Localization of Pharmaceutical Production in Russia

 

Anna Ivanova, Associate at BRACE Law Firm

February 27, 2023

 

Current Russian legislation does not define the term "localization of production". In practice, however, localization is understood as placing production facilities (production of products fully or partially) in the territory of another country. As a rule, companies that localize production may receive various state support measures (e.g., tax incentives, subsidies, etc.).

Regarding pharmaceutical production, issues of its localization in our country have played a key role in recent years in maintaining the healthcare system in Russia, as well as ensuring patients have access to necessary medicines. As noted in the Concept of the Federal Targeted Program Development of the Pharmaceutical and Medical Industry of the Russian Federation for the Period up to 2020 and Further Perspective, approved by Order of the Government of Russia No. 1660-r dated October 01, 2010, "in the event of moderate state investment in the development of the scientific and technical potential of the domestic pharmaceutical and medical industry, one can expect the localization of the production of modern generic medicinal products".

Before 2020, many pharmaceutical industry experts noted a trend of serious dependence of the Russian pharmaceutical market on imported supplies [1]. However, as noted by the Ministry of Industry and Trade of Russia, in the current economic situation, the level of localization has increased significantly: "Currently, the localization level reaches 62.8%, by 2024 — 65%, and 80% will be reached by 2030." Nevertheless, some pharmaceutical market participants note that "for a number of items, localization may be economically unprofitable, since there is already a sufficient number of suppliers with a competitive market price." Furthermore, "the need of Russian pharmaceutical manufacturers for certain substances does not exceed several kilograms per year, which means that investments in such raw materials may not pay off at all" [2].

Different states have different methods for stimulating localization. As N.S. Kartasheva notes: "The toolkit of state support for local manufacturers is not limited by obligations accepted by the Russian Federation upon accession to the World Trade Organization (the "WTO"). As instruments of state support for local manufacturers permitted by the WTO, preferences for domestic goods and services in state and municipal procurement, export credit insurance, support for small and medium-sized enterprises, promotion of Russian goods to markets, and subsidies for research and development (R&D) and technical re-equipment may be applied" [3].

However, some authors note that currently in Russia, the priority instrument for localization of pharmaceutical production is the application of stimulating measures rather than motivating manufacturers by providing preferences. This assertion relates, in particular, to the "Third is Odd" rule [4]. Below, we consider in more detail the main measures taken at the legislative level within the framework of regulating the localization of drug production.

Key Legal Instruments for Localization of Pharmaceutical Production in Russia

The main methods for regulating drug localization are:

1. Use of the localization criterion for forming the VED List or high-cost drug lists.

First, it is worth noting that under the Rules for Forming Lists of Medicinal Products for Medical Use and the Minimum Assortment of Medicinal Products Necessary for Providing Medical Care, approved by Resolution of the Government of Russia No. 871 dated August 28, 2014, the issue of including drugs in the List of Vital and Essential Drugs (the "VED List") or the list of high-cost medicinal products is decided by a commission with the participation of representatives of the Ministry of Health of Russia, the Ministry of Industry and Trade of Russia, Roszdravnadzor, Rospotrebnadzor, and the Federal Antimonopoly Service.

Thus, the applicant submits proposals for including drugs in these lists to the commission no later than the 10th day of the first month of the quarter. Within a period not exceeding 2 business days from the date of issuing a positive conclusion based on the results of a documentary examination regarding medicinal products proposed for inclusion in the lists, the Commission sends proposals to the FSBI "Center for Expertise and Quality Control of Medical Care" of the Ministry of Health of Russia to conduct an analysis of the methodological quality of clinical-economic studies of medicinal products, as well as to study the additional consequences of the use of the medicinal product based on the scale of quantitative assessment of additional data on the medicinal product provided for by the integral scales of comprehensive assessment of the medicinal product, which are given in Appendix No. 6 to these Rules for inclusion in the lists. Said Appendix in the "quantitative assessment of additional data on the medicinal product" scale contains such a criterion as "Availability of production (localization) of the medicinal product in the territory of the Russian Federation."

