The Compliance Related Aspects, Peculiarities and Risks in the Russian Pharmaceutical Market The Fifth International Pharmaceutical Compliance Congress and Best Practices Forum, May 3 5, 2011, Istanbul, Turkey Artur Nagapetyan, Country Compliance Officer, Novartis Pharma, Russia
The Compliance Related Aspects, Peculiarities and Risks in the Russian Pharmaceutical Market 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. 2
Russia continues to remain a country with very high level of corruption risk According to the Transparency International, Russia in 2010 received a Corruption Perception Index (CPI) of 2.1 that indicates very high level of corruption risk 1. Russia shared 154 th 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 22 nd among the world s largest and most influential 22 economies. Russia s BRICS colleagues (Brazil, India, China and South Africa) received much better ranking: 69 th, 87 th, 78 th and 54 th respectively. 1 www.transparency.org 3
Corruption Perception Index (CPI) 1, Russia, 2001 2010 1 86 90 71 121 Trend line 79 126 143 147 146 154 Rank CPI 91 102 133 146 159 163 180 180 180 178 Number of countries in the rating 4
Russian market stays attractive for MNCs The Russian pharmaceutical market has experienced 10 12 percent annual growth since 2003 and is the 11 th largest in the world 1 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.com 2 www.pharmexpert.ru 5
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. 6
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. 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 highranking 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/). 7
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. 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) Vladimir Putin, Prime Minister of RF: Meeting on the development strategy for the pharmaceutical industry in October 09, 2009, (http://government.ru/). 8
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 investment 1. 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 9
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. 10
Tone at the Top a matter of exceptional importance Work culture and management labor relations: Geert Hofstede Cultural Dimensions 1 customized application for Russia Low Power Distance High Low Uncertainty Avoidance High Individualism vs. Collectivism Masculinity vs. Femininity employees could become excessively flexible and easily accept non ethical business practices; very low level of exercising of whistleblower mechanism. 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. 1 Hofstede Geert, Culture s consequences: international difference in work related values. 11
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. 12
Interactions with HCPs /2 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. 13
Interactions with HCPs /3 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. 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. 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. 14
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. 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 passwordprotected; o Low awareness among patients and caregivers about legal constraints. Social Media Because of the ambiguity and disjointed legislation Social Networking for disease awareness and patients compliance programs should be used with great care. 15
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. 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. 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. 16
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 fieldforce 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. 17
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. 18
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