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Russia 2012: The Pharmaceutical Market & New Legislation - Building for Growth in a Fast Changing Marketplace

August 2012

Executive Summary
The Russian healthcare market is attracting increasing global interest not least because its value is expected to triple within the next decade. However, market access across this vast region is complex and challenging and has become even more so following the introduction of the On Fundamentals of Protection of Public Health in the Russian Federation, on January 1st 2012. Interaction with these decision-makers must also change from traditional product detailing towards a less product-centric, education-led model, whilst also incorporating new channels to market such as direct marketing and, where possible, eMarketing. This paper outlines the changes facing pharmaceutical companies operating across Russia this year and provides guidance on how to best adapt market access strategies to maximise the opportunity in a country set to become one of the largest global pharmaceutical markets.

In essence, the legislation introduces two fundamental changes: Regionalisation of decision-making. The 82 regions across the Russian Federation are now tasked with creating treatment protocols and defining Essential Drug Lists (EDL). These lists would also form the basis of new reimbursement plans that will be rolled out incrementally across the regions over the next five years.

Pharmaceutical interaction with healthcare professionals. Under this legislation, clinicians and pharmacists are banned from accepting gifts from pharmaceutical representatives, or receiving visits unless linked to clinical trials or educational events.

For the pharmaceutical industry, this new legislation demands a significant change to market access strategies. Excellent insight into the pharma-economy of each region, as well as competitive position, is essential to prioritise activity, since no company has the Key Account Management (KAM) resources to address every regional market simultaneously. New Key Opinion Leaders (KOLs), who are influential at the regional level, must be identified; and messaging must target to reflect not only the local drivers and objectives, but also progress in the development of standards of treatment.

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Introduction
The Russian pharmaceutical market is one of the fastest growing in the world. Its value is predicted to rise from $24 billion today to $75 billion by 2020, according to Cegedim Relationship Managements aggregated opinion from industry experts, government employees and analysts. In the interim, however, the system of public health provision and the landscape for pharmaceutical development and market access is set to change dramatically. New regulations are designed to increase patient access to drugs, emphasise the importance of local drug R&D and manufacture, whilst also imposing stringent compliance requirements upon state healthcare professionals. For the pharmaceutical industry the market opportunity is compelling. But the challenges cannot be underestimated. The most significant change came into force on January 1st 2012 namely the new federal law on public health protection: On Fundamentals of Protection of Public Health in the Russian Federation. At the heart of the new law is a move towards the modernisation of the health service through decentralisation and the empowerment of regions to make decisions regarding both reimbursement and treatment protocols. As Dmitry Medvedev, former President of the Russian Federation, explained, [The] centralization system, meaning vertical power, does not fully work today. Therefore, we need to switch on now some new mechanisms so that the country would work more dynamic [ally]. The law also imposes fairly strict rules on the interaction between the pharmaceutical industry and healthcare professionals in order to levy far greater control over the promotion and prescription of drugs, trying to minimise the risk of corruption and ensure patients have access to the right medicines. Prior to the introduction of this law, pharmaceutical companies could not only entertain healthcare professionals and offer gifts legally, but even pay to encourage prescribing. Now, not only is such activity forbidden, but the government tried to fundamentally change the conditions under which representatives and healthcare professionals can interact.

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The introduction of this law must also be understood in the

Legislative Overview

context of the existing pharma 2020 government strategy which is designed to rebuild the local pharmaceutical industry and encourage innovative drug development. This strategys

On Fundamentals of Protection of Public Health in the Russian Federation defines what constitutes the public healthcare system, the municipal and private healthcare services; the means by which a citizens public health protection rights are guaranteed and how the right to medical treatment is carried out. It sets out the terms and procedures under which state-guaranteed free medical care is provided, and also the rules governing provision of paying healthcare services. It also introduces new regulations for the medical and pharmaceutical sectors, including the rights and obligations of medical organisations and medical and pharmaceutical personnel, including specific training requirements. The federal law delimits powers in the public healthcare between the federal executive authorities, the regional authorities, and the local self-government; and sets liability for breaching citizens public healthcare rights and endangering public health and citizens lives by refusal to provide medical assistance. In essence, the new law has four key tenets: It provides a new system of accountable officials and defines the responsibility of healthcare budget holders It defines the rules of interaction between the pharmaceutical industry and physicians including new restrictions on the provision of gifts and visits from representatives It legalises standards of providing medical and drug aid It introduces a regional structure under which high cost nosologies will be purchased and supervised by regions

objective is to ensure 50% of sold drugs should be manufactured in Russia by 2020 a policy that has encouraged many multinational organisations to locate manufacture in Russia. In addition, there is a clear desire to improve access to healthcare through the creation of reimbursement programmes across the country. Today, just 30% of drugs are funded by the state, the rest are paid for out of pocket by Russian citizens and purchased at pharmacies the majority of which are privately owned and therefore fall outside regulatory enforcement. Therefore, the law as it stands today applies only to that 30% of the pharmaceutical market that is state-funded, mainly via the 99% of hospitals that are state run. Over the next decade, this will change as reimbursement plans are introduced on a region by region basis. Some elements of this process are already underway including the development of standards of treatment. Over the next two to three years, reimbursement programmes will be introduced in a number of pilot regions; with an estimate that reimbursement will be in place across the Russian Federation by 2015 at which point the value of the pharmaceutical market is going to be growing even faster, turning Russia into one of the biggest pharmaceutical markets in the world.
Figure 1: Index - pg.11 Long Term Development Scenario of Russia Pharmaceutical industry
Regional modeling of drug compensation programs Preparing of patient registries The beginning of activity of selfregulatory organizations Licensing of healthcare professionals Launch of reimbursement program in regions The mass privatization of HCP Launch of reimbursement pilot program in regions

75

Bln $

Presidential Election Year of treatment standards Modernization program - the stage of active development of the budget Elections to Russian State Duma

Slow down of concentration process in distribution chain

First innovation products of Russian Pharma companies

Start the process of consolidation of regional programs reimbursement

25
2011

Bln $ 2012 2013 2014 2015 2016 2017 2018 2019 2020

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Regionalising Health Provision


For the pharmaceutical industry, the most fundamental change under this law is the introduction of the regional structure, under which drug provision and systems of reimbursement will be developed in the regions. Each region has fundamentally different demographic and economic conditions, creating unique requirements. Under the new federal model, it will simply not be possible to successfully run market access campaigns centrally: companies will have to invest in gaining regional insight to determine priority regions; justify market access plans according to the dynamics of the specific region; and monitor regional performance in a changing healthcare landscape. Once a new drug has been registered by federal authorities, each region will be charged with the creation or updating of treatment protocols, a process that must be reflected within the market access strategy for each region. The objective for the pharmaceutical companies will be to get the product on the Essential Drug List (EDL) in each region, which will be used as the foundation for the reimbursement systems as they are rolled out. First year The treatment protocol is prepared by medical professional, non-commercial organisations. For the pharmaceutical company, pre-launch activity includes work with Key Opinion Leaders (KOLs) and educational activities with healthcare managers and decision-makers. Companies must also attain product certification and extend the educational activities to physicians and healthcare management. Second year During the second year, the treatment procedure will be developed by the regional Ministry of Healthcare, and includes procedures and stages of disease management and the structure and staff of medical institutions. Market access activity must evolve to encompass the inclusion of drugs in treatment protocols, the preparation and implementation procedure In addition, organisations have to also understand the evolving role distributors will play in each region. Today there are around 100 to 150 tenders per day financed by the state budget or hospitals across Russia; and it will be important to track the role distributors play in this regional market model, especially as reimbursement strategies are introduced, broadening the products available. Indeed, even the largest companies have no more than 70 KAMs to support the entire country. With more than 500,000 healthcare specialists, including physicians and pharmacists, the ratio of KAM to clinicians remains low compared to the major markets. However, with some 40% of these specialists located in the countrys 13 largest cities, supporting less than 20% of the total population, healthcare provision is highly fragmented, which also affects market access strategy. With 82 regions to address, for pharmaceutical companies, the first challenge is to determine which regions to cover. While the industry is expected to increase the number of its sales representatives who are increasingly trained as Key Account Managers (KAMs) (up by 10% in 2012) - no pharmaceutical company in Russia has the resources to address each region. of treatment and accumulated experience in the use of the treatment protocol. Third year The standard of treatment developed by Ministry of Healthcare comes into force. This includes the frequency and usage of different medical services, drugs and medical devices. At this point, the drug could be included on the Essential Drug List.

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Managing Scale
Given the extraordinary complexity and scale of this market, companies have to be focused and prioritise. Once a new drug has been registered, pharmaceutical companies will initially prioritise up to 15 regions and then look to build momentum by expanding into new areas. To identify the priority regions and market potential, pharmaceutical companies will need access to a range of research insight, from population demographics and incidence of disease, to the macro economy, social and healthcare requirements, healthcare budgets in the region, nosology budgets, and the number of doctors, hospitals and pharmacies. Having identified the diverse stakeholders in each region, the market access strategy will demand different levels of interaction and messaging with each depending not only on the specific interests, needs and financial drivers of each stakeholder, but also the evolution of the treatment protocols It is also important to understand the changing impact of KOLs and thought leaders on the treatment patterns of doctors and their prescriptions. This includes both the formal impact of KOLs on procurement and treatment standards and, equally important, the informal influence. A few prominent thought leaders typically strongly influence the choice of many clinicians, and it will be essential to track the role of these thought leaders within new regional decision making roles to maximise the value of market access investment. In addition, it is important to identify doctors informal networks of influence Communities of Practice (CoP). These groups pool ideas and can be instrumental in creating new professional practices; while professional non-profit organisations, which must now be registered with the Ministry of Health under Article 76 of the act, will comprise both patient associations and groups of healthcare professionals, and will play an important role in the creation of treatment protocols. These organisations may also participate in the activities of authorised federal executive bodies, mandatory health insurance funds, as well as in the development of state programmes providing free medical care to citizens.

However, the process of interaction is also a key issue that needs to be reconsidered following the introduction of On Fundamentals of Protection of Public Health in the Russian Federation which places significant constraints on the way pharmaceutical companies and clinicians can now interact.

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Pharmaceutical Access Reform


Indeed the biggest concern that pharmaceutical companies have raised under the new law is in response to restrictions now placed on healthcare providers and managers of medical institutions. In fact, the enforced version of this law relaxed aspects of the limits on pharmaceutical/clinician interaction due to a strong pharmaceutical industry resistance. However, changes are still significant and need to be understood to ensure both pharmaceutical companies and clinicians comply with the new requirements. Under Article 74 of the law, clinicians are now prohibited from accepting gifts and funds from pharmaceutical and medical device companies. This includes payment for entertainment and recreation. They are also banned from receiving visits from sales representatives without approval of Head of the Clinic. However, exceptions can be made relating to clinical trials and educational/research activities a relaxation of the initial draft of the law. Healthcare professionals are also prohibited from providing the patient false, incomplete or misleading information about the product used; and from receiving samples of medicines and medical products for delivery to the population. Under the new legislation requirements, clinicians are obliged to ensure patients are informed about the availability of similar products, especially those available at a lower price. Article 77 of the law is also relevant, as it refers to the continuing education of healthcare professionals, related to pharmaceutical education. This can be undertaken by educational research organisations engaged in medical or pharmaceutical activities, such as clinics; by medical organisations at clinics; or by producers of medicines and medical devices, pharma, forensic agencies and other organisations working in the healthcare sector. Most large industry players have long had clear policies and procedures regulating ethical interaction between company employees and medical practitioners or pharmaceutical workers. These policies will need to be aligned with the new law, with the prohibition on provision of drug samples to medical practitioners for patients, likely to mean significant revision of existing policies. So what do these changes mean for pharmaceutical companies in practice? The key issue is that any pharmaceutical / clinician interaction should now be based more on educational and / or clinical research activity. Companies may freely visit during clinical trials, and in order to improve the professional skills of the practitioners, as well as to collect information on side effects relating to treatments and medicines. Similarly the new law retains scope for practitioners to attend seminars, conferences and scientific events, even where these are financed by a single company. Pharmaceutical companies also need to ensure the conflict of interest requirements outlined in Article 75 are considered. Namely, should a situation arise in which a healthcare professional or pharmaceutical specialist has possibly attained material or other benefits personally, or through a medical representative, which affects or could affect the proper performance of his/her professional duties because of a conflict between personal interests and the interests of a patient, the specialist must inform in writing the head of the medical organization. The head of the medical (pharmaceutical) organization must then notify in written form the authorized federal executive body within seven days, and a special commission will then be formed to resolve the conflict.