The assessment is performed on a point-based scale. If localization is absent, 0 points are assigned; if secondary packaging and/or release quality control are carried out in Russia, 1 point is assigned; if primary and secondary packaging and release quality control are carried out in Russia, 2 points are assigned; if all production stages are carried out in Russia. From 5 to 7 points may be assigned depending on the place of production of the Active Pharmaceutical Ingredient (API), the presence of investment contracts, etc.

Thus, one of the important criteria for forming lists of drugs is the degree of localization of their production in Russia. Effectively, localization of production and decisions on the inclusion of drugs in lists are mutually reinforcing processes that directly influence each other.

2. Establishment of criteria for confirming production in Russia.

Resolution of the Government of Russia No. 719 dated June 17, 2015, On Confirmation of Industrial Product Manufacturing in the Territory of the Russian Federation, approved the requirements for products to be classified as produced in the territory of Russia. Medicines, serums, and vaccines are considered produced in Russia as of January 1, 2017, if they are registered in the established manner, as well as medicinal products for which technological operations corresponding to the set of stages of the technological process of finished dosage form production, packaging, and release quality control are carried out in the territory of the Eurasian Economic Union (EAEU) member states. Active Pharmaceutical Ingredients (APIs) will be considered produced in Russia if information about them is available in the State Register of Medicines, and if technological operations of chemical or biotechnological synthesis, isolation from natural mineral raw materials, or from sources of biological, animal, and plant origin are carried out in relation to them in the territory of EAEU countries.

Confirmation of the origin of a medicinal product or Active Pharmaceutical Ingredient (API) in Russia is performed by the Ministry of Industry and Trade of Russia when authorizing export operations with medicines and APIs. Thus, according to Order of the Ministry of Industry and Trade of Russia No. 549 dated February 26, 2019, On the Organization of Work on Issuing a Document Confirming that the Production of an Active Pharmaceutical Ingredient was Carried out in Accordance with the Requirements of Good Manufacturing Practice Rules, and is Subject to Presentation at the Request of the Authorized Body of the Country into which the Active Pharmaceutical Ingredient is Imported, the applicant submits the following documents to the Ministry of Industry and Trade:

• an application for the issuance of a document confirming that the production of the API was carried out in accordance with GMP requirements specifying the number of the license for the activity of medicinal product production, the date of its issuance, the name of the production site(s) indicating the specific API produced thereon as specified in the application, and information on the presence of the API in the State Register of Medicines;
• copies of the pharmacopoeial monograph or the enterprise pharmacopoeial monograph or normative document for the API;
• copies of licenses for the production of medicines certified by the applicant;
• copies of conclusions on the manufacturer's compliance with Good Manufacturing Practice (GMP) requirements;
• data on the quality of five consecutively produced batches of the API (certificates of analysis and certificates of conformity for each batch);
• a copy of the industrial regulation (master formula) and copy(ies) of document(s) describing the production stages (in the absence of an industrial regulation at the manufacturer) indicating the address(es) of each stage of medicinal product production, with an attachment of the technological process scheme.

The Department for the Development of the Pharmaceutical and Medical Industry of the Ministry of Industry and Trade issues the document. In case of improper execution of documents or submission of false information, the period for clarification by the applicant is 30 days from the date of the corresponding notification of non-compliance. If non-compliance is not eliminated, a refusal will be issued. Based on the results of reviewing properly executed documents, the Department prepares a draft document. In the event of identifying the manufacturer's non-compliance with GMP requirements, the validity of the document is terminated early.

In addition to the fact that the criteria for confirming the production of medicinal products in Russia are applied when conducting export operations, these criteria play a significant role in state procurement of drugs, as this sector of the economy is very important for investors for whom, given existing restrictions on the supply of foreign products, it becomes profitable to localize production.

3. "Third is Odd" as a tool for stimulating drug production localization.

According to Item 1 of Resolution of the Government of Russia No. 1289 dated November 30, 2015, On Restrictions and Conditions of Admission of Medicinal Products Originating from Foreign States Included in the List of Vital and Essential Drugs for the Purposes of Procurement for Meeting State and Municipal Needs (the "Resolution No. 1289"), for the purposes of procuring drugs included in the VED List, the Customer rejects all bids (final offers) containing proposals for the supply of medicinal products originating from foreign states (except for EAEU member states and the Donetsk People's Republic, Lugansk People's Republic), including the supply of 2 or more medicinal products, the country of origin of at least one of which is not an EAEU member state or the Donetsk People's Republic, Lugansk People's Republic, provided that at least 2 bids (final offers) are submitted for participation in the determination of the supplier that satisfy the requirements of the procurement notice and/or procurement documentation and that simultaneously:

• contain proposals for the supply of medicinal products, the country of origin of which are EAEU member states and/or the Donetsk People's Republic, Lugansk People's Republic;
• do not contain proposals for the supply of medicinal products from the same manufacturer or manufacturers belonging to the same group of persons corresponding to the criteria provided for by Article 9 of the Federal Law On Protection of Competition.

