Kaluga Pharmaceutical Cluster

03 October 2018

CIS GMP news Magazine, Autumn 2018

Business gave credence to the government course of developing pharmaceutics

Interview with Vice-Governor of Kaluga Region Vladimir Popov

Kaluga Region achieved substantial success in attracting pharmaceutical companies in the region. What are results for 2017, and what are further short-term priorities of the regional government in developing pharmaceutical Industry?

Really, our pharmaceutical duster achieved strong results over seven years of operation. Volume of industrial production grew five-fold over these years. More than 60 Russian and foreign companies work in the duster. Today, it consolidates key elements of production chain: from pre-clinical and clinical studies, development and production of pharmaceutical substances, industrial production of finished pharma products to manufacturing of pharmaceutical packaging and recycling of waste.

Upon results of 2017, industrial production index in the segment amounted to 167%. Volume of products manufactured by the cluster companies achieved 35 billion rubies - this is the best development dynamics not only among other segments of the regional industry, but also among the entire Russian market of pharma products.

The growth is explained by opening of new plants (six more companies joined the cluster in 2017), and also by expansion of the existing production sites, last year, AstraZeneca, Berlin-Farma and Bion achieved planned output. strongly increasing their production volumes. For example, Bion, Obninsk manufacturer of pharmaceutical substances, increased its production volume three-fold over the last two years. This year, two more plants. Pharm-Syntez and Sphera-Pharm will start operations. By the end of the year, we expect commissioning of the integrated laboratory block of Hemofarm LLC.

I am sure that the industry demonstrates high growth rates also because businesses gave credence to the head for pharmaceutics development adopted by the government. I mean state program of import substitution and legislative acts for higher local content in pharma production adopted by the Ministry of Industry and Trade.

Two of our companies have already got substantial preferences under the terms of Special Investment Contracts.

AstraZeneka Company was the first pharma production company not only in our region, but also for entire Russia, which concluded special investment contract in 2017.

This year, NovaMedica Company got approval for the conclusion of special investment contract. NovaMedica Company will additionally invest more than 3 billion rubles in modernization of its plant and in technology transfer within the frame of this contract.

The main target of our cluster activities is to roll-out efficient, qualitative, and affordable pharma products to the Russian market. It should be noted that we are moving rather swiftly to this target. Today, the plants of the cluster manufacture more than 150 drugs requested by the market. 30 more names are at the registration stage, and more than 20 are at prospective implementation stage; they are oriented mainly for import substitution.

We have development strategy of pharma industry in Kaluga Region for the coming two years. All projects of the roadmap are agreed upon, and sometimes they are initiated by our pharma manufacturers.

Their implementation will allow attracting more than 5.9 billion rubles worth of investments before 2020. And this means not only opening of new production sites; we are oriented to higher local content and expansion of already existing production capacities.

Only one example: Novo Nordisk Company additionally invests more than 2 billion rubles in local production of three finished pharmaceutical forms. Achieving at least 10% overall share at the Russian pharmaceutical market is also, among the targets for 2020.

In export one of development vectors of Kaluga pharma industry? What programs and measures are considered by the government of Kaluga Region to develop export potential?

Export development is in principle one of our priorities. If quite recently, goods were mainly imported to the region. then, beginning from 2016 we see substantial growth of export supplies. Export to non-CIS countries increased three-fold in 2017.

Speaking about export development in pharma segment, I would like to note that we consistently cooperate with leading international companies and clusters of the segment. Over the last 5 years cooperation, agreements were signed with French Eurobiomed cluster and German Bavaria medical cluster.

Since 2012, our cluster has been full member of European Cluster Platform. consolidating more than 200 clusters worldwide. Also, an agreement was reached to maintain scientific and technical cooperation with MediconValley. one of the major pharma clusters in Europe. I can also name among our partners All-Greece Association of Pharma Manufacturers (PUPI), BIOTURKU Finnish cluster, C.H.J.C.O. (CLUSTER OF HEALTH, INNOVATION AND COMMUNITY) Italian major cluster, and many others. Last year we signed agreement for Life Sciences development in Kaluga Region with Merck (leading international company in health care technologies) and with German Steinbeis Global Institute Tubingen affiliated to Steinbeis University. It is important that international cooperation is accompanied by real joint activities; it means new investors in the region and promotion of Russian-made drugs and technologies at the international markets.

I would like to say, as far as programs and measures are concerned, that today, all conditions for export of any categories of goods are in place in Kaluga Region. Few regions currently have such opportunities for optimization of logistics processes. I mean New Silk Road Project. I mean already formed railways routes, which link the region with the countries of Europe and South-Eastern Asia. No doubt that direct access to qualitative logistics infrastructure opens great opportunities for export-oriented companies, including pharma production companies.

We apply serious efforts to assist small and medium pharmaceutical companies in developing export-oriented projects: this includes direct financial support, interaction with various funds, agencies and tax preferences. It means, for example, advantages for the property tax. The investors, which were included in the register of investment projects, participants of federal and regional Special Investment Contracts and Regional Investment Programs, which sales revenue is at least 70% in the total revenue volume, and which total amount of investments over first three years amounts at least to 500 million rubles, are completely exempt from the tax during 5 consecutive tax periods.

What are main advantages of Kaluga Region, in your opinion, for investor making decision on the placement of its production site, or its Research & Development unit?

Beneficial geographic location meaning receptive consumer market of the Central Russia, and modern transport and logistics Infrastructure providing access to pharma markets of European and Asian countries are advantages of Kaluga Region as the center of pharma production placement. Effective system of innovation support: engineering center, business incubators, high-tech technology park etc. is implemented in the region in order to develop pharmaceutical industry.

We constantly Improve our infrastructure; today we offer clear and transparent conditions of the placement at the regional industrial sites, mitigating investors' infrastructural risks, we provide consultancy support in 'one-stop' format. 12 industrial parks and two sites of Kaluga Special Economic Zone offer conditions, which exceed in many ways the needs of investors. Now there is active placement process at Borovsk site of the Special Economic Zone. We plan to concentrate there major pharma manufacturers. Taking into account specifics of the industry, beginning of exemption period for pharma companies is linked not to construction processes, but to the moment when their license is obtained.

What measures of regional support are now available for developing research and technology potential, incentivizing research & development activities and developing new pharmaceutical products?

I have already told you about some of them, when I answered previous questions. I can add that about 62 million were spent in the period between 2013 and 2017 from the regional budget for the development of pharmaceutical cluster, and 184 million were spent from the federal budget. In general, financial support is provided in two directions. It is development of innovation and educational infrastructure of the cluster, and ensuring activities of cluster-specific organization. which is in charge of development of cluster infrastructural facilities.

One of such facilities is the regional engineering center. The center is created upon initiative of entities cluster participants in order to provide the companies with set of technology work and services necessary for the implementation of innovative biopharmaceutical projects. We consolidated funds from federal and regional budgets and equipped the center with analytical, laboratory and process equipment Today, small and medium biopharmaceutical enterprises of the cluster actively use the services provided by the center. The range of services allows solving both separate tasks, and the entire set of process-related activities necessary for the implementation of innovative biopharmaceutkal project from an idea to final product And also, substantial reduction of development and marketing time is ensured for project companies.

Availability of qualified personnel is one of the success factors for the attraction of investors in the region. Kaluga Region achieved positive results in personnel formation for pharmaceutical production. What further steps are planned in this area?

Our highest priority is the investment into education: industry-specific orientation of education, its integration in real economy. Since 2012. namely from the moment when formation of pharmaceutical cluster in the region was announced. Specialist Training Center for pharmaceutical industry has been created upon initiative of the regional government.

Specialized educational institution combines base theoretical education and practical training using real production equipment If we talk about educational projects over the last two years. I can mention creation of Practical Training Center for pharmaceutical industry on the basis of MEPhl National Research Nuclear University in Obninsk. Equipment installed at the Center allows training of specialists in the environment as close to real production facility as possible.

Today, training and demonstration laboratories of the Center are equipped with clean premises module for training and research purposes. The volume of financing for this project is 27.5 million rubles. The funds are allocated from federal subsidy associated to the support program for pilot innovation clusters.

Second project is the creation of innovation and training center Virtual and Simulation Technologies in Medical Education on the basis of Tsiolkovsky Kaluga State University. Administration pf Obninsk Technology Park took part in the project implementation, laboratories of the Center are equipped with simulation equipment. Volume of financing from federal subsidy allocated for the development of pharmaceutical cluster is 23,4 million rubles.

 “Our cluster policy is targeted at the global market and development of unique innovative sectors...”

Interview with General Director Agency for Innovation Development -Center for Cluster Development of Kaluga Region JSC Anatoly Sotnikov

The modern history of Innovations of Kaluga Region is fairly recent. However, the speed of its progress is quite impressive. Apart from the pharmaceutical cluster, the region is currently developing several other innovative clusters. What are the principles for their formation and what forms the basis of the idea?

The principal idea for creation of clusters has been around for a long time and it reinforces the belief that an innovation economy n formed as a duster-type economy, i.e. when one technological direction consolidates investments, business, science and industry. Cluster development is expected to stimulate economic growth and support territory development. This idea is incorporated also into the regional strategy for social and economic development. We are currently implementing its third stage: having built a new industrial economy, we are proceeding to creation of a knowledge economy.

It is important to remember that a cluster cannot be created in an empty space. The objective of our agency, which acts as the operator for creation of regional clusters* is to identify the industries with the highest growth potential and to build clusters around them.

This was the principle used to create the pharmaceutical cluster - an infrastructure for recruitment of investors and Innovation development was formed around Obninsk with its impressive intellectual potential.

A slightly different approach was chosen for creation of the ICT cluster. The first thing we tried to figure out was the number of companies operating in the segment. We identified approximately 3S0 regional ICT companies involved in various aspects of IT technologies. These companies are generally very small.

At the same time, when major clients like Rostelecom look for contractors to solve their objectives, they tend to focus on large companies. That is why our global objective was to create an alliance. i.e. to consolidate efforts of small companies in implementation of big projects. Today, the ICT cluster includes 120 companies, both suppliers and equipment manufacturers. Together they are developing several projects, including innovative design methods (BIM-technologies).

The Initiative to create a cluster of composite materials and structures belongs to scientific and production enterprise Technologiya; the Obninsk-based company is a center of competences in the sphere of scienceintensive products from non-metal materials. The idea underlying the creation of the cluster was to attempt to gain access to global markets through collaboration with specialized international associations. Today, the cluster includes 23 companies, collaborates with composite clusters of Limoges and Hamburg, with Airbus aircraft building company, and develops partnerships with unique Kaluga Region companies like the Center for Sports Technologies in Balabanovo.

Finally, the youngest cluster is that of nuclear technologies, which was created one year ago. The cluster was formed around Obninsk enterprises operating in the relevant field. Its main specialization is application of nuclear technologies in non-nuclear sectors.

The cluster alliance of competences has already put together a range of proposals, developments, and products for Kaluga Region's industrial clusters. For the automotive cluster - projects for introduction of spare part markers, and development of new sources for accumulation and storage of electrical energy. Seven projects for new power accumulators are currently being patented. Foe the agroindustrial complex -solutions involving low-dosage exposure for treatment of seeds and harvest storage, as well as a project for construction of digital greenhouses.

For the pharmaceutical cluster -a technology for decontamination of packaging, clothes, etc. Apart from that, the nuclear and pharmaceutical duster are conducting Joint development of radiopharmaceutical products. This implies the project for manufacturing of microcapsules for brachial therapy.

Their development will open tremendous prospects - the price of similar German methodologies is three times higher that the price of our drugs. Clinical testing has already been completed, and the certification process Is nearing completion as well. Thus, we expect to satisfy local demand for this drug in the nearest future.

Today, the term ‘innovation’ can be applied to virtually any industry sector. How justified is this, in your opinion?

Indeed, there are several spheres that, based on associated competence levels, can be inherently classified as innovation ones. These include the IT sector, biotechnologies, manufacturing of composite materials. At the same time, traditional sectors like the automotive Industry, construction, and agriculture are also active consumers of innovations. Thus, more and more economic sectors are becoming involved with innovations.

As the line between innovation and traditional sectors becomes more blurred, the state begins to provide support to innovation activities in general, without assigning priority to specific industry sectors. I am speaking about the formation of an infrastructure for development of innovations, about federal and regional measures of support provided to various sectors of the economy. Thus, industrial policy becomes more merged with innovation policy. I think this is a reasonable trend.

How will innovation clusters develop?

In accordance with development strategies designed for each of them. Their concepts take into account interests of virtually each cluster participant and are targeted primarily at creation of new products. Obviously, all these clusters are currently growing faster than the economy of Kaluga Region in general. Efficient development of the innovative system in the region is supported by close collaboration of business, science, education, and authorities. Our region provides an example for forming such type of partnership, for consolidating resources for research financing, commercialization of inventions, development of education, and creation of an innovative infrastructure.

An environment for development of innovations

Interview with Executive Director of the Kaluga Pharmaceutical Cluster association Irina Novikova

The pharmaceutical cluster is a unique eco system, with aft links in its chain operating with high efficiency. What contributed to its development and viability?

I am certain that the system's efficient operation Is largely due to the cluster approach. Kaluga Region was one of the first to choose this development model. This principle is the foundation for successful development of a range of clusters, including the pharmaceutical. The cluster model provides a clear understanding of investor needs, allowing training centers to prepare required specialists and participants to implement projects of any complexity within the shortest terms.

