Mafia dominates Russian pharmaceutical industry

During the epoch of “wild capitalism” of early 90s, Russian government left to the mercy of fate numerous sectors of national economy. Perestroika! Revolution! Capitalization! In other words, the government completely refused to provide financial support a number of factories and organizations.

Pharmaceutical industry was no exception. Large quantities of imported medications for incredibly low dumping prices, state's refusal to date domestically produced medications, growth of falsified production, decrease in the amount of state orders, and to on top of it all – inflation, all of these factors had a major impact on the pharmaceutical industry in our country.

Home market losses appeared to be as follows: in 1992, there used to be 272 brand names of various medications in our country; by 1995, the number declined to 119; and in 1998 there were only 98 left. Among them, Vitamins made up 43 per cent, Antibiotics constituted 36,4 per cent and other synthetic medications constituted 17 per cent. The time was just right for foreign importers to conquer Russian pharmaceutical market.

According to the Institute of state control of medications, in 1994 there were 32 firms from 18 countries working in our country; in 1995, we had 54 companies from 17 countries; in 1996 – 80 companies from 19 countries; in 1997 – 169 from 31; in 1998 – 219 from 36 countries; in 1999 – 168 companies from 30 countries.

With such powerful “attack” of foreign investors, Russian companies had absolutely no chance to participate in the development of the country’s pharmaceutical industry. However, soon came the infamous default, which made many foreign companies to leave the market or “freeze” their businesses for an indefinite time period. Russian investors in turn were granted a magnificent opportunity to regain control over the situation.

In July 2003 the Millhouse Capital company, that manages Roman Abromovitch’s assets in energy business, aluminum and motor-car industries, has announced its decision to purchase subsidiaries owned by ICN Pharmaceuticals in Russia. As a result, Abramovich acquired five industrial agents: “Oktyabr” (St. Petersburg), “Leksredstva” (Kurks), “Polypharm” (Chelyabinsk), “Marbiopharm” (Yoshkor-Ola), “Tomskchempharm” (Tomsk), as well as 96 pharmacies countrywide.

Another Russian alcohol-pharmaceutical tycoon Vladimir Bryntsalov has also increased his assets. It is worth mentioning however that all of the financial operations are performed at the investor’s own risk. Domestic drug manufacturers do not receive any state funding. To say that it is bad is equivalent to saying nothing at all. The industry is in need of state support now more than ever, since Russia is soon about to enter WTO. However, things fail to go pass mere statements. In February of 2004, Russian president Vladimir Putin said that the government needed to provide full support to domestic pharmaceutical industry in order to promote it abroad.

“This is exactly the case when direct state support is mostly needed. This is the case when the government ought to use its monopoly…to help Russian innovative centers promote their highly advanced products to foreign markets,” stated the president during today's meeting of science and high tech council. He also said that, “drug promotion is an extremely difficult procedure, even when highly competitive drugs are at stake.” According to Vladimir Putin, “some estimates suggest that profits in pharma industry increase those of narcotics sales.” Putin also noted that “international mafia” rules that sector. “…even though it appears to be quite respectable, it allows [other companies] to operate in the field only in strict accordance with its established laws.”

Here is a good example of such illegal activity on the Russian pharmaceutical market. “Parlamentskaya gazeta” (The Parliamentary newspaper) dated to November 26, has published an article “Do not trust Grecian gifts.” The article depicts a rather sad story of how Indian pharmacists tricked their Russian colleagues.

In short, Moscow's office of the public prosecutor has filed a law suit against an Indian company “Dr. Reddy’s Laboratories LTD”. The proceedings were executed in accordance with the fact that the Indian company failed to implement the investment program that the company announced during the investment competition to sell 35 per cent of voting stocks of the authorized capital of “Bionmed” JSC in 1995.

“Biomed” is one of the leading companies of the Russian pharmaceutical industry. It produces 80 brand names worth of products. The company’s main focus is vaccine production. The company satisfies more than half of the state’s need for whooping cough vaccines, diphtheria vaccines as well as tetanus vaccines. Parallel to this, “Biomed” is working on developing genetically engineered vaccines against Hepatitis B.

Today, "Biomed" is a highly profitable manufacturing facility.  Nowadays, "Biomed" cooperates with the leading wholesalers in the sphere of pharmacology.

Today, it is no longer a secret that the renowned "Biomed" company has been safeguarding a wide array of various vaccines against extremely dangerous infections for quite some time now. Its secret warehouses contain guaranteed supply of the Ministry of Emergency Situations intended to solve problems ofstate and international significance; this supply of medications is intended to be used in cases of the spread of a deadly epidemic.

A reasonable question comes to mind: How did the Indians manage to get their hands on this strategic facility? How did the Russian government allow for it to happen? In any case, this is no longer important. Only Dr. Reddy himself along with former managerial staff of “Biomed” benefited from cooperating with “Dr. Reddy's Laboratories LTD”.

In February of 1995, Moscow's Suburban Property Fund held investment contest to sell 35% of voting stock of the authorized capital of “Biomed” JSC. “Dr. Reddy’s Laboratories LTD” (India) was declared a winner. Indian company immediately offered $9, 931 million USD worth of investments. However, the money never reached “Biomed”. As it turned out, the Indians used the money for their own purposes. A correspondent from “Parlamentskaya gazeta” was informed by a “Biomed” spokesman that the company has suffered significant financial loses as a result of illegal actions committed by “Dr. Reddy's Laboratories LTD”.

The damage that “Dr.Reddy's Laboratories LTD” has caused to the Russian company “Biomed” and the government constitute a total of $37 160 654 USD.