According to Item 1.1 of the said Resolution No. 1289, if, after the rejection of bids in the above order, at least one bid contains a proposal for the supply of medicinal products, all production stages of which, including the synthesis of the active substance molecule during API production, are carried out in the territories of EAEU member states, and information about such substances is included in the registration dossier for these medicinal products in the established manner, then admission conditions for the purposes of procurement originating from a foreign state or group of foreign states established by the executive authority performing functions for state policy development and legal regulation in the sphere of procurement of goods, works, and services for state needs apply to such medicinal products.

According to Item 1.2 of Resolution No. 1289, confirmation of the compliance of a medicinal product and API with the specified requirements is the declaration by the procurement participant in the bid (final offer) of information regarding the document confirming the compliance of the manufacturer of medicinal products with the requirements of the EAEU Good Manufacturing Practice Rules approved by Decision of the Council of the Eurasian Economic Commission No. 77 dated November 3, 2016, or the Good Manufacturing Practice Rules approved by the Ministry of Industry and Trade of the Russian Federation, and information regarding the document containing information on the stages of the technological process of medicinal product production for medical use carried out in the EAEU territory (including stages of production of the active substance molecule of the API), issued by the Ministry of Industry and Trade.

In accordance with Item 2 of Resolution No. 1289, confirmation of the country of origin of a medicinal product is one of the following documents:

• a certificate of origin of goods issued by the authorized body (organization) of an EAEU member state in the form established by the Rules for Determining the Country of Origin of Goods, which are an integral part of the Agreement on the Rules for Determining the Country of Origin of Goods in the Commonwealth of Independent States dated November 20, 2009, and in accordance with the criteria for determining the country of origin of goods provided for by said Rules. Recall that the Agreement... approved the form of the ST-1 certificate;
• a conclusion on the confirmation of industrial product manufacturing in the territory of the Russian Federation issued by the Ministry of Industry and Trade of Russia in accordance with the Rules for Issuing a Conclusion approved by Resolution of the Government of the Russian Federation No. 719 dated July 17, 2015;
• a certificate of origin of goods issued by the authorized bodies (organizations) of the Donetsk People's Republic, Lugansk People's Republic, in the form established by the Rules for Determining the Country of Origin of Goods.

Order of the Ministry of Finance of Russia No. 126n dated June 04, 2018, On Conditions for Admission of Goods Originating from a Foreign State or Group of Foreign States for the Purposes of Procurement of Goods for Meeting State and Municipal Needs, established conditions and restrictions on the admission of goods originating from a foreign state.

According to Item 1.4 of the said Order, in the event of rejection of bids in accordance with Item 1 of Resolution of the Government of the Russian Federation No. 1289 dated November 30, 2015, the contract is concluded with the procurement participant at the contract price proposed by them under the aggregate of the following conditions:

• the bid of such procurement participant contains a proposal for the supply of medicinal products, all production stages of which, including the synthesis of the active substance molecule during API production, are carried out in the territories of EAEU member states, the Donetsk People's Republic, Lugansk People's Republic, and information about such APIs is included in the State Register of Medicines;
• the bid of such procurement participant complies with the requirements of the procurement notice and procurement documentation;
• such procurement participant proposed a contract price that is the lowest among procurement participants (if there are such participants) whose bids were not rejected in accordance with Item 1 of Resolution No. 1289 and simultaneously meet the aggregate of the conditions indicated above;
• such procurement participant proposed a contract price that does not exceed by more than 25% the lowest contract price proposal in the event of its submission by a procurement participant (if there is such a participant) whose bid was not rejected in accordance with Item 1 of Resolution No. 1289, but does not meet the condition that all production stages... including the synthesis of the active substance molecule... are carried out in the territories of EAEU member states, DPR, LPR. Thus, the contract is concluded with the procurement participant at the contract price proposed by them subject to compliance with the specified conditions, including the non-exceedance by more than 25% of the contract price proposed by a procurement participant offering a medicinal product originating from an EAEU member state, but not all production stages of which are carried out in the territories of EAEU member states, DPR, LPR [5].

