the compliance related aspects, peculiarities and risks in the … · 2011-05-05 · the compliance...

The Compliance Related Aspects, Peculiarities and Risks in the Russian Pharmaceutical Market

Artur

Nagapetyan,Country Compliance Officer,Novartis Pharma, Russia

The Fifth International Pharmaceutical Compliance Congress and Best Practices Forum,May 3 –5, 2011, Istanbul, Turkey

The Compliance Related Aspects, Peculiarities and Risks in the Russian Pharmaceutical Market

2The 5th IPC Congress and Best Practices Forum, 2011 | Artur

Nagapetyan

| For discussions only

The opinions expressed in this presentation are based on the author’s experience in consulting, internal audit and compliance management in medical devices’ and pharmaceutical industries.

The analysis in this presentation does not pretend to be comprehensive or exhaustive and just touches several compliance related aspects in Russian pharmaceutical market.

The statements in the presentation do not reflect the author’s employer’s attitude.

Russia continues to remain a country with very high level of corruption risk


Nagapetyan


According to the Transparency International, Russia in 2010

received a Corruption Perception Index©

(CPI) of 2.1 that

indicates very high level of corruption risk1.

Russia shared 154th

ranking out of 178 countries along with

Cambodia, Central African Republic, Comoros, Congo‐Brazzaville,

Guinea‐Bissau, Kenya, Laos, Papua New Guinea and Tajikistan.

Transparency International’s Bribe Payers Index©

(BPI, 2008)

ranked Russia as 22nd

among the world’s largest and most

influential 22 economies.

Russia’s BRICS colleagues (Brazil, India, China and South Africa)

received much better ranking: 69th, 87th, 78th

and 54th

respectively.1 ‐

www.transparency.org

Corruption Perception Index©

(CPI)1, Russia, 2001 ‐

2010


Nagapetyan


1

79

71

86 90

126

121

143 147 146154

CPI

Trend line

Rank

91 102 133 146 159 163 180 180 180 178

Number of countries in the rating


Nagapetyan


Russian market stays attractive for MNCs

The Russian pharmaceutical market has experienced 10‐12

percent annual growth since 2003 and is the 11th

largest in the

world1

Spending on health care has grown fourfold since 2001

The government is boosting funding for the pharma

market

The market is maintaining double‐digit growth for almost all

major

life sciences companies

Per capita income is greater than in most other emerging

markets

Experts are forecasting at least 15% growth in Russian pharma

market in 2011 as a “pessimistic scenario”2. 1 ‐

www.imshealth.com2 ‐

www.pharmexpert.ru


Nagapetyan


Russia has actively joined the international cooperation in combating corruption /1

March 8, 2006 – Russia ratified the United Nations Convention against Corruption

July 25, 2006 – Russia ratified the Council of Europe Criminal Law Convention on Corruption

February 1, 2007 – Russia joined the Council of Europe’s Group of States against Corruption (GRECO)

December 25, 2008 – The Russian Federation Federal Law On Combating Corruption was adopted

April 13, 2010 – The President of the Russian Federation approved National Anti‐Corruption Strategy and National Anti‐Corruption Plan for 2010‐2011

November 12, 2010 – Russia signed the G20 Anti‐Corruption Action Plan

December 29, 2010 – Russia became one of the founding members of the International Anti‐Corruption Academy.


Nagapetyan


…

Corruption became a systemic problem

and we have to confront this problem with

systemic actions…

... A better quality of public discussion and

zero tolerance of corruption should become

part of our national culture...

…Corruption has penetrated all branches of

power. In 2010 several thousand high‐

ranking state officials were prosecuted for

corruption and bribery.

And 2,000 of them

were sentenced. (emphasis added) Dmitry Medvedev, President of RF: Extracts from speeches

during 2008 ‐

2011, (http://kremlin.ru/).

Russia has actively joined the international cooperation in combating corruption /2

February 16, 2011 – Dmitry Medvedev submitted to the State Duma the draft of Federal Law on Amendments to the Russian Federation Criminal Code aimed at improvement of state policy in countering corruption and toughening penalties for bribes and kickbacks.

8The 5th IPC Congress and Best Practices Forum, 2011 | Artur Nagapetyan | For discussions only

Vladimir

Putin,

Prime

Minister

of

RF:

Meeting

on

the

development

strategy

for

the

pharmaceutical

industry

in

October 09, 2009, (http://government.ru/).

I cannot keep silent on another burning

issue…

the unhealthy relationship

that has

emerged in recent decades between

pharmaceutical manufacturers ‐

mainly

foreign ‐

and a part of the Russian medical

community.

…Titans of the pharmaceutical industry have

established powerful lobbies. We should put

an end to these abuses.

Medical ethics should

be made more stringent, and profit made on

this ignoble practice should be prohibited by

law. (emphasis added)

Pharmaceutical industry stays in the spotlight

October 1, 2010 – The Russian Government approved the Concept of the Federal special program “The Development of the Pharmaceutical and Medical Industries of the Russian Federation until 2020 and Beyond”, commonly known as “Pharma 2020”.


“Pharma 2020”

may become a serious challenge for MNCs

“Pharma 2020” is aimed at increasing the competitiveness of the Russian domestic market and calls for about $6 billion investment1.

The Russian Government is planning to:

o Increase domestic products market share up to 50% from the

current 23%;

o Increase number of innovative products up to 60%;

o Increase export of pharmaceutical products by eight times

compared with the 2008 figure.

1 ‐

www.zdravo2020.ru


What is vital for MNCs to remain successful in Russia?

The complexity of the Russian Health Care system as a hybrid of free and reimbursed systems (Retail (out of pocket ‐ RX&OTC) + DLO/ONLS + 7N + Hospital sales) increases the sensitivity of all marketing activities, in particular interactions with HCPs and requires greater attention.

During the last 2‐3 years almost all Big Pharma companies announced investments in local manufactures or strategic alliances with local producers. That will significantly increase the number of suppliers and other third parties subject to the due diligence process, as well as the number of own employees, which will likely result in increased compliance related risks.

The enlarged number of local third parties will require greater efforts to minimize MNCs’ exposure by detecting possible corruption schemes aimed to “simplify/speed” routine business operations.

It is advisable to appoint a CEO with exceptionally high level of integrity;

To maintain a thorough and effective internal investigation process and adequately respond to findings;

To send clear message to the employees about the commitment to cut through red tape without paying bribes.


Tone at the Top ‐

a matter of exceptional importance

Work culture and management ‐ labor relations:

Low Power Distance High

Low Uncertainty Avoidance High

Individualism vs. Collectivism

Masculinity vs. Femininity

Geert Hofstede™

Cultural Dimensions1

‐

customized application for Russia

employees could become excessively flexible and easily accept non‐ethical business practices;

very low level of exercising of whistleblower mechanism.

1 – Hofstede Geert, “Culture’s consequences: international difference in work related values”.


Interactions with HCPs /1

Government/Public officials ‐ Russian legislation does not provide clear guidance as to which extent the interactions with HCPs are allowed. The restrictions depend on whether the HCP is employed by a state healthcare institution or a private institution and are imposed mainly on government or public officials.

o The definition “government official”

(civil servants) is used in the Russian legislation

about the government service;

o The definition “public official” (“persons performing management functions”) is

used in the Russian Criminal Code.

Government/Municipal officials are prohibited:

o from receiving any kind of remuneration from individuals and legal entities in

connection with the accomplishment of their duties (cash, gifts,

loans, services,

payments or other personal benefits, etc.);

o from accepting any paid employment, sponsored solely at the expense of foreign

organizations, without the employer’s written permission;

o from travelling outside Russia in connection with the accomplishment of their

duties on the account of individuals or legal entities.



In many cases government officials are at the same time public officials, however:

o There can be government officials who are not public officials;

o There can be public officials who are not government officials;

o Many functionaries can be considered as public officials by FCPA

without being

government officials or public officials under Russian Law.

Pharmaceutical products’ promotion in Russia in a certain level is a relationship driven business and it is crucial to maintain a robust process for managing potential conflicts of interest.