Educating Clinicians

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Figure 2: Index - pg.12 Pharmaceutical Spending by Channel in Russia for 2011


Spending by Channel
2% 11% Detailing Samples Meetings Advertising 2%

85%

Clinical Trials Mailing/Others Note: Less than 1% Clinical Trials, Mailing/Others

The implications for pharmaceutical representative roles and future interaction are clear. Companies must be looking to reassign representatives from previous clinician detailing activity towards new educational roles; whilst there will be a shift away from product specific promotion towards educational disease specific events that provide key messaging to the clinician without direct link to product or company name. In addition, there is growing investment in new channels of communication, including direct mail and, to a lesser degree, eDetailing. The lack of Internet penetration across Russia and Internet usage by physicians today remains a limitation, especially for pharmaceutical companies increasingly exploring the value of digital marketing across the globe. According to the latest research, 38% of the population of Russia is using the Internet on a daily basis. Indeed, just 21% of physicians are using the Internet daily for any professional purposes. Therefore, eMarketing is more a nice to have tool, and can be used for very narrow targets, but it is not a way to get coverage. However, it is likely that pharmaceutical companies will explore alternative ways of communication to physicians besides medical representatives, and the only one which offers coverage is Direct Mailing.

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Transforming Market Access


The Russian market is becoming increasingly compelling for multi-national organisations, since the 30% state share of the Russian pharmaceutical market is focused on high-cost, innovative drugs. Today, there is no one multi-national company that is dominating in this market; although key disease areas such as diabetes, HIV and oncology are not well supported by local providers. As the market value continues to grow and reimbursement schemes are introduced across regions, it will be imperative for companies both local and global to respond to these changes with a new market access model. In addition to prioritising regional activity and identifying the stakeholders, from decision-makers to distributors to patients, organisations need to track the performance of competitors.
Figure 3: Index - pg.13 Pharmaceutical Spending by Corporation in Russia for 2011 (% Change from 2010)
Spending by Corporation Corporations Spending ($K) %
SERVIER NOVARTIS SANOFI MENARINI KRKA ABBOTT GIDEON RICHTER ASTRAZENECA TAKEDA BAYER 14 366 13 386 11 292 10 133 8 845 8 209 7 779 6 581 6 301 5 453 7.0% 6.5% 5.5% 4.9% 4.3% 4.0% 3.8% 3.2% 3.1% 2.7%

of determining accurate clinician data. Given the scale of the health service in Russia, this lack of information has made it difficult to effectively target activity. With the huge number of specialists operating across this vast territory, one of the main components of successful market access in Russia must be access to information about the target audience on a named level. The new ability to access information about physicians and pharmacists is transforming the way pharmaceutical companies address the market. Companies now have greater insight into the local thought leaders and communities of practice at the hospital and regional level. They are building strong relationships with Key Opinion Leaders (KOLs), authorities and patients societies to build influence within specific therapeutic areas. This information can also be combined with prescribing trends, enabling pharmaceutical companies to embark upon far more effective and targeted market access activity. For example, quantitative indicators allow companies to rank experts by doctor coverage and size of communities of practice, the strength of influence on prescriptions and the potential for prescribing to new patients. Critically, pharmaceutical companies will need to monitor market access performance in response to these significant legislative changes. Typically, performance is measured by comparing the investment in promoting specific drugs with survey information on the number of medical representative visits received by a doctor, the products promoted, the messages received/remembered, and the influence on the prescription. This information is typically compared with the competition to assess market position. Now, with fewer product-oriented meetings and more general educational events, as well as direct marketing, it will be important to track the effect on prescribing of the new model.

% Change
-16.9% +4.1% +0.7% +9.5% -0.4% -34.2% -9.8% +19.0% +7.6% +17.9%

However, one of the main problems for pharmaceutical companies in Russia is the total lack of access to industry data which has been a core component of the pharmaceutical sales model in other countries for years. There is no prescription data; and sales data is provided by three different companies with limited granularity, making it hard to draw the required insights. Furthermore, there is no in-depth information about healthcare specialists. The figures available do not make it clear how many GPs or consultants have more than one position. Indeed, some 30% of GPs may work in two places, but traditionally, pharmaceutical companies have had no way

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Conclusion
The Russian market is vast, fast growing and clearly offers massive opportunities for pharmaceutical companies. However, this is a complex market, with huge scale and very different pharma-economies. From the introduction last year of new price registration for Essential and Vital Drugs (EDL), to the move towards greater standardisation in care pathways, changes are occurring at every level of health provision as the government attempts to reduce self-prescribing, and provide greater access and choice to healthcare services for its citizens. EDL pricing is now based on the lowest prices paid in European reference markets, effectively creating a price freeze; and the EDL will be the basis of the reimbursement schemes being rolled out across regions over the next few years. With the introduction of On Fundamentals of Protection of Public Health in the Russian Federation, the way pharmaceutical companies access the market must fundamentally change. The market will continue to decentralise, and with a growing numbers of drugs being included in the reimbursement list, a lack of funding will affect prescribing opportunities in some regions. From gaining unprecedented insight into the needs, structures and drivers of each of the 82 regions, to creating new ways of interacting with healthcare professionals that reflect the educational/clinical trial requirements of the legislation, pharmaceutical companies need to improve market access strategies if they are to adapt to the challenges of this complex market. It is those pharmaceutical companies that adapt to this fast-changing model and leverage new access to an unprecedented depth of health professional information that will be best placed to maximise the considerable opportunities available across what is set to become one of the largest global markets.
Estimate based on 2002 census information (updated in April 2011)

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http://en.wikipedia.org/wiki/List_of_cities_and_towns_in_Russia_by_ population

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Chart Index
Figure 1:
Long Term Development Scenario of Russia Pharmaceutical industry
The beginning of activity of selfregulatory organizations Licensing of healthcare professionals Launch of reimbursement program in regions The mass privatization of HCP Launch of reimbursement pilot program in regions

Regional modeling of drug compensation programs Preparing of patient registries

75

Bln $

Presidential Election Year of treatment standards Modernization program - the stage of active development of the budget Elections to Russian State Duma

Slow down of concentration process in distribution chain

First innovation products of Russian Pharma companies

Start the process of consolidation of regional programs reimbursement

25
2011

Bln $ 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Cegedim aggregated opinion from industry experts: government employees, industry leaders, anlaysts

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Chart Index
Figure 2:
Pharmaceutical Spending by Channel in Russia for 2011

Spending by Channel
2% 11% Detailing Samples Meetings Advertising 2%

85%

Clinical Trials Mailing/Others Note: Less than 1% Clinical Trials, Mailing/Others

Source: CSD Global Promotion Database, 38 countries, Year 2011

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Chart Index
Figure 3:
Pharmaceutical Spending by Corporation in Russia for 2011 (% Change from 2010)

Spending by Corporation Corporations Spending ($K) %


SERVIER NOVARTIS SANOFI MENARINI KRKA ABBOTT GIDEON RICHTER ASTRAZENECA TAKEDA BAYER 14 366 13 386 11 292 10 133 8 845 8 209 7 779 6 581 6 301 5 453 7.0% 6.5% 5.5% 4.9% 4.3% 4.0% 3.8% 3.2% 3.1% 2.7%

% Change
-16.9% +4.1% +0.7% +9.5% -0.4% -34.2% -9.8% +19.0% +7.6% +17.9%

Source: CSD Global Promotion Database, 38 countries, Year 2011

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Recommended Reading
Emerging Markets Today and Tomorrow: Insights on Healthcare, Pharmaceuticals and Future Trends in the BRIC Landscape - April 2012 http://crm.cegedim.com/Docs_Whitepaper/Industry/Emerging-Markets-Whitepaper-2012.pdf 2012 US Trends in Aggregate Spend and Disclosure Reporting March 2012 http://crm.cegedim.com/Docs_Whitepaper/Compliance/Aggregate_Spend_Trends_Disclosure_Reporting_Whitepaper_2012.pdf 2011 European Trends in Aggregate Spend, Transparency and Disclosure February 2012 http://crm.cegedim.com/Docs_Reports/Compliance/2011_European_Trends_Compliance_Report.pdf 2011 US Pharma Insights - A White Paper on Current Trends & Challenges of the Pharmaceutical Industry October 2011 http://crm.cegedim.com/Docs_Whitepaper/Industry/Pharma_Insights_Survey_Whitepaper_2011.pdf 2011 EU Market Access Survey White Paper - June 2011 http://crm.cegedim.com/Docs_Whitepaper/Data/EU_Market_Access_Survey_Rpt_June_2011.pdf 2011 European Trends & Challenges in Customer Data Management within the Life Sciences Industry- June 2011 http://crm.cegedim.com/Docs_Whitepaper/Data/EU_Cust_Data_Mgmt_Survey_Rpt_June_2011.pdf

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Cegedim Relationship Management is the leading global provider of Pharmaceutical Customer Relationship Management (CRM) solutions. The company provides the most comprehensively packaged offering, enabling Life Sciences companies to achieve rewarding and lasting relationships with customers, and to meet present and future business objectives and requirements. Solutions include: Customer Relationship Management Customer Data Management Regulatory Compliance Support Services Marketing Services Analytics

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Author: Lucia Railean Regional Vice President - Russia, China and Commonwealth of Independent States (CIS) Cegedim Relationship Management

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Russia 2012: The Pharmaceutical Market & New Legislation - Building for Growth in a Fast Changing Marketplace

August 2012