The general director of the Russian Bayer CJSC and the general representative of Bayer in the CIS, Nils Hessmann, spoke to RBC about the localization of production and the consequences of the devaluation of the ruble for the pharmaceutical business

General Director of Bayer CJSC Nils Hessman (Photo: Oleg Yakovlev / RBC)

“If we grow to €1.3 billion, we will drink champagne”

— About four months ago, on March 1, you were appointed general director of the Russian Bayer CJSC and general representative of Bayer in the CIS. Are you going to change something in the company?

- I'm glad I work here. My wife is Russian, I know a little Russian, it makes life easier. As for our policy, it will develop in the same direction as it has been until now. We want the full range of our medicines to remain available on the Russian market. Naturally, times change and the company changes. First of all, this concerns the localization policy. In 1995, Bayer was one of the first international companies to localize in Russia [production of pet products, but not medicines]. This year the process will begin in the pharmaceutical sector, big steps will be taken.

— What share of Bayer’s pharmaceutical product sales in Russia will be produced here?

— I wouldn’t talk about specific percentages. First, we must decide which products to localize, then analyze which products sell better, analyze the competitive environment... We want Russian demand for the product that we bring to the market to be satisfied by local production, so that there was no need to import us.

— Is there at least a rough estimate of how much you are willing to spend on localization?

— It’s very difficult to talk about any numbers, it’s very difficult to calculate them. Well, how do you calculate the transfer of knowledge? Our best specialists come from Germany and spend quite a long time here with people from the Medsintesa company [at the facilities of this Russian enterprise, by order of Bayer, the antibiotic "Avelox" will be produced - on a full cycle basis, as well as the X-ray drugs "Magnevist" and " Ultravist"] and our other partners, pass on knowledge and train. This is very long and expensive, quite difficult to calculate.

— Under what conditions will Bayer decide to build its own plant?

— Our Material science [high-tech materials] division has a plant in Noginsk, it belongs to us. For some products it is actually better to have your own production. In others - and this also applies to pharma - we start with a strategic partnership that can evolve: perhaps we will stop working on the capacities of our partners, and build our own...

- What will this depend on?

— Our investment decisions on localization are not related to the current political or economic situation in Russia, no. When we make decisions about partnerships in Russia, we think in medium- and long-term terms. We believed and believe in Russia, and experience shows that we believe not in vain, because business is developing very quickly. Then, of course, a crisis may come and the market will fall, but if you look at the average trend, over the entire period of our presence Russia has been growing faster than Western Europe. I worked a lot in Europe, and I have something to compare with.

— How do you feel about the Russian government’s idea of introducing parallel imports, including pharmaceuticals?

— We hope that there will be no parallel imports. Firstly, this will widely open the door to direct counterfeiting of medicines; this is a big risk, primarily for the people who will take them.

Secondly, pharmaceutical products cannot be stored at temperatures exceeding 25 degrees Celsius. Among our products there are those that require special storage conditions - from 2 to 8 degrees, and if this product is supplied by someone unknown and unknown from where, who can guarantee that it was stored and transported correctly?

And finally, localization. The initial condition for it should be the attractiveness of the market in which this localization occurs. If, after all that we do, parallel imports suddenly appear out of nowhere, it means that the attractiveness of the Russian market for investment is decreasing.

If parallel imports are introduced, it will be counterproductive both from the point of view of Russian patients and from the point of view of the Russian state. And in this case, we will not be able to bear responsibility for the risks to which patients will be exposed who will take drugs imported by someone unknown and unknown how through parallel imports.

— Have the sanctions regime and complications in relations between Russia and the West affected your business?

— Do we suffer directly from sanctions? No, we are not suffering, we are not on the sanctions list. Indeed, initially some of our vitamins were included in the list of sanctioned products, but later they were removed from its effect. Currently, pharmaceutical products are not affected by sanctions.

However, the overall difficult economic situation also affects us. All companies, without exception, feel this, but the demand for our products remains at a fairly high level, people continue to buy them. Today's situation is much more positive than we could have expected just six months ago. The crisis in Russia is not over yet, but from a medium- and long-term perspective, we are confident that tomorrow will be better.

In Russia, the government has identified key areas of healthcare in which it would like to improve the situation - these are cardiology and oncology in the first place. As part of the “risk sharing” agreement with the Tula region, we supply our drugs to hospitals, they use them for therapy, and the state pays for this therapy only if this therapy is effective. There may be cases when, for genetic reasons, it is not suitable for the patient, and in this case we bear the financial costs of therapy: then we do not charge the state for the supplied drug.

— Bayer announced plans to achieve sales in Russia of €1.3 billion by 2017. Does this forecast still hold true now?

— When we announced this figure, we could not expect the devaluation of the ruble, and it is unclear what awaits us in terms of exchange rates in the future. On the other hand, we are very ambitious and hope to grow in Russia. Now we are not saying that the amount of €1.3 billion is unattainable. If we achieve it in 2017, we will drink champagne.

— Have you noticed a drop in sales in pharmacies? Did you have to increase prices?

— Some of our drugs are on the list of VED [vital drugs], and their prices are regulated by the state, which means the price cannot be changed. If we talk about the segment where there is no government regulation, then there was some price change for them, but we try to raise the price no more than the official inflation rate. We expect that we will not reach the level of devaluation in terms of cost growth for any drug. We could, without a doubt, sell more if the ruble had not fallen. But demand still remains high.