Effective cluster development requires coordinated efforts of regional management bodies at all levels, their active collaboration with the business community and with cluster management companies.

Kaluga Region has established such a system, and this allowed us to maintain leadership In Industrial production growth and new investments for many years.

Kaluga's duster is gaining significant in supplying Russian consumers with high-quality medical products. What KD drugs do the region's pharmaceutical companies currently produce?

Virtually all products in portfolios of ‘anchor’ companies, as well as product and innovation portfolios of the cluster's small and medium enterprises. are applied in the most promising fields of therapy. These include cardiology, oncology, endocrinology, treatment of respiratory and gastroenteric diseases.

Our pharmaceutical companies manufacture neurological drugs, drugs for treatment of the musculoskeletal system, immunomodulators, genitourinary system drugs, and reproductive hormones. Importantly, cluster participants manufacture vital and essential drugs: diclofenac, articaine, xylometazoline, indapamide, clalargin. and many others.

One of the most important directions is the development of pharmaceutical substances. How is this work carried out?

Finished pharmaceutical substances and source materials for their synthesis are developed, among others, by BION LLC. In 2016 alone, the company brought seven new products to the market. It has established a new production line for manufacturing of substances for advanced antitumor drugs. BION has so far registered, of is in the process of registering over 30 pharmaceutical substances- Each product is unique.

I would also like to note Mir-Pharm's success in development of finished form products. The company's strategy is a continuous search for highly-efficient drugs that are either not available on the national market, or available in quantities insufficient to satisfy current demand. They introduced drugs like Mifepristone. Mirolute, Ginepristone, Ginestril. Traneskam, Meksiprim. Those were later included in the STADA product portfolio, and are now manufactured to its order. In 2017, the company registered 6 drugs, and early this year -another three.

It Is currently in the process of development and registration of 50 new drugs intended for use in gastroenterology. gynecology, urology, emergency treatment, neurology, and oncology. Among them are highly-demanded import substituting gynecological drugs - Atosiban and Carbetocin. They are expected to become the first Russian generics of original drugs.

What projects will be implemented in the cluster format in the nearest future? Are there plans to launch new production plants?

Recruitment of investors, improvement of localization and integration processes, expansion of production capacities at existing plants, and opening of news ones, infrastructure development - there are major projects planned for each of these directions.

Two new plants will be opened this year for manufacturing of finished medical products - by Russian companies Pharm-Sintez and Sphere-Pharm. We are also expecting the commissioning of an integrated laboratory complex by Hemofarm by the end of the year. The complex will support the expansion of the company's research and development efforts.

New investors are being recruited, among other things, by expanding the specialized site for pharmaceutical manufacturers at Kaluga S11. Another direction is associated with infrastructure development by expanding services and creating a network of local service suppliers. One of the examples is construction of the Sozvezdiye 220 kV substation to support new technological connections to the Obninsk power hub.

Among educational projects is further equipment of the Practical Training Center and creation of a laboratory for synthesis of active pharmaceutical substances at the National Research Nuclear University МЕРhl.

Another priority is support of exports of cluster participants. The regional government has achieved considerable progress in this direction by providing direct financial support, tax preferences, and by establishing collaboration with various foundations and agencies.

Support of exports is identified as a priority in the new Pharma-2030 program. What is your assessment of its predecessor - Pharma-2020?

Most of the support measures defined in Pharma-2020 were originally suggested by pharmaceutical manufacturers themselves. The Ministry of Industry and Trade offers support to local companies, including by subsidizing transfer of technologies. The governmental regulation ‘On restriction and conditions of admission of drugs originating from foreign countries...’ simplified the path to success in securing state contracts for local manufacturers.

One of the undisputed successes of Pharma-2020 was the volume of investments made by foreign companies into local pharmaceutical production. Since 2007, participants of our cluster alone have invested over 50 billion rubles. This process is continuing: we have signed four agreements for establishment of pharmaceutical plants within the region.

Cluster participants are actively participating in program directions like organization of manufacturing of substances, development of innovation drugs, and manufacturing of import substituting medical products.

Thus, Sanatmetal CIS is planning to open a plant for manufacturing of various implants and prosthetic appliances in 2018.

What novelties do you expects from the Pharma-2030 program?

On the one hand, we are expecting an expansion of current subsidies for financing of clinical research, organization of manufacturing - not manufacturing of specific substances, but creation of technological lines.

On the other hand, we are relying on export support measures. The current economic situation in Russia allows our participants to expand production volumes, and creates good prospects for exports of finished pharmaceutical products.

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