More on Russia…Is the US Next? 
Posted by Carlos on Dec 20, 2010

Last week we wrote about the Russian government’s desire to grow their national pharmaceutical infrastructure. Our reading of the situation is that the government will “suggest” that ex-Russia companies who want to do business in the country will be asked to build manufacturing plants, invest in local R&D, etc.

Today, Novartis announced a $500 million long-term investment in the country, including a full-scale manufacturing plant in St. Petersburg. Of interest:

“Novartis is making a strategic investment in Russia for long term growth. This collaboration shows our commitment to contributing to the ambitious healthcare goals of the Russian government,” said Joseph Jimenez, CEO, Novartis AG. “The ongoing partnership with Russia enables us to expand our commercial presence in a key emerging market. The scientific development and public health efforts have been prioritized to focus on the most beneficial programs for the Russian people.”

Aw we wrote about last week, what’s really interesting here is that big pharma is entering intro strategic partnerships with large governments to build local infrastructure in exchange for participating in local markets. This is quite a shift from buying a local company and investing in the local company to access the local market. Another example is the agreement signed between China and Taiwan.

What does this mean for established markets like the US and Western Europe? Will we see State or even Federal governments collaborate with ex-US companies to develop infrastructure? We’ve seen these types of partnerships in other industries, such as the auto industry. It might make sense for some state governments to reach out to multinational companies in Europe or even India and develop partnerships, thereby trading local tax benefits, local infrastructure access, and access to local/US markets in exchange for investment.

Update: The recent passage of new legislation by the Commonwealth of Puerto Rico is an interesting case study to follow. While Puerto Rico has raised taxes to the detriment of the local biopharm industry, the same government which passed the tax increase is supposedly working with companies on solutions around the new tax law. For an excellent primer on this story, see the December issue of Life Science Leader. Will Puerto Rico be able to attract new investors to their existing, excellent infrastructure in the presence of a higher tax burden? Stay tuned…

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