BRACE Law Firm proudly presents its regulatory digest of the Russian pharmaceutical and life sciences industry for July 2019, detailing critical statutory shifts and enforcement trends.

• In July 2019, Russian President Vladimir Putin issued directives regarding the production and circulation of immunobiological medicines. Specifically, the President instructed the Government of the Russian Federation to include these target drugs in the Vital and Essential Drugs (VED) list.

• Healthcare organizations will be entitled to apply a 0% corporate income tax rate indefinitely, providing long-term fiscal stability for the medical sector.

• The Federal Antimonopoly Service (FAS of Russia) compiled comprehensive data on the maximum wholesale and retail markups established across the constituent entities of the Russian Federation for VED pricing.

• The Ministry of Industry and Trade of the Russian Federation (Minpromtorg) developed and proposed for approval standard templates for serialization labeling fee agreements and remote-access emission registration device agreements.

• The Ministry of Health of the Russian Federation (Minzdrav) proposed expanding medicine manufacturing licensing requirements, amending the Administrative Regulations for issuing clinical trial permits, and stiffening administrative liability for violating alcohol-containing medicine circulation rules.

• The Ministry of Finance of the Russian Federation (Minfin) drafted a Procedure to evaluate the accuracy of tracking production, turnover, and utilization volumes of pharmaceutical-grade ethyl alcohol (ethanol) used in manufacturing alcohol-containing medicines.

This regulatory digest explores these and other critical compliance developments in further detail below.

1. Legislation, Regulatory Acts, and Legal News

1.1. Scope of Permitted Buyers for Wholesale Pharmaceutical Companies Expanded; Project Participant Status for International Medical Cluster Extended

Federal Law No. 240-FZ dated July 26, 2019, "On Amending Certain Legislative Acts of the Russian Federation"

This document amends Article 53, Part 1, Clause 6 of Federal Law No. 61-FZ dated April 12, 2010, "On the Circulation of Medicines." Consequently, wholesale pharmaceutical organizations may now sell or transfer medicines in accordance with statutory procedures to healthcare organizations established and registered under the laws of a foreign member state of the Organisation for Economic Co-operation and Development (OECD). This relaxation also applies to foreign legal entities and individual entrepreneurs participating in projects under Federal Law No. 160-FZ dated June 29, 2015, "On the International Medical Cluster and Amending Certain Legislative Acts of the Russian Federation." As a reminder, the international medical cluster comprises the infrastructure within its designated territory, project participants, and their interaction mechanisms. A project refers to a set of activities designed to achieve the objectives of the international medical cluster. The cluster is established on a territory determined by the supreme executive body of state power of the federal city of Moscow to develop healthcare services, improve medical care quality, and facilitate drug development.

Under the new amendments, a legal entity or individual entrepreneur will lose project participant status 20 years (instead of the previously established 10 years) from the execution date of their agreement, or upon early termination of the agreement, liquidation or reorganization of the participant, or termination of the individual entrepreneur's operations. Furthermore, this Federal Law prohibits participants within the international medical cluster territory from providing medical care funded by the budgets of the Russian budgetary system. Previously, project participants holding valid medical permits issued in the Russian Federation were authorized to provide medical services.

1.2. Code of Administrative Offenses Amended to Grant Roszdravnadzor Jurisdiction Over Violations Regarding Disabled Access to Infrastructure

Federal Law No. 180-FZ dated July 18, 2019, "On Amending the Code of Administrative Offenses of the Russian Federation"

The law supplements Article 24.81, Part 1 of the Code of Administrative Offenses of the Russian Federation (CoAO RF) with a provision granting the federal executive body responsible for control and supervision in healthcare (Roszdravnadzor), along with its territorial divisions, the authority to adjudicate administrative offenses under Article 9.13 of the CoAO RF (failure to comply with requirements for ensuring disabled access to engineering, transport, and social infrastructures). This applies specifically to violations regarding the accessibility of facilities operated by medical and pharmaceutical organizations, as well as the services they provide. As a reminder, such offenses entail administrative fines ranging from RUB 2,000 to RUB 3,000 for officials, and from RUB 20,000 to RUB 30,000 for legal entities. These amendments entered into force on July 29, 2019.

