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BRACE Law Firm presents its regulatory digest on the Russian life sciences sector for June 2019, outlining key legislative shifts and enforcement landscape developments.
In June 2019, Federal Law No. 134-FZ dated June 6, 2019, entered into force, establishing specific circumstances under which pharmaceutical companies must reduce maximum manufacturer prices for drugs included on the Vital and Essential Drugs (VED) List. Price reductions shall be mandatory in the following cases:
• a decrease in the foreign currency price of the medicinal product in the manufacturer’s country and/or in countries where the drug is registered and/or supplied by the manufacturer;
• a decrease in prices for reference medicinal products (applicable to the corresponding generic or bioanalogous/biosimilar drugs);
• where the maximum manufacturer price for the first foreign-manufactured generic or bioanalogous (biosimilar) medicinal product exceeds the manufacturer price for the second generic or bioanalogous (biosimilar) drug;
• where the maximum manufacturer price for the first generic or bioanalogous (biosimilar) medicinal product from a manufacturer within a Eurasian Economic Union (EAEU) member state exceeds the manufacturer price for the second generic or bioanalogous (biosimilar) drug from an EAEU member state manufacturer.
Furthermore, the Federal Antitrust Service of Russia (FAS Russia) clarified that when supplying VED List drugs to medical organizations, neither current pharmaceutical circulation law nor state and municipal public procurement regulations permit the integration of retail markups into the final drug price.
Additionally, the Accounts Chamber of the Russian Federation published a Report on the results of the expert-analytical initiative "Monitoring the Evolution of State and Corporate Procurement Systems in the Russian Federation for 2018." This document provides critical strategic guidance regarding the optimization of public procurement legislation, including the public procurement of pharmaceuticals.
This legal alert reviews these and other significant regulatory developments in further detail.
1. Statutory Acts, Regulatory Updates, and Legal News
1.1. New Federal Law Mandating Price Reductions for Vital and Essential Drugs Enters into Force
Federal Law No. 134-FZ dated June 6, 2019, "On Amendments to the Federal Law 'On the Circulation of Medicines' Regarding State Regulation of Prices for Medicinal Products Included in the List of Vital and Essential Drugs"
The law establishes the framework for mandatory reductions of maximum manufacturer prices for drugs included on the VED List.
Price reductions shall be mandatory in the following cases:
• a decrease in the foreign currency price of the medicinal product in the manufacturer’s country and/or in countries where the drug is registered and/or supplied by the manufacturer;
• a decrease in prices for reference medicinal products (applicable to the corresponding generic or bioanalogous/biosimilar drugs);
• where the maximum manufacturer price for the first foreign-manufactured generic or bioanalogous (biosimilar) medicinal product exceeds the manufacturer price for the second generic or bioanalogous (biosimilar) drug;
• where the maximum manufacturer price for the first generic or bioanalogous (biosimilar) medicinal product from a manufacturer within a Eurasian Economic Union (EAEU) member state exceeds the manufacturer price for the second generic or bioanalogous (biosimilar) drug from an EAEU member state manufacturer.
Crucially, the legislation does not restrict the frequency of price reductions. Consequently, manufacturers may file applications for price reductions multiple times a year upon the occurrence of the aforementioned conditions.
In all other instances, the mandatory reregistration of previously approved maximum manufacturer prices for all medicinal products is required during the 2019–2020 period.
We anticipate that while these statutory amendments may lower pharmaceutical prices, the absence of a detailed price-reduction mechanism and reasonable implementation timelines could introduce serious compliance risks, potentially prompting certain international manufacturers to exit the Russian market.
1.2. FAS Russia Issues Clarifications on Pricing Frameworks for Narcotic and Psychotropic Drugs on the VED List
Clarification on the Mechanism for Determining Manufacturer Prices for Narcotic and Psychotropic VED List Drugs Supplied to Medical Organizations by Wholesale Enterprises with Retail Structural Units (Based on FAS Russia Letters No. RP/15603/19 dated February 28, 2019, and No. TsA/36600/19 dated April 29, 2019)
The Federal Antitrust Service published the relevant document on its official website on June 26, 2019. The clarification states that neither current pharmaceutical circulation law nor state and municipal procurement regulations allow wholesale suppliers to integrate retail markups into the drug price when supplying VