International View

of the Russian

Pharma Market

Trajko Spasenovski MD PhD

CPHI Russia 2017

JSC VDNH, Pavilion 75, Hall A | Moscow, Russia

28 - 30 March 2017

Кларивейт Аналитикс

AGENDA

Current Market Overview

Regulations & Market Access

Generics Versus Brand Utilization

Deals and Investments

Innovation

Conclusion and Predictions

CLARIVATE ANALYTICS (FORMERLY THE IP & SCIENCE DIVISION OF THOMSON REUTERS)

• 20 years of experience in global generic & API market research

• Unique research that tracks global generic API development and

manufacturing activities

• Intelligence appears in Newport Premium used by professionals in:

– Strategy, Planning and Product Targeting

– Business Development & Licensing

– Competitive & Business Intelligence

– API Sourcing Specialists

– Patents & Intellectual Property

• Supports Life Sciences consulting projects

• Serves 400+ customers operating in 80 countries

4

RUSSIA GROWTH OUTLOOK

Russia is still an emerging market with better growth outlook than western EU and US markets

Between 2011-2016 CAGR rates for Russia were above 10%

Generics hold at least 51% of the market volume, some reports claim as high as 70% volume.

Generics hold 20% of the market value.

Average per capita consumption of medicines will increase in the coming years

Expected 25% year/year increase in the volume of domestic drug production

Source: IMS Outlook for Global Medicines through 2021 & Russian Trade Ministry

Country 2016 $US (B) 2021 $US (B) 2016-2021 CAGR

China 116.7 140-170 5-8%

Brazil 26.9 32-36 7-10%

India 17.4 26-30 10-13%

Russia 11.6 14-18 5-8%

5

RUSSIAN MARKET TRENDS

Private healthcare is still growing, prevalence of private physicians catering to the wealthy due to

insufficient coverage of voluntary healthcare insurance (VHI) that only covers basics.

.

Foreign Multi-National Companies dominate all three market segments compared to Russian

manufacturers.

o Retail/RX - Privately paid out-patient pharmacies - Commercial segment, 2/3 of sales

o DLO (Additional Drug Supply Program) - Advantageous for foreign innovative drugs, imports

account for 47% of volume

o Hospital

20%

2% 19%

70% 95% 67%

10% 3% 14%

Retail / RX DLO Hospital

Russian top 100

Foreign top 100

Other Companies

6

TOP COMPANIES BASED ON MARKET SEGMENT

Russian Companies

by Total Sales DLO Retail/RX sales

(Pharmacy)

1. Otcpharm

2. Stada

3. Biocad

4. Pharmstandart

5. Valenta

6. Sotex

7. Servier

8. Materia Medica

9. Veropharm

10. Pharm-Center

1. Celgene

2. F-Syntez

3. Biocad RF

4. Roche

5. Baxter

6. Sanofi-Aventis

7. Generium

8. Johnson & Johnson

9. Novo Nordisk

10.AstraZeneca

1. Bayer

2. Sanofi-Aventis

3. Servier

4. Nycomed/Takeda

5. Menarini

6. OTCPHARM

7. GSK

8. Gedeon Richter

9. Sandoz

10.KRKA

Source: Remedium Group according to IMS Health data

7

TOP THERAPEUTIC CATEGORY (ATC) BY MARKET SEGMENT

Top DLO Therapeutic

Categories

Top Retail / Pharmacy

Therapeutic Categories

1. Antineoplastic

2. Immunosuppressants

3. Antihemorhagics

4. Immunostimulants

5. Diabetes

6. Asthma

7. Antianemic

8. Antivirals

9. Alimentary Tract and

Metabolism

10. Endocrine Therapies

1. Antinflammatory

2. Renin-Angiotensin System

3. Nasal Preperations

4. Antibacterials (Systemic

Use)

5. Analgesics

6. Antivirals (Systemic Use)

7. Sex Hormones and

Modulators

8. Antdiarrheal / Intestinal

9. Cough and Cold

10. Vasoprotectives

Source: Association of International Pharmaceutical Manufacturers in Russia and Remedium Group

8

TOP DRUGS SOLD BASED ON MARKET SEGMENT

Top DLO Brands Top Retail / Pharmacy

Brands

1. Revlimid

2. Acellbia

3. Boramilan FS

4. Aksoglatirin

5. Lantus Solostar

6. Coagil- VII

7. Genfaxon

8. Rebif 44

9. Remicade

10. Octanate

1. Ingavirin

2. Mexidol

3. Actovegin

4. Detralex

5. Essentiale N

6. Kagocel

7. Cardiomagnyl

8. Concor

9. Pentalgin

10.Xarelto

Source: Association of International Pharmaceutical Manufacturers in Russia and Remedium Group

9

EXPORTERS OF PHARMACEUTICAL PRODUCTS TO RUSSIA

Source: Russian Exports National Information Portal

20%

8%

8%

6%

6% 5%

47%

Germany

France

United States

Italy

Switzerland

India

Other Countries

10

Import of drugs and pharmaceutical substances prohibited without first

registering each product with Roszdravnadzor (RZD)

