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US Pharma Giant to Make Drugs in Russia

Undeterred by sanctions Pfizer to invest millions in Russia

U.S. multinational drug maker Pfizer PFE +0.00% is laying down a new foundation in Russia, with a joint venture announced on Wednesday to produce pharmaceuticals domestically.

Pfizer’s Russian partner, drug maker NovaMedica, signed a cooperation agreement yesterday which will have Pfizer building a new lab facility in the Kaluga region, located roughly 200 miles southwest of Moscow. Pfizer will als transfer licenses for the production of more than 30 drugs with a market value of at least $60 million from its portfolio to the new Russian partner, NovaMedica board member Leonid Melamed said. Both sides refused to specify the amount Pfizer is investing in the new plant.

The move comes at a time when Western businesses are leery of sanctions and geopolitical tensions between Russia, Washington and Brussels. Both the U.S. and EU have sectoral sanctions in place. None have anything to do with the pharmaceutical market. Pfizer’s announcement yesterday is a plus for Russian businesses, and for sentiment, insofar as it shows the country is still open for business to Western-backed multinationals.

Construction of the new plant is scheduled to begin later this year with new drug production going into circulation within four years, eliminating the need for imports. The new plant will be built in accordance with Russian and international standards, which will enable NovaMedica to also produce goods for export, Pfizer said in a press release yesterday.

Pfizer is no stranger to the Russian market. It has been selling drugs in the country since 1992.

NovaMedika, meanwhile, is no stranger to foreign capital, nor Americans. The company was established in 2012 by the U.S. healthcare venture capital firm Domain Associates as well as the Russian investment fund Rusnano. Its goal is to be a patented drug maker.

Over the next five years, the total investment in projects NovaMedica and Pfizer will undertake is estimated to be around $200 million, Melamed said in a statement.

The New Russian Pharma Market

The Russian pharmaceutical market is one of the country’s more dynamic industries. Pharma has consistently outperformed national GDP growth rates for more than a decade. Regulatory obstacles were more likely to hamper foreign direct investment than the current economic recession, but recent reform measures by the government have removed some of those detours.

The industry is a quiet favorite of foreigners after oil and gas. It grew 27% compounded annually between 2011 to 2013, increasing from an 824 billion rubles market to 1.1 billion rubles market in three years. The pharma market there is projected to expand more than threefold by 2020, according to healthcare consulting firm CB Partners on 100 Wall Street.

Pfizer’s latest partnership comes at a good time. Prices for drugs in Russia are seen increasing at least 10% to 15% this year, slightly less than they rose last year according to data from the Russian Federal State Statistics Service. Last year, the Russian pharmaceutical market grew by almost 12% to 1.28 trillion rubles ($16.5 billion). According to industry analysts at Russian consulting firm DSM Group, the domestic market for prescription drugs is seeing a price hike above and beyond the level of inflation.

Customers are currently being forced into cheaper drugs, and in particular generics from Indian.

Source: Forbes
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