Said provisions do not apply in the absence of a procurement participant whose bid meets the specified conditions.

Thus, the "Third is Odd" mechanism is applied to products produced in the territory of Russia or the territory of EAEU member states, the territory of the DPR, LPR by way of declaration [6].

According to the Regulation on the Procedure for Issuing Certificates of Origin of Goods of Form ST-1 for the Purposes of Procurement for Meeting State and Municipal Needs (for medicinal products included in the VED List), approved by Order of the Chamber of Commerce and Industry of the Russian Federation No. 93 dated December 21, 2015, together with the application for granting an ST-1 certificate, the following information and documents are provided:

• a copy of the document containing information on the stages of the technological process of medicinal product production carried out in the EAEU territory, and in its absence, a set of documents confirming the execution of the technological process of production of the medicinal product or dosage form, executed in accordance with the requirements provided by legislation;
• copies of Marketing Authorizations for medicinal products issued by the Ministry of Health of Russia;
• copies of certificates of conformity for products subject to mandatory certification or declaration (if available);
• a list of active pharmaceutical ingredients and excipients used in the production of the goods, as well as packaging materials and components;
• information on production (technological) operations or production stages carried out under service agreements, work performance agreements, or contracting agreements, in case of using production capacities of other economic entities in the territories of EAEU member states.
• for goods manufactured using foreign materials (raw materials) and components, except for those originating from EAEU member states, in addition to the above information and documents, the following are submitted:
• a description of all materials (raw materials) and components of foreign origin from which the goods are manufactured, indicating the country of origin;
• calculation of the price of a unit of goods on Ex Works terms of the manufacturer;
• accounting and/or other documents confirming actual and planned (approved) expenses related to the production of the final product, subject to inclusion in the calculation of the price of the final product on Ex Works terms.

The application submitted in the form approved by the said Order of the CCI for the issuance of an ST-1 certificate for state procurement contains the following statement: "We hereby guarantee that during the validity period of the certificate of origin of goods form ST-1, the production technology of the good(s) specified therein, as well as the suppliers and/or cost conditions for the supply of foreign materials (raw materials) and components used in its production, will not be changed. If such changes occur during the validity period of the certificate, we undertake to immediately notify of this in writing".

Thus, the ST-1 certificate is issued for a long-term perspective and, in the event of changes in production processes, appropriate amendments to the certificate will be required with the submission of relevant information to the Chamber of Commerce and Industry.

Also, the Ministry of Industry and Trade currently proposes establishing a "Second One Out" rule for a number of drugs. Regarding a number of medicinal products specified in the draft Resolution of the Government of the Russian Federation On Amendments to Resolution of the Government of the Russian Federation No. 1289 dated November 30, 2015, if during the state procurement process at least one bid is submitted with a proposal to supply a drug, the full cycle of which (starting with substance synthesis) is organized in the territory of EAEU member states, the Customer must reject all other bids. It is proposed to extend this rule to such drugs as Abacavir, Atazanavir, Bevacizumab, Zidovudine, Zidovudine+Lamivudine, Imatinib, Insulin glargine, Insulin lispro biphasic, Lopinavir+Ritonavir, Prothionamide, Rituximab, Tenofovir, Thioureidoiminomethylpyridinium perchlorate, Trastuzumab, Efavirenz [7]. Currently, this draft is at the stage of public discussions and anti-corruption expertise.

The mechanisms of "Third is Odd" and, possibly in the future, "Second One Out" mentioned above influence the localization of drug production in Russia, especially drugs included in the VED List, as the state customer is the primary buyer of such drugs. Given the price control on VED List drugs, it may be profitable for most manufacturers to transfer the entire drug production cycle or separate cycles to Russian sites to avoid the application of restrictions on participation in procurement procedures.

