the industry to effectively self-regulate. As a product of these discussions, “an inter-sectoral working group” is being created to address these questions, with a focus on developing a framework to enable comprehensive industry self-regulation. While advertising is only one component of a broadly regulated field, the conclusions reached by the working group, given the public and private participation, could define the scope of future regulatory policy in this industry, broadly.
With this consideration in mind, these policymakers, rather than myopically touting the growth in market value as a reason to deregulate or impose policies even more favorable to the industry, should be cognizant of the weaknesses in the Russian pharmaceutical market. Care should be made to ensure that the pharmaceutical market continues to develop strategically, addressing “limited access to healthcare facilities, price cuts, high Out-Of-Pocket (OOP) payments[,] and low R&D expenditure.” In particular, if a pro-industry policy is promulgated by the working group, funds that might otherwise address these shortcomings could be diverted towards advertising. Conversely, effective industry self-regulation could strength the market by reducing regulatory costs and enabling companies and government officials to focus on addressing market weaknesses.
In addition, earlier this year the government introduced a pilot program that will “track & trace” drugs, ensuring that only legal drugs reach the market. However, this track & trace program has the capacity to change industry practices far beyond removal of noncompliant and counterfeit drug from the market. Indeed, this same system could be used to track drugs from manufacturers, to distributers, all the way to the individual consumer. This data could present an incredible potential for businesses to “optimize promotional and advertising campaigns.” This program is anticipated to be introduced at the national level by January 1, 2019. Given this timeframe, the working group should be conscious of the implications that the track and trace program could have on the pharmaceutical industry, including advertising.
The development of the Russian pharmaceutical market has coincided with broad changes to industry practices. The emphasis on growing the local market has increased Russian-manufactured drugs in the market and has also created fairly pro-industry policies. Recent events, such as a merger between state corporation Rostec and Marathon group may be indicative of an even stronger public-private partnership in the future. While the 2017 regulatory actions indicate an interest in protecting consumers from potentially harmful advertisements, the formation of a working group to engage in discussing these issues may indicate a coming sea change in the regulation of pharmaceutical advertising. Finally, technological and regulatory developments may offer significant opportunities for targeted marketing, increasing the incentives to effectively deregulate pharmaceutical advertising in Russia.
 Industry Figurehead on Russia’s Journal From “Pharm-Bazaar to Transparent Pharmaceutical Market”, thepharmaletter (Sept. 20, 2017), https://www.thepharmaletter.com/article/industry-figurehead-on-russia-s-journey-from-pharm-bazaar-to-transparent-pharmaceutical-market [hereinafter Pharma-Bazaar]; Sharath Chandra, Russia’s Pharmaceutical Market to Reach $36.61B by 2021, Drug Discovery & Development (Oct. 9, 2017, 4:00 PM), https://www.dddmag.com/news/2017/10/russias-pharmaceutical-market-reach-3661b-2021.
 Deloitte CIS Research Centre, Russian Pharmaceutical Market Trends in 2017 14 (2017), https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/life-sciences-health-care/russian-pharmaceutical-market-trends-2017-eng.pdf.
 CountryFocus: Healthcare, Regulatory and Reimbursement Landscape — Russia, GlobalData https://www.globaldata.com/store/report/gdhc0018chr--countryfocus-healthcare-regulatory-and-reimbursement-landscape-russia/?utm_source=mediacenter&utm_medium=pr&utm_campaign=171004a_gd_ph_pr_healthcare_Russia_2021&utm_nooveride=1 (last visited Nov. 11, 2017).
 Deloitte CIS Research Centre, supra note 2, at 14.
 Id.; S. Duttagupta et al., Economic Sanctions and Market Access for Pharmaceuticals: Care Studies With Russia, Cuba, and Iran, 18 Value in Health A569, A569 (2015).
 Deloitte CIS Research Centre, supra note 2, at 22.
 New Russian Pharma Giant to be Formed by Merger, thepharmaletter (Aug. 9, 2017), https://www.thepharmaletter.com/article/new-russian-pharma-giant-to-be-formed-by-merger.
 ARPM and Others Review Medicines Advertising in Russia, thepharmaletter (Nov. 3, 2017), https://www.thepharmaletter.com/article/arpm-and-others-review-medicines-advertising-in-russia.
 FAS Russia Has Held Pharmaceutical Companies Liable for Inappropriate TV Advertising, Lidings (June 2, 2017), http://www.lidings.com/eng/legalupdates2?id=336 [hereinafter Inappropriate TV Advertising].
 See Id.
 Russia Warns Western Firms Over Drug Ads, thepharmaletter (Oct. 13, 1997), https://www.thepharmaletter.com/article/russia-warns-western-firms-over-drug-ads.
 Federal Law of the Russian Federation on Advertising, No. 38-FZ (Mar. 3, 2006) (as amended), http://en.fas.gov.ru/upload/documents/Federal%20Law%20No.%2038-FZ%20On%20Advertising%20(as%20amended%20in%202014).pdf. For a brief introduction to the Law on Advertising, see Alexey Trusov & Sergei Lomakin, Baker & McKenzie, Promoting Medical Products Globally: Handbook of Pharma and MedTech Compliance Russia (2016), http://www.bakermckenzie.com/-/media/files/insight/publications/2016/01/promoting-medical-devices-globally/pmpg_russia.pdf?la=en.
 Inappropriate TV Advertising, supra note 11; ARPM and Others Review Medicines Advertising in Russia, supra note 9.
 Inappropriate TV Advertising, supra note 11.
 ARPM and Others Review Medicines Advertising in Russia, supra note 9.
 See Federal Law of the Russian Federation on the Circulation of Medicines, No. 61-FZ (Apr. 12, 2010); Federal Law of the Russian Federation on Fundamentals of the Protection of Citizens’ Health in the Russian Federation, No. 323-FZ (Nov. 21, 2011).
 Chandra, supra note 1.
 Deloitte CIS Research Centre, supra note 2, at 24.
 For industry-reported data regarding current and sought regulations, see Deloitte CIS Research Centre, supra note 2, at 30–32. Interestingly, “respondents see incentives and privileges, rather than restrictions and limitations, as the key to promoting localization to reduce pharmaceutical imports.” Id. (emphasis added).