Registration procedure takes abut 5-7 months

API in “transit” does not need to be registered

Medicines Import Licenses granted by Ministry for Economic Development and

Trade

Since 2007, system of Declaration of Conformity (GOST)

Replaced prior system of mandatory certification

Applies to a particular consignment

Valid until the expiration date of the pharmaceuticals in the consignment

IMPORT REGULATIONS

11

o Drug Registration

Including API or medicinal product into State Register of Medicines:

145,000 ($2445)

MA renewal fee : 145,000 ($2445)

Issue of registration certificate :10,000 ($170)

Expertise fees vary for example clinical trials and quality/risk assessment

325,000 ($5480), document amendments 75 000 RUB ($1275).

o Import license – 0.05% of contract price

o Import Duties, VAT, and Custom Fees

Import duties: 5%, 10% or 15% depending on product

VAT: 0% or 10% depending on product

Custom fees: variable, including for custom legalization, custom escort,

and storage

o GMP compliance confirmation : 75 000 RUB ($1275)

DUTIES & FEES

12

GOVERNMENT ACTION

The government is still strongly pushing forward with the Pharma 2020 plan o investing 120 billion rubles ($4 billion) to complete major goals

o increasing the domestic production share for essential and vital medicines to 50%

o fostering innovative companies and drug development

o increase exports of API and FD medicines

Localized presence is necessary and is essential for success.

o Looking to localize production of medicines to 90% by 2018 for strategic and also

life saving medications off of the vital and essential medicines registry.

February 2016 State Institute of Drugs and Good Practices became responsible for GMP

inspections within Russia.

o Key initiative will be getting inspectors trained fairly rapidly and how GMP

deficiencies are resolved and communicated.

Expansion of subsidies for new drug production up to 50% of the cost to produce.

Phase III will commence in 2018 through to 2020 to try and increase exports and

innovative therapies.

13

IMPORTANT REGULATORY CHANGES

Marketing Authorization process requires many different regulatory bodies for review

New regulations have put in timelines on various stages of decisions increasing

accountability

Mandatory clinical trials need to be conducted within Russia for drug registration (at

least PIII international trials)

Many of the active substances used in pharmaceutical production are imported.

“Localized Production” can mean that it is simply relabeled or repacked in Russia until

2017 when localization definition will be expanded.

Rule introduced January 2016 - imported medicines cannot compete for local tenders

if two or more analogues of that medication are manufactured locally.

Focus on stable drug supply by potentially making compulsory licensing mandatory

for certain medications either by government power or through court systems (this

could get scrapped).

•Source: Cortellis for Regulatory Intelligence database – Clarivate Analytics Ltd.

14

NUMBER OF ACTIVE PHARMACEUTICAL INGREDIENT MANUFACTURERS

Source: Clarivate Analytics Newport

India; 682

China ; 1424

Brazil; 42

Russia; 47

South Korea; 107

15

No manufacturing sites inspected by US FDA

Only 4 CEP/COS for products by Pocard & OJSC Biosintez.

Companies with corporate locations abroad and localized API manufacturing

still only two companies.

oMillHouse Capital (UK)

oSun / Ranbaxy

There are a number of MNCs outside that have FD or some sort of

subsidiary operating within Russia to tap local market expertise.

API is comprised mostly of imports

ACTIVE PHARMACEUTICAL INGREDIENT MANUFACTURING

16

FINISHED DOSE MANUFACTURING

Source: Clarivate Analytics Newport

100 132

571

1236

146

0

200

400

600

800

1000

1200

1400

Brazil Russia India China South Korea

Total # of FD Companies

17

Strengthening local dose manufacturing, with a current estimate of 132 FD companies that hold corporate locations in Russia.

Companies based in Russia have launched finished dose in:

oLatin America – Argentina, Brazil, Colombia,

oAsia – Bangladesh, Hong Kong

oEastern Europe -Bulgaria, Estonia, Latvia, Slovenia, Ukraine

oMiddle East - Jordan,

Shift in FD production to R&D and innovation should likely occur once additional localized manufacturing capacity increases.

Branded generics should be a constant focus to add to pipelines due to the fact the government will try to reduce spend while maintaining current available treatment options.

FINISHED DOSAGE MANUFACTURING

18

COMPANIES BASED OUTSIDE OF RUSSIA WITH FD PRODUCTS ON THE

RUSSIAN MARKET

Source: Clarivate Analytics Newport

132

55

53

38

23

22

20

19

15 13 10 ROW

India

Germany

USA

France

Italy

Switzerland

Ukraine

Poland

Japan

China

19

FOREIGN INVESTMENT / PARTNERSHIPS

Company Investments

Teva Teva built a $50M FD plant in Yaroslavl, Russia working on Injectable plant with

Nanolek now

Novartis $500M overall investment for Russia with $140M for plant outside St. Petersburg

Nycomed / Takeda Invested 96M for solid dosage and sterile liquid manufacturing

Sanofi – Aventis Acquired Vostok insulin plant

Novo Nordisk $100M insulin facility Kaluga Region

AstraZeneca Built a $224 M plant FD plant expected to be fully operational 2017

Pfizer $60-100M Kaluga Region plant in collaboration with Novamedika

Servier Built a $56M production plant

Actavis (Teva) $30M investment into Zio Zdorovje’s manufacturing

Berlin-Chemie $42M for FD plant pertaining to gastro, diabetes, cardiology, urology

Macleods $25M for production plant for TB drugs Belgorod Region

Lupin Considering $50M plant/R&D center construction, acquired ZAO Biocom

Ranbaxy Bought Biosintez valued at $60M

Ipsen Receiving a pharmaceutical license, commercial activity Q1 2011 launched CMO

for Tanakan® production

20

FOREIGN INVESTMENT / PARTNERSHIPS CONTD.