An increase in turnover can occur either due to an increase in prices or due to an increase in sales volume. In ruble terms we are now experiencing growth. We definitely expect sales growth in rubles at the end of 2015; growth in euros is also likely if everything continues as it is now. And not only pharmaceuticals will contribute to this, but also agricultural products, which we successfully sell in Russia.

— Foreign manufacturers have not been able to index prices for hospital drugs over the past few years. It seems that officials are now ready to revise the rules?

“We are glad that the government is trying to find a balance between the interests of patients and manufacturers. So far the law does not allow increasing the price. Let's wait for the new pricing methodology. Indeed, over the past few years we have not had the opportunity to increase prices, despite inflation. Therefore, it makes sense to talk not only about inflation this year, but also all previous ones - for the period until the state allowed the price to be raised. To be honest, I do not undertake to calculate what exact figure we are talking about, but in any case we will conduct an analysis for each product. We will seek a middle ground between the need to justify production and maintain affordability for patients.

Photo: Oleg Yakovlev / RBC

“There were no compromises on product quality”

- You have a new partner - the Polisan company, what is the essence of the agreement with him?

- Now this is an agreement on strategic cooperation - it can be equated to a memorandum of understanding, but a very good mutual understanding. The next stage is the signing of a production agreement, after which the production process can begin. In 2017, if everything goes as planned, Polisan will begin producing X-ray and magnetic resonance contrast agents.

Polisan is one of the highly efficient pharmaceutical manufacturers in Russia, we feel comfortable with them, and we are confident that cooperation with them will not negatively affect the quality of the products we produce.

We will supply the active substance, and everything else - from the purchase of ingredients and production of the drug to packaging - will be done by Polisan. That is, a full cycle production is planned.

In pharmaceuticals, the production of API, the active pharmaceutical ingredient, almost all companies in the world try to produce in as few plants as possible to control quality. Mixing this substance with inactive ingredients and producing the dosage form as well as packaging is something we plan to localize.

— How much do you plan to invest in this project?

— I cannot disclose the size of the investment, but we will transfer a lot of know-how, and this is by no means a small investment. If you like, we thus become dependent on the local manufacturer; we actually transfer technology and make the Russian industry stronger. The second is the creation of new jobs at Polisan, because they will need new people for this project. And third, we will have to pay Polisan for production services.

— In essence, will this be a lease of capacity?

— Yes, but with the transfer of our know-how, which is very important for pharmaceutical companies.

— Will Polisan have to build new facilities for the project according to Bayer standards?

— I cannot disclose the details of the future agreement.

— Is there a short list of new partners with whom you would be willing to cooperate?

- It would be premature to talk about this. Firstly, we already have partners with whom we work. In 1995, we localized our production of animal products together with the Federal Center for Animal Health, in 2003 - agricultural products, now - pharmaceutical products, these are agreements with Medsintez and Polisan.

Secondly, we start from the product. We are now analyzing which products make sense to localize in Russia in order to solve a specific problem - so that Russian patients benefit from access to our medicines. This goal is common both for us and for the Russian authorities. And when we decide which products we would like to localize, then we will make a decision about who we would like to do this with.

— For what reason was the release of the localized Avelox at Medsintez facilities postponed? It should have started back in 2014?

“We have set ourselves the task of doing everything to ensure that there are no compromises on the quality and safety of products. Therefore, it is better to delay the launch for another couple of months, but still guarantee high quality.

— Was the problem at Medsintez?

— We are pleased with the partnership with Medsintez, it’s just a very complex production process.

We have concluded a strategic partnership agreement with Medsintez, and first of all it concerns antibiotics, the drug Avelox, the injectable form of which will be produced in Russia from the third quarter of 2015. The second is our contrast agents for radiology, for which Medsintez takes on packaging responsibilities.

I cannot talk about specific investment figures. The agreement does not imply the creation of a joint venture.

— When you are sick, do you yourself take Bayer medications?

“Thank God, I’m still healthy, but if something happens and if Bayer has a drug that treats this particular disease, I, of course, will prefer it.”

Bayer

The German concern specializes in the production of pharmaceuticals, plant protection products and high-tech materials. Founded in 1863, it became famous for two brands: aspirin and heroin (before the First World War, it was sold in pharmacies as a cough suppressant).

The first representative office of the concern outside Germany appeared in Russia: in 1876, the Friedrich Bayer & Co. aniline dye factory was opened in Moscow. In 1978, Bayer returned to the country - its branch was opened in the USSR. In 1994, the legal entity Bayer CJSC was registered in Moscow.

In 2010, Bayer launched its first production in Russia - a plant for the production of polyurethane systems in Noginsk near Moscow. In November 2012, Bayer and Medsintez agreed to produce the drug Avelox in Russia, but it has not yet begun.

Nils Hessmann

Born in Belgium. At the University of Antwerp he studied applied economics. In 1992, he began working as a market research manager at the German pharmaceutical company Schering. In 1996, he headed the company’s marketing department for Romania and Moldova. In 1999, he began managing the Schering division in Kazakhstan, and in 2001 - in Greece.

In 2006, Bayer absorbed Schering, a year later Hessmann headed the Schering division in the Netherlands and took the post of general representative of the Bayer HealthCare division in this country. In fact, by his own admission, he led the integration of Schering into Bayer.

In November 2011, Hessmann headed Bayer HealthCare in South Korea, from where he moved to work in Russia. On March 1, 2015, he was appointed the new CEO of Bayer CJSC and the general representative of Bayer in the CIS.

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