Effectively, these measures cannot be called directed at preferences for foreign manufacturers. Rather, they are aimed at stimulating the localization of drug production in Russia to avoid a possible complete withdrawal from the Russian market.

4. Conclusion of Special Investment Contracts.

In general, localization of production can be carried out by independently opening production sites in Russia by interested foreign companies, followed by hiring employees and organizing the company's activities in accordance with the requirements of current legislation on the circulation of medicinal products, corporate legislation, legislation on administrative offenses, etc. However, this option is not available to all companies due to significant costs. The most common localization option is organizing partnerships with Russian manufacturers. Also, the state is directly interested in attracting foreign investors. One form of formalizing such relations with state participation may be the conclusion of a Special Investment Contract.

According to Article 16 of Federal Law No. 488-FZ dated December 31, 2014, On Industrial Policy in the Russian Federation (the "Law No. 488"), under a special investment contract, an investor undertakes, within the term provided by this contract, to create or modernize and/or master the production of industrial products in the territory of the Russian Federation, on the continental shelf of the Russian Federation, or in the exclusive economic zone of the Russian Federation by its own forces or with the involvement of other persons, and the Russian Federation or a subject of the Russian Federation undertakes, during such term, to carry out measures stimulating activity in the sphere of industry provided for by the legislation of the Russian Federation or the legislation of the subject of the Russian Federation at the time of concluding the special investment contract.

Rules for the conclusion, amendment, and termination of special investment contracts were approved by Resolution of the Government of Russia No. 1048 dated July 16, 2020.

The conclusion of a Special Investment Contract (the "SPIC") can be initiated by the Russian Federation, subjects of the RF, as well as by the investor. If the initiator of the competitive selection is the investor, the authorized body decides to conduct the competitive selection based on the investor's proposal.

The decision to conduct a competitive selection for the right to conclude special investment contracts is made by the Ministry of Industry and Trade.

The following documents must be attached to the application for participation in the selection:

• an action plan (roadmap for the development and implementation or implementation of modern technology and serial production of industrial products during the implementation of the investment project);
• copies of documents confirming the possibility of the investor investing in the investment project in the volume provided for by the application;
• a credit agreement for financing the investment project or a loan agreement;
• a decision of the investor's authorized body on the intention to invest;
• an agreement (contract) on the implementation of the investment project in relation to which it is planned to conclude a special investment contract.

Submitted applications undergo express analysis, entrance expertise, and complex expertise. Express analysis of applications is carried out by the body within 5 business days from the date of completion of the selection. During the entrance expertise, an analysis of the content of applications and documents attached to applications is conducted. Complex expertise is carried out by the authorized body (with the possibility of involving an expert organization) within the term and in the manner established by the documentation on conducting the competitive selection, for the purpose of determining the presence or absence of conditions and grounds for refusal to conclude a special investment contract, as well as the term for which the special investment contract is concluded with each participant.

The winner of the open competitive selection for the right to conclude a special investment contract is the participant(s) whose application is recognized as the best based on the results of the application evaluation. Thus, when choosing the winner of the competitive selection, such criteria are taken into account as: the timeframe for implementing modern technology; the volume of industrial products produced during the SPIC validity term; the level of localization [8].

In accordance with Item 5 of Resolution of the Government of Russia No. 708 dated July 16, 2015, On Special Investment Contracts for Certain Industries, a special investment contract is concluded for a term not exceeding 10 years, taking into account the term for the investment project to reach design operating profit in accordance with the financial model of the investment project, increased by 5 years.

As a general rule of Part 6 of Article 16 of Law No. 488-FZ, legislation on taxes and fees provides guarantees of non-increase in the aggregate tax burden on the income of the investor who is a party to the special investment contract and/or other persons specified in the special investment contract for the term of the special investment contract compared to the magnitude of the aggregate tax burden on the income of the investor who is a party to the special investment contract and/or other persons specified in the special investment contract at the time of concluding the SPIC.

Thus, according to Article 284 of the Tax Code of the Russian Federation, for taxpayers-participants of special investment contracts, laws of the subjects of the Russian Federation may establish a reduced tax rate for the tax payable to the budgets of the subjects of the Russian Federation, in accordance with the provisions of Item 3 of Article 284.9 of the Tax Code of the Russian Federation. Specifically, the size of the tax rate for the tax payable to the budgets of the subjects of the Russian Federation may be reduced to 0% by laws of the subjects of the Russian Federation for taxpayers participating in special investment contracts.