Some HCPs are managing companies ‐ service providers, organizing scientific/ educational events, that significantly increases compliance related risks.

Samples’ dissemination is not clearly regulated by Law and in certain circumstances could be considered as benefits/gifts to HCPs or as retail activities.

Interpretation of interactions/contracts with HCPs, that are not specifically regulated by law, may be unpredictable.



To avoid pitfalls and to mitigate existing risks it is advisable to ensure that any

benefit provided to HCPs

(travelling, hospitality, meals, etc.) complies with the

following criteria:

Is directly related with the subject matter of the written contract;Is not extended to spouses, children or other invited persons and does not include a considerable entertainment or sightseeing;Is not offered as “quid pro quo”;Is preferably paid to the service‐provider (e.g. travel agencies); Is carefully considered when dealing with government or public officials.

It is advisable to avoid funding HCPs’ participation in international Congresses, local scientific events, CME activities without written contract containing clear responsibilities and with a funding HCP’s liability to inform his/her employer and to obtain employer’s written consent for the funding.

There are no clear rules for HCPs’ funding and CME activities, as a result the funded amounts could be considered as HCPs’ personal taxable benefits.


Interactions with HCPs / patients

It is advisable

to ensure that contracts with HCPs

comply with the following

criteria:

The provided service meets company’s legitimate needs;

HCP is qualified and has adequate experience to perform the service;

The remuneration is adequate to the rendered services and in line with FMV;

No contracts are concluded with the “government officials”.

Social Media – Because of the ambiguity and disjointed legislation Social Networking for disease awareness and patients’ compliance programs should be used with great care.

DTC promotion is legislatively restricted:o No publicly available information about prescription‐only drugs;o Web‐sites with information about prescription‐only drugs should be password‐

protected;

o Low awareness among patients and caregivers about legal constraints.


Interactions with distributors and other third parties

Due diligence ‐ No transparent database that can be used for due diligence protocols, no due‐diligence “friendly” legislation;

o Many exclusive service‐providers that could be considered as “one‐day companies”;

o Close relationships between distributors and decision‐makers.

Distributors’ contracts ‐ No developed concept of a distribution agreement. Legislation regulating specific types of contracts will apply to relevant parts of the distribution agreement: supply contract, services contract, agency contract, etc.

o Impermissible to agree on re‐selling price, to prohibit sales of competing products, or

otherwise restrict competition.

During the third parties’ vetting process, it is advisable to consider strict local privacy laws, certain restrictions in investigative activities, local practices and procedures.

Due diligence process should be continuously supported by well established compliance program and by robust process for managing potential conflicts of interest.


What can MNCs expect during the next several years in Russian Pharmaceutical market?

Increased anticorruption efforts, dynamic enforcement of anticorruption legislation.

New Bill on the Health Protection of the Citizens – certain limitations on field‐force activities, more regulated interactions with HCPs, restrictions on samples’ distribution, limitations on HCPs’ educational activities’ funding.

Growing antitrust efforts – Federal Antimonopoly Service is keeping pharmaceutical industry in the focus and is “tightening the screw” of pharma companies and distributors’ activities.

Strengthening of patients’ organizations’ role.

Fierce competition with local manufacturers.

Increased role of compliance as a decisive factor for obtaining competitive advantage.


Key message to Compliance Officers – Together is easier

Not to exploit the old saying “When you are at Rome, do as the Romans do”. Clear message to employees – there will be no exceptions for Russia – the same ethical standards should be implemented.

Multinationals’ “collective initiatives and actions” in implementing compliance culture will have tremendous impact in Russian pharmaceutical market, may significantly reduce compliance related risks and will make environment hopefully much more suitable for MNC’s business.

Support AIPM (Association of International Pharmaceutical Manufacturers) efforts in establishing and maintaining ethical promotional activities. Industry efforts should be harmonized – fair, consistent, and competitive environment for all.

Establish and maintain internal transparency in compliance‐related decision making.

Islands of Integrity – the best place for most talented people.


Nagapetyan


the compliance related aspects, peculiarities and risks in the … · 2011-05-05 · the compliance...

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