Company Investments

Eli Lilly Spending $1.27bn to be founding member of Russia-US Research Foundation

GSK Deal for vaccines with Binnopharm

Dr Reddy’s Technology transfer with R-Pharm

Roche Licensed drug candidates to Viriom

Neuronascent Signed SM screening agreement with Chemrar

Jubilant Agreement on production & purchasing of raw materials with Kraspharma

Naprod Life Science Deal for production & purchasing of anticancer treatments with Farmasintez

Mitsui Planning on $128-$171 million for a roughly 10 % stake in R-Pharm

MSD Agreement with Nanolek to produce metformin and bisoprolol $11.4M

Dong-A Licensing agreement with Geropharm for evogliptin and metformin hcl

Abbott Acquired control of Veropharm $305M

Valeant Completes Acquisition Of Natur Produkt $163M

21

INNOVATION - BIOSIMILARS

Currently registered in Russia:

o 14 biosimilars of filgrastim (7 are produced locally)

o 15 biosimilars of erythropoietins alfa, beta, and theta (8 are produced

locally)

Biocad launched Rituximab, Trastuzumab, and Bevacizumab, while looking

to also commercialize Adalimumab and Infliximab.

Filgrastim products are launched by Biocad and also Pharmstandard both

came out at drastically decreased prices compared to originator products.

Biocad plans on exporting biosimilars to the Brazilian market by constructing

a $40M facility. Also potential for setting up in Argentina if Brazil goes well.

Ongoing litigation between Roche and Biocad will shape the biosimilar

market in Russia.

Exports are being sent to countries like Vietnam, Sri Lanka, Thailand,

Phillipines, Malaysia and Indonesia.

22

Orphan drug research

Pharmsynthez received US FDA OD designation for cridanimod

New use patents

azithromycin, fosinopril, tizanidine, bromazepam, isotretinoin, erlotinib mesylate,

ceftriaxone

Clinical trials

Top therapeutic research areas: oncology, neurology, cardiology and infectious

diseases

The Ministry of Health approved 241 clinical trials for Q3 2016, which was a 18%

increase compared to Q3 2015.

Russian sponsored clinical trials account for 39% of total ongoing trials.

Local sponsors include Biocad, Sotex, and Atoll.

Top foreign sponsors include Novartis, MSD, Lundbeck and BMS

The top five CROs in Russia: Quintiles, MSD Pharmaceuticals, Covance Clinical,

Trokas Pharma and Parexel.

INNOVATION – DRUG DISCOVERY

23

Pharmsynthez looking to purchase pharmaceutical producers in Europe, as well

as in the US and Israel.

Multiple companies looking for partnership opportunities outside of Russia

Russian companies expanding facilities

Yunona building facility in Chelyabinsk region

Rusano & Pharmsynthez building new plant in Kapitolovo

Multiple regions investing in healthcare modernization, improving hospitals and

clinics.

Collaboration in exports to Iran between Sobhan Recombinant Protein and

Petrovax for vaccines.

Rusnano invested in BIND and Selecta two small biotech companies back in

2012 to develop novel therapeutics and hold subsidiaries in Russia.

RUSSIAN INVESTMENT

24

KEY PRIORITIES FOR RUSSIA

Continue training staff to be able to inspect for GMP accurately and definitively by

partnering with WHO and Pharmakon

Continue the expansion and improvement of drug lists i.e. of the 7 nosologies (7N)

program for orphan and expensive treatments, using ZhNVLP as a foundation.

Increase harmonization for MAA and ONLS lists and reduce regulatory redundancy.

Continue supporting clinical trials and also realize that biosimilars are a strong market

area that only few companies have really excelled in.

Support academia and CROs collaborations to spur innovation.

Don’t just rely on technology transfers or FD, if localized API production makes sense

financially focus on vertical integration of supply to decrease reliance on imports.

Make sure import substitution and licensing is inviting for continued investment.

Increase transparency

25

Growing middle class with a growing demand for treatments of chronic diseases

Poor infrastructure and a fragmented distribution network main cities neglect outer rural

areas in some regards.

Large clinical trial population, physicians eager to participate in trials, low cost of clinical

trials

Russia continues to offer low-cost production, platform for launching into CIS, Eastern

Europe

Few local dose companies with cGMP experience, market likely continuing to be

dominated by imports

Poor enforcement of IP rights, counterfeiting, red tape, economic and political risks,

language barriers

Government investment and modernization will continue to be key priorities

CONCLUSIONS

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Кларивейт Аналитикс