1.3. Russian Government Approves List of Executive Bodies Participating in the "Regulatory Guillotine" Mechanism

List of Federal Executive Bodies Responsible for Legal Regulation in State Control (Supervision) Spheres, Federal Executive Bodies Performing Control and Supervision Functions Participating in the Implementation of the "Regulatory Guillotine" Mechanism, and Types of Federal State Control (Supervision) Subject to the "Regulatory Guillotine" Mechanism, Approved by the Government of the Russian Federation on July 4, 2019

This document clarifies the enforcement scope and powers of the Federal Service for Surveillance in Healthcare (Roszdravnadzor). Specifically, Roszdravnadzor shall exercise:

• Federal state supervision over the circulation of medicines;

• Licensing control over pharmaceutical activities;

• Regulatory oversight over the circulation of medical devices;

• Comprehensive quality and safety monitoring of healthcare services, including psychiatric care;

• Compliance audits for operations involving narcotics, psychotropic substances, and their precursors, as well as the cultivation of narcotic plants;

• Licensing administration for healthcare providers;

• Manufacturing and maintenance controls for medical equipment (except where maintenance is performed for internal organizational needs);

• Inspection frameworks for narcotics and psychotropic substances stored in international transit first-aid kits on marine vessels, aircraft, and cross-border trains;

• Monitoring of state-backed social assistance delivered via welfare services;

• Financial oversight regarding how medical organizations utilize the normalized insurance reserves of territorial mandatory medical insurance funds.

The document also establishes that the Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) shall conduct federal state veterinary supervision and control over the circulation of veterinary medicines. As a reminder, the "regulatory guillotine" mechanism involves a comprehensive analysis and revision of existing legal acts that impose an excessive regulatory burden on Russian businesses.

1.4. Collegium of the Eurasian Economic Commission Approves Customs Declaration Form for Personal Use Goods

Decision of the Collegium of the Eurasian Economic Commission No. 124 dated July 23, 2019, "On the Customs Declaration of Goods for Personal Use" (together with the "Procedure for Completing a Passenger Customs Declaration and Performing Customs Operations Related to Amending (Supplementing) Information Declared in a Passenger Customs Declaration")

The approved customs declaration form includes fields for declaring narcotics, psychotropic substances, and their precursors imported or exported as medicinal products (Section 3.6 of the customs declaration form).

1.5. Government Resolution No. 149 Amended to Align with Procurement Legislation Reforms Regarding Medicine Purchases

Resolution of the Government of the Russian Federation No. 973 dated July 27, 2019, "On Amending Certain Acts of the Government of the Russian Federation and Repealing Select Decisions of the Government of the Russian Federation"

Due to the introduction of the statutory term "unit price of goods, works, or services," the updated title of Government Resolution No. 149 dated February 8, 2017, reads as follows: "On the Federal Executive Body Authorized to Establish the Procedure for Determining the Initial (Maximum) Contract Price, the Price of a Contract Concluded with a Sole Supplier (Contractor, Performer), and the Initial Unit Price of Goods, Works, or Services in the Procurement of Medicines for Medical Use."

1.6. Indefinite Extension of 0% Corporate Income Tax Rate for Healthcare Organizations Beyond January 1, 2020

Federal Law No. 210-FZ dated July 26, 2019, "On Amending Part Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation"

This Federal Law removes the time limit on the preferential tax rate by amending Article 5, Part 6 of Federal Law No. 395-FZ dated December 28, 2010, "On Amending Part Two of the Tax Code of the Russian Federation and Certain Legislative Acts of the Russian Federation."

1.7. President of the Russian Federation Issues Directives on the Regulation of Immunobiological Medicines

List of Directives on the Production and Circulation of Immunobiological Medicines, Approved by the President of the Russian Federation on July 20, 2019, No. Pr-1413

Specifically, Vladimir Putin instructed the Russian Government to ensure the inclusion of immunobiological medicines used for immunoprophylaxis under the vaccination schedule for epidemic indications into the Vital and Essential Drugs (VED) list. Additionally, the President directed Minzdrav to submit proposals by August 15 of this year regarding the establishment of a laboratory complex to audit the quality of immunobiological medicines introduced into public circulation, which require biological agents of Pathogenicity (Danger) Groups I and II for quality assessment.

1.8. FAS Russia Publishes Q2 Data on Wholesale and Retail Markups for Vital and Essential Drugs Across Russian Regions

Information of the Federal Antimonopoly Service dated July 1, 2019, "Maximum Wholesale and Retail Markups on Vital and Essential Drugs Established in the Constituent Entities of the Russian Federation (Data for Q2 2019)"

Each constituent entity of the Russian Federation approves these VED markups for various drug price tiers (up to RUB 50 inclusive, from RUB 50 to RUB 500 inclusive, and over RUB 500). The document contains reference links to regional legislative acts establishing the specific retail and wholesale markups for VED medicines.

2. Draft Regulations and Legislative Proposals

2.1. Minpromtorg Drafts Standard Contract Templates for Pharmaceutical Labeling to Implement Mandatory Serialization Rules

Draft Order of Minpromtorg "On Approving the Standard Form of an Agreement for Charging Fees for the Provision of Labeling Codes"

Draft Order of Minpromtorg "On Approving the Standard Form of an Agreement for the Provision of Emission Registration Devices via Remote Access"

The Ministry drafted these contract templates to implement the Regulations on the System for Monitoring the Movement of Medicines for Medical Use, approved by Government Resolution No. 1556 dated December 14, 2018.

Specifically, regarding the provision of emission registration devices, the standard agreement stipulates that the equipment remains the property of the operator. However, the operator agrees to transfer the equipment for free temporary use and possession. This applies specifically to the emission registration device (a software-hardware cryptographic technical tool used by participants to obtain labeling codes and exchange data with the Federal State Information System for Monitoring the Movement of Medicines from the manufacturer to the final consumer using identification marks).

The operator will maintain one unit of equipment in an offline standby mode (backup equipment). This ensures it can be connected and deployed as the primary unit in the event of a malfunction or the expiration of the primary equipment's service life.

2.2. Minfin Proposes Tracking Framework to Evaluate the Accuracy of Pharmaceutical-Grade Ethyl Alcohol Volumes

Draft Order of Minfin "On Approving the Procedure for Evaluating the Accuracy of Accounting for the Volume of Production, Turnover, and/or Use of the Pharmaceutical Substance Ethyl Alcohol (Ethanol) for the Manufacture of Alcohol-Containing Medicines and/or Alcohol-Containing Medical Devices, in the Process of Manufacturing Other Medicines and/or Medical Devices, as well as the Production, Manufacture, and/or Turnover (Excluding Retail Sale) of Alcohol-Containing Medicines and/or Alcohol-Containing Medical Devices"

This document establishes a mathematical formula to determine the volume of pharmaceutical-grade ethyl alcohol (ethanol) received under primary accounting documents after the final technological operation associated with its production, prior to storage or utilization. The formula aggregates the total product obtained after the final operation, the volume of defective products, the volume of water and/or alcohol-containing products spent on flushing the primary production equipment, and technological losses.

It measures the purchase volume of pharmaceutical-grade ethyl alcohol (ethanol) for the manufacture of alcohol-containing products in decaliters per reporting period (24 hours), recording it in the Log for Accounting of Purchase and Use Volumes.

2.3. Ministry of Agriculture Proposes Rules for the Manufacture and Dispensing of Veterinary Medicines

Draft Order of the Ministry of Agriculture of the Russian Federation "On Approving the Rules for the Manufacture and Dispensing of Veterinary Medicines by Veterinary Pharmacies and Individual Entrepreneurs Holding a Pharmaceutical License, as well as the Order Form for Veterinary Organizations"

The draft framework mandates a minimum three-year retention period for veterinary pharmacy documentation.

The head of the veterinary pharmacy must develop and approve technical specifications for each type of pharmaceutical substance, herbal raw material, excipient, registered medicine, packaging material, in-pharmacy preparation, and individual dosage form.

Furthermore, the regulations obligate veterinary pharmacies to ensure the high-quality manufacture and dispensing of medicines, store pharmaceutical products in compliance with Ministry of Agriculture Order No. 145 dated April 15, 2015, safeguard raw materials and packaging in line with manufacturer specifications and pharmacopoeial monographs, implement measures to prevent substandard products from entering circulation, and conduct mandatory training for personnel involved in dispensing, storing, and manufacturing medicines.

2.4. Minzdrav Proposes Amendments to the Administrative Regulations for Clinical Trial Authorization and Institutional Accreditation

Draft Order of Minzdrav "On Amending the Administrative Regulations of the Ministry of Health of the Russian Federation for the Provision of the State Service to Issue Permits for Clinical Trials of Medicines for Medical Use, Approved by Ministry of Health Order No. 20n dated January 19, 2018, and the Administrative Regulations of the Ministry of Health of the Russian Federation for the Provision of the State Service for the Accreditation of Medical Organizations to Conduct Clinical Trials of Medicines for Medical Use, Approved by Ministry of Health Order No. 67n dated February 13, 2018"

The draft order clarifies the requirements for providing and disclosing information regarding clinical trial permits and institutional accreditation for clinical trials. It refines the administrative procedures and updates the pre-trial (out-of-court) dispute resolution process for appealing acts or omissions by Minzdrav and its officials. Notably, applicants cannot obtain this state service through multifunctional centers (MFCs), and the service will not be administered under an extraterritorial principle.

2.5. Minzdrav Drafts New Regulatory Framework for Import and Export Permits of Clinical Trial Biological Materials

Draft Order of Minzdrav "On Approving the Administrative Regulations of the Ministry of Health of the Russian Federation for the Provision of the State Service to Issue Permits (Permissive Documents) for the Import into and Export from the Russian Federation of Biological Materials Obtained During Clinical Trials of Medicines for Medical Use, and on Repealing Order No. 61n dated August 2, 2012"

The new draft administrative regulations outline procedures for correcting clerical errors. Upon detecting misprints or errors, the responsible official must rectify them within five business days of Minzdrav receiving the corresponding application. To secure a permit, the applicant must submit the following documents:

• An application for the import or export of biological materials;

• A detailed justification calculating the number of units for each type of imported or exported biological material, based on the clinical trial protocol and patient enrollment numbers;

• A true copy of the clinical trial authorization under which the biological material is collected (if the trial takes place within the Russian Federation);

• Certified copies of corporate charter and incorporation documents.

The turnaround time for processing the state service and issuing or dispatching the final regulatory documents is ten business days from the registration date of the application package.

2.6. Minzdrav Proposes Tightening Licensing Rules for Medicine Manufacturing

Draft Order of Minzdrav "On Amending the Regulations on the Licensing of Medicine Manufacturing, Approved by Government Resolution No. 686 dated July 6, 2012"

The draft integrates the following mandatory compliance conditions into the licensing requirements:

• Maintaining an active registration profile in the mandatory pharmaceutical tracking and serialization monitoring system;

• Consistent compliance with requirements to input medicine tracking data into the serialization monitoring system;

• Strict adherence to guidelines for applying unique identification marks to primary and secondary (consumer) drug packaging.

Furthermore, entities manufacturing medical gases must submit copies of title deeds or lease agreements proving ownership or lawful possession of gas cylinders and/or cylinder bundles (manifolds) to secure a license.

2.7. Minpromtorg Proposes Amendments to GMP Inspection and Reporting Procedures for Foreign Drug Manufacturers

Draft Resolution of the Government of the Russian Federation "On Amending the Rules for Organizing and Conducting Inspections of Medicine Manufacturers for Compliance with Good Manufacturing Practice (GMP) Requirements, and Issuing GMP Certificates, Approved by Government Resolution No. 1314 dated December 3, 2015"

The draft supplements current GMP inspection frameworks. If an audit reveals zero non-compliances with Good Manufacturing Practice rules, the inspectors shall compile the inspection report in triplicate on the authorized institution's letterhead. All members of the inspection commission must sign it no later than 25 business days from the conclusion of the audit. Within three business days of signing, the institution dispatches one copy to the foreign manufacturer or its authorized representative, forwards the second copy to the regulatory authority, and retains the third copy in its archives.

The draft also establishes that the foreign manufacturer must submit a response to the authorized institution within 25 business days of the report's dispatch, attaching a Corrective and Preventive Actions (CAPA) plan along with an implementation report. The inspection commission then evaluates this information and compiles a final inspection report based on the review of the CAPA plan and its execution details.

2.8. Minzdrav Initiates Enhanced Liabilities for Violations in Ethyl Alcohol and Alcohol-Containing Drug Turnover

A draft bill amending the Code of Administrative Offenses is currently undergoing a Regulatory Impact Assessment (RIA). The legislative proposal aims to increase administrative fines for non-compliance with drug circulation laws, specifically targeting the enforcement landscape of pharmaceutical-grade ethyl alcohol (ethanol) and alcohol-containing medicine turnover. Regulators plan to finalize this draft bill within the current calendar year.

3. Judicial and Enforcement Practice

3.1. Supreme Court Upholds Appellate Ruling Compelling Jodas Expoim to Delist Maximum Selling Prices for Gefitinib Following AstraZeneca Patent Dispute

Ruling of the Supreme Court of the Russian Federation No. 305-ES19-8449 in Case No. A40-106405/2018 dated July 31, 2019

Reviewing a petition filed by AstraZeneca UK Limited (United Kingdom), the court found that Minzdrav, acting on an application from Jodas Expoim, registered "Gefitinib" (Registration No. LP-003076) in the State Register of Medicines. The drug features gefitinib as its active pharmaceutical ingredient, which is protected under independent claim 1 of Russian Federation Patent No. 2153495.

Consequently, the court concluded that LLC "Jodas Expoim" engaged in preparatory actions infringing upon every element of independent claim 1 of the plaintiff's patent. Commercial distribution of any drug included in the VED list is strictly prohibited under Russian law without prior state marketing authorization and the mandatory registration of maximum manufacturer selling prices.

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