December 2015

Biotechnology & Pharmaceuticals 2016

EXPERT GUIDE

24 25December 2015 December 2015

expert guiDe: biotechnology & pharmaceuticals 2016Russia

andrey Zelenin sergey PatrakeevAZelenin@lidings.com+7 495 989 44 10

SPatrakeev@lidings.com+7 495 989 44 10

Russian Pharmaceutical Market: Drive for Localisation

ernment no.102 dated 5 February 2015). It remains unclear however, what are the criteria of the “Russia made” pharmaceutical product. Cur-rent legislation provides that the fact that certain product is made in Rus-sia should be confirmed by a special certificate; in the same time, regula-tions on issuance of such certificate make a special carve-out for pharma-ceutical products. A couple of years ago, the Ministry of Trade has made an attempt to introduce its own cri-teria for the “Russia made” pharma-ceutical product, and the draft Order has been published by the Ministry on 23 January 2013 proposing that the pharmaceutical product should be regarded as “made in Russia” if at least one of the following stages is completed in Russia: (i) manufactur-ing of API, (ii) manufacturing of the finished pharmaceutical product, and (iii) packaging. This draft Order has never been approved – at least, due to the reason that the Ministry would have been acting in excess of its competence when issuing such Order as binding. However, in prac-tice this draft document became a guideline for many public procure-ments carried out in 2013-2015.

In relation to the foreign made phar-maceutical products having no sub-stitutes (generics) in the Russian market, a different approach for public procurements is proposed: the regulating authorities contem-plate to carry out procurements on a large scale level with stipulation of long term contracts with the bid winners (5-7 years) fixing the price of procurement for the entire period of such contract, and in the currency of contract, which is the Russian Ruble.

Another area where the Russian policy-makers are applying efforts to achieve a higher degree of localisa-tion is the IP rights regulation. Re-cent case law suggests that two major trends are emerging: first, to grant sufficient level of protection to international companies that are carrying out major investment proj-ects in Russia; second, to support Russian innovative companies that face questionable patent strategies from foreign original drugs manufac-turers.

As a showcase for the first trend comes a recent dispute between Swiss Novartis Pharma AG and Rus-

Pharmaceutical manufacturing lo-calisation remains one of the top pri-orities in the Russian policy of indus-trial development within the recent several years. This is confirmed and gradually implemented in frames of the State Program of the Phar-maceutical Development “Pharma 2020”. The regulatory approach in this sense appears to be a balance of sticks and carrots for the companies acting on the Russian phar-maceutical market.

The first localisation incentive appears for the international manufacturer at the stage of cus-toms clearance. Direct imports of medicines are subject to import duty being 5 to 15% of the contract price. In vast majority of cases, cus-toms clearance, including payment of customs duties remains within the responsibility of the pharmaceutical manufacturer, bearing in mind that it is only the holder of the marketing authorisation who is eligible to bring the relevant medicine into the Rus-sian territory.

However, in the realm of the Russian pharmaceutical market there is one even more important instrument used by the regulating authorities – access to the public procurements. Initially, foreign made pharmaceu-tical products were subject to price discrimination at public procure-ments: the 15% price preference has been guaranteed for the Russian bid-

ders using slightly dif-ferent mechanisms by the Ministry of Economic Develop-ment (consequently Order no. 211 dated 17 April 2013, and Order no.155 dated

25 March 2014).

Now, the new regulatory initiative is in the spotlight of discussion: for-eign made pharmaceutical products should be banned from the public procurement in case when two or more different Russian made similar products (generics) can be offered in the same procurement bid. This rule is already applied in relation to public procurements of the medi-cal devices starting from February 2015 (Regulation of the Russian Gov-

By Andrey Zelenin & Sergey Patrakeev

26 27December 2015 December 2015

expert guiDe: biotechnology & pharmaceuticals 2016Russia

neric product registration.

On the opposite side of the spectre is Genentech Inc. claim vs. Biocad CJSC (Case No. А40-32877/15), where the American subsidiary of Roche group sued a Russian biotech company for producing and selling rituximab drug bio-analogue. The basis for the claim was a so-called secondary “method of use patent”, which has been ob-tained by Genentech Inc. upon ex-piration of the main patent for the active formula. The court rejected the claim and concluded that Biocad CJSC, being a manufacturer doesn’t actually use the drug and hence can-

not be found in breach of the meth-od of use patent.

In both mentioned cases the courts (at least for the time being) sided with companies which are actively involved in localisation of their phar-maceutical manufacturing in Russia, which can be perceived as a reflec-tion of the overall state policy in this industry.

Andrey Zelenin, Partner, head of Dis-pute Resolution practice at LidingsSergey Patrakeev, Partner, head of Corporate and M&A practice at Lid-ings

sian Biointegrator LLC (case No. A40-188378/2014) on how the provisions of clinical trials data exclusivity apply in Russia.

Novartis Pharma AG claimed that Biointegrator LLC had infringed Swiss company’s clinical trial and pretrial data in the process of state registra-tion of its generic product “Nescler” and asked the court to cancel its state registration. Biointegrator LLC opposed these claims referring to the fact that an application for “Nes-cler” state registration (2 April 2012) had been made by another company prior to the date the data exclusivity

regulations became effective in Rus-sia (22 August 2012). Then the reg-istration file has been transferred to Biontegrator LLC.

The court of first instance rejected Novartis Pharma AG claims, however the appeal court has found that Bio-integrator LLC cannot be exempted from liability based on the date of an application made by another compa-ny, which subsequently transferred it to Biointegrator LLC under a com-mercial agreement. The Panel of Judges has motivated its position by absence of such an opportunity un-der Russian law and canceled the ge-