At the same time, the SPIC participant has the right to determine in its accounting policy to which profit tax base to apply the reduced rates:

• to the entire profit tax base determined in accordance with Chapter 25 of the Tax Code of the Russian Federation. This is possible provided that income from the sale of goods produced within the framework of the implementation of the investment project for which the SPIC was concluded constitutes at least 90% of all income taken into account when determining the tax base (excluding income in the form of positive exchange rate differences provided for by Item 11 of Article 250 of the Tax Code of the Russian Federation);
• only to the base from activities carried out within the framework of the implementation of the investment project for which the SPIC was concluded, provided that separate accounting of income (expenses) received (incurred) from activities carried out within the framework of the implementation of said investment project and income (expenses) received (incurred) when carrying out other activities is maintained [9].

Thus, current legislation establishes that not all incentives and preferences provided by legislation automatically apply to relations with a particular investor; the decision on their use depends on the characteristics of the localized products and the content of the contract itself [10].

Also, municipalities may introduce land tax incentives. For example, in accordance with Part 1.5 of Article 3.1 of the Law of Moscow No. 74 dated November 24, 2004, On Land Tax, investment activity subjects, including those who are a party to a SPIC concluded with a state authority of the city of Moscow, pay tax in the amount of 0.7% of the tax amount calculated in relation to land plots used during the implementation of investment priority projects of the city of Moscow.

In addition to tax incentives, according to Article 111.3 of Federal Law No. 44-FZ dated April 5, 2013, On the Contract System in the Sphere of Procurement of Goods, Works, and Services for Meeting State and Municipal Needs, the Government of the Russian Federation may, by a special act, grant the investor the status of a sole supplier of a good, the production of which is being mastered in the territory of Russia, subject to the simultaneous presence of the following conditions:

• the SPIC is concluded by the Russian Federation (the Russian Federation along with a subject of the Russian Federation and/or a municipal formation);
• the volume of investments provided for by the SPIC in the creation or modernization and/or mastering of product production in the territory of the Russian Federation exceeds 3 billion rubles;
• product production in the territory of Russia will be carried out by a Russian legal entity;
• the SPIC provides for the investor's right to supply products as a sole supplier after being granted the corresponding legal status by an act of the Government of the Russian Federation, within the limit of 30% of the volume of produced products of the given name per year (the penalty for exceeding this threshold is 50% of the value of the excess). At the same time, within the framework of the SPIC, an obligation is established to provide reports on the volume of produced products and products supplied as part of single-source procurement, which must also be indicated in the text of the contract;
• the country of origin of the good, the production of which is created or modernized and/or mastered in the territory of the Russian Federation in accordance with the special investment contract, is the Russian Federation.

Also, other preferences and incentives may be determined directly in the concluded special investment contract.

Currently, the SPIC is one of the most important instruments for the localization of pharmaceutical production. For example, in 2016, the plant of the British-Swedish company AstraZeneca began operating in the Kaluga region. Currently, the enterprise produces 11 of the company's drugs, 4 of which are full-cycle. The total production volume is 40 million packs or 850 million tablets per year. The site of the Swiss company Novartis is located in St. Petersburg, which produces five full-cycle drugs for the treatment of chronic heart failure, localized in 2019 [11]. It is important to note that as of 2023, these organizations remained on the Russian market, which indirectly confirms the effectiveness of localization.

The main instruments for the localization of pharmaceutical production were discussed above. However, it should be noted that localization of production is a multifaceted and multi-stage process, which may include other methods and means of localization.

Pharma Production Localization: Possible Stages and Additional Tools

In addition to the main production localization instruments, one can highlight such localization instruments as public-private partnership or municipal-private partnership, as well as contract manufacturing.

According to Article 3 of Federal Law No. 224-FZ dated July 13, 2015, On Public-Private Partnership, Municipal-Private Partnership in the Russian Federation and Amendments to Certain Legislative Acts of the Russian Federation, public-private partnership, municipal-private partnership is "legally formalized cooperation for a certain term and based on pooling resources and sharing risks between a public partner, on the one hand, and a private partner, on the other hand, which is carried out on the basis of a public-private partnership agreement, a municipal-private partnership agreement, concluded for the purpose of attracting private investments into the economy, ensuring the availability of goods, works, services by state authorities and local self-government bodies and improving their quality."

In practice, a SPIC is viewed as a form of PPP. This is explained by the fact that investment projects based on the PPP mechanism are always socially significant regarding the system of priorities of both general state and regional and local importance. In particular, for public partners, one of the most significant criteria for the effectiveness of PPP projects is their investment load, the highest coefficient of attracting private investment per unit of public economic resource investment. This requires constant enrichment of the types of PPP applied in Russian practice. Some authors consider SPIC to be one of such types of partnership providing a significant investment effect [12].

However, there are a number of differences between a SPIC and PPP, due to the presence of which opinions are also expressed that, effectively, a SPIC is an instrument that has absorbed some features of investment contracts and PPP. The main and perhaps the principal distinguishing feature of PPP from a SPIC is that PPP does not define the application of any incentives for the investor, as well as reimbursement of their expenses. At the same time, concluding a SPIC effectively enables the Russian Federation, a subject of the Russian Federation, or a municipality to form expenditure obligations and include corresponding expenses in the budget.

In addition to PPP and SPIC, one cannot overlook the possibilities of concluding contracts with private investors (contract manufacturing), when corresponding agreements are concluded between Russian and foreign companies for the purpose of organizing production. It should be noted that one of the disadvantages of localization for a foreign rights holder within the framework of the contract model is that during preparatory work, a number of data on the production process of a confidential nature is disclosed to the contractor. Such information has high commercial value for its rights holder. This is particularly relevant regarding original drugs that have no analogs. In this regard, risk minimization can be achieved by introducing a trade secret regime, establishing detailed regulation of processes for the transfer and use of any confidential information, detailed regulation of relations concerning the creation of new or derivative intellectual property objects, as well as establishing a number of compensatory mechanisms in case of violation of such processes or other requirements [13].

Based on the foregoing, it can be concluded that issues related to the localization of pharmaceutical production are particularly relevant at present, and localization itself is a complex process that can be implemented through various instruments and can be lengthy and multi-stage. In particular, the main stages of localization include preliminary market analysis, selection of the localization region (depending on possible preferences determined by certain regional legal acts), analysis of legislation, development of the most optimal localization method, GMP certification, licensing, state registration of medicines, settlement of contractual relations with partners, etc.

In this regard, we believe that issues related to the legal regulation of pharmaceutical production localization in Russia will be additionally resolved through active legislative activity, taking into account the forming law enforcement practice.

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References

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[2] Agencies pondered the localization of substances for 80% of strategically important medicines // Pharmprom. July 26, 2021.

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[4] Localization of pharmaceutical production. Borzova M. Cheredova A. // Remedium. Privolzhye. January-February 2017. No. 1 (151).

[5] Letter of the Ministry of Finance of Russia No. 24-02-08/84589 dated September 28, 2020.

[6] Letter of the Ministry of Industry and Trade of Russia No. 47475/12 dated July 08, 2020 On Implementation of Resolutions of the Government of the RF No. 616 and No. 617 dated April 30, 2020.

[7] Draft Resolution of the Government of the Russian Federation "On Amendments to Resolution of the Government of the Russian Federation No. 1289 dated November 30, 2015". Project ID 02/07/10-21/00121413 dated October 13, 2021.

[8] Akopyan O.A. Transformation of the regulatory model of the special investment contract (SPIC) // Financial Law. 2020. No. 6. P. 28 – 33.

[9] Letter of the Ministry of Finance of Russia No. 03-03-06/1/13447 dated February 26, 2021.

[10] Special investment contracts in the pharmaceutical industry to be! When and what kind? D.A. Kopytin // "Remedium" No. 6. November 2017.

[11] What is localization of pharmaceutical production and why is it needed now. Puchnin V. // Pharmmedprom. April 26, 2022.

[12] Special investment contracts as a form of public-private partnership. D.K. Aliev // Financial Market Instruments. 2016.

[13] Contract manufacturing of medicinal products in the Russian Federation: practical aspects. Odabashyan A.G., Morozova A.S. // Development and Registration of Medicinal Products. 2016 No. 3 (16).