At a recent Kennan Institute talk, James Class, Assistant Vice President, International Affairs (Europe), Pharmaceutical Research and Manufacturers of America, discussed Russia’s WTO accession process from the perspective of the research-based pharmaceutical industry.

Class explained that the pharmaceutical industry is responding to the pressures of globalization by taking research and development (R&D) worldwide. There is increased interest in the fast-growing “pharmerging” markets of China, Brazil, Mexico, South Korea, India, Turkey and Russia. In addition to relatively strong economic growth and growing health care, these countries have large “naïve populations” that are untainted by multiple-drug takers (which are more common in Western countries), making them important for conducting clinical trials. In addition, India and China are growing powers in the market niche of manufacturing generic drugs.

In spite of this growth abroad, according to Class, nearly 80 percent of pharmaceutical R&D is still conducted in the United States. The key to allocating R&D remains strong science and intellectual property laws, particularly in “data exclusivity.” It can take up to 15 years to take a compound from discovery to review by the U.S. Food and Drug Administration. Out of every 5,000 to 10,000 compounds discovered, only one will result in a FDA-approved drug. For this reason, risk-averse pharmaceutical companies prefer to keep the innovative research in markets where they have “data exclusivity” guarantees that provide market protection by preventing health authorities from accepting applications for generic medicines during the period of exclusivity.

The Russian market has emerged from the Soviet era, where Western patents were ignored and drugs were copied. At the time of the Soviet collapse, there were 7,000 factories looking to survive. Currently only 58 factories in Russia (including multi-nationals’) are compliant with the industry’s internationally recognized Good Manufacturing Practices.

Class noted that Russia has been in accession talks with the WTO since 1993. At the moment, Russia’s candidacy is being negotiated within a “working party” that must agree upon the Russian accession packet. The process is complicated by groups within Russia that resist the changes contemplated under accession, as well as the geopolitical situation following the Georgian conflict. However, the negotiations continue, and future meetings of the working party are on track. The key issues for the pharmaceutical industry in these negotiations are import restrictions, national treatment (where foreign companies receive equal treatment under law), and data exclusivity.

While Russia continues accession negotiations, it is planning reforms to modernize its healthcare system, including drug manufacturing. One priority envisioned under these reforms is to shift from importing to producing generic and innovative drugs for consumption in Russia. The Russian government also wants to stimulate innovative production in Russia and increase R&D taking place in Russia.

If Russia is choosing to favor innovation over discrimination as a means of promoting its domestic pharmaceutical industry, it would have very positive impacts on the WTO process and beyond. It would give rise to the very real possibility of an alignment of needs between foreign and Russian companies. “Russia is one of the few places where such an alignment is possible,” concluded Class. Class argued that the time was ripe to initiate a dialogue between U.S. business and Russian policymakers on how to make an innovation strategy successful.