Import substitution is not a goal, but a means
Alexander Semyonov, President and co-owner of the St.Petersburg company “Acticomp” discussed the issue with Komsomolka newspaper at the SPIEF. The goals of the pharmaceuticals manufacturer are in line with the objectives of the forum. It is not only about increasing the volume of domestic products within the country but also making them competitive in the foreign market.
BEST CANDIDATE
The state creates preferences for industries that are economic drivers of industrial growth. Certainly, pharmaceutical production is a good candidate for this role. After all, it has been growing for four years on average by 20- 30%. However, business should not linger around but employ the benefits and competitive advantages that the government gives already now. Earn its pace in the sun.
Our company produces active pharmaceutical substances. This is a rare case in Russia. Nevertheless, we are evolving aggressively and rapidly. Revenue has been growing by about 50- 60% for four years. It is a pace faster than that of the market as a whole. The share of the pharmaceutical market in Russia’s GDP is less than 1%, which is certainly a very low figure in comparison with the developed world markets of medicines. Its volume is only 1.3 trillion rubles. And this, by the way, is the annual revenue of just one Israeli company, Teva.
About 70% of generic products are import substituted. All of them can be replaced in three years. But the question arises: what next? After all, a very small number of domestic pharmaceutical enterprises enter foreign markets today. The very same Teva operates in more than 80 countries.
Through joint efforts of the state and business, we need to make the Russian pharmaceutical industry an economic driver of growth — one of the drivers that will help reduce the dependence of the country from the oil and gas industry.
The sales of Russian products will grow only if our manufacturers develop extensively and intensively, create business alliances, manufacture new products that meet international standards and also increase profitability and enter foreign markets.
PIVOT TO WEST
The pharmaceutical industry of India emerged in the 1960s. Now its companies operate all over the world. What stops Russia from being the same? It is necessary to establish a clear feedback channel with the state and increase the economic attractiveness of the industry in order to raise private investment in the first place. It is also required to create export preferences: reduce taxes, grant subsidies to exporters, that is, everything other countries do. Paradoxically, it is much easier to enter foreign markets with APS than with finished medicines. After all, their manufacturers need to undergo multistage procedures of a very complex registration. These substances are B2B business. It involves contracting with a factory that produces finished medicines and providing it with quality products at a good price.
Therefore, “Acticomp” successfully competes with Chinese, Indian and European manufacturers in the domestic market and supplies products for export.
BEYOND COMPETITION
Now is the time to analyse the quality of Indian products. It is way too questionable. For example, in 2016, the American regulatory body FDA rejected the products of more than 100 Indian enterprises. It gets worse when it comes to China. Half a century ago, the plants were built without regard to the regulations and now they threaten the ecological safety of the country. Even the sun in the sky is a rare guest in the Celestial Empire, and it is already a threat to health and life. To cope with this problem, limits to the growth of chemical and pharmaceutical enterprises are set.
By the way, the same factor is a threat to the Russian pharmaceutical market, since we purchase intermediates and ingredients from China. At the same time, it is an opportunity to conquer foreign markets through the development of our chemical and pharmaceutical industries designed and built in accordance with the most stringent environmental safety standards.
We will not get caught in this trap. “Acticomp” is building a new plant in the suburbs of St. Petersburg. It will be the largest enterprise not only in Russia, but also in Europe, with the area of 22000 sq. m. The technology considers modern environmental standards of production. It will be absolutely safe, even though it is close to the city.
HELP FROM ABOVE
The most active and systematic support to the business is provided by the Ministry of industry and Trade. Back in 2009, it developed Pharma 2020, a program of preferences for producers. I think it’s time to envisage a strategy for the next decade. In addition, since September 2016, the government subsidizes the producers of active substances under leasing programs.
Recently, our company has carried out an upgrade and purchased equipment. 50% of the leasing amount, except for the first installment, was reimbursed by the Ministry of Industry and Trade. We have committed ourselves to producing innovative substances and selling them for an amount that is triple the volume of subsidies. It’s very profitable. It is a win-win situation for both the enterprise and the state which receives additional tax revenues.
In addition, the Industrial Development Fund provides loans at 5% per annum. There is still a system of special investment contracts. But none of the domestic pharmaceutical producers has signed one yet. It is due to the fact that there is still no final decision on the final amount of tax preferences under such a contract.
THIRD WHEEL
The so-called third wheel resolution is still in place. If two Russian companies participate in the state tender, then foreign ones are not allowed to join. This allows to substitute imported products.
Since September 2016, the Ministry of Industry and Trade has been trying to supplement the program with an important item: if a Russian manufacturer of finished medicines releases its product using a Russian pharmaceutical substance, it gets an additional advantage at the auction, but the dispute about whether it is absolute or measured in a certain amount of interest discount has been going on for nine months. Imagine, the tenth month of discussion has started! A modern rapidly changing world does not tolerate such terms. It is impossible to develop the industry without such laws stimulating investments in it, developing its domestic and export potential.
When such a set of laws is created, it will be a great advantage for the entire Russian industry. We are ready to share our suggestions with the government officials and expect the voice of the business community to be heard out.
BACKGROUND DATA FROM KP
“Acticomp” is the leader in the production of generic active pharmaceutical substances (APS). These are the active substances from which the medicines are made. The company revives the APS market in Russia. This is one of the goals of Pharma 2020 development strategy. The capacity of the enterprise is up to 40 tons of products per year. After the construction of a new plant is completed in the Pushkin district, it will increase to 140 tons. In addition, the company manufactures 50 substances and plans to annually expand production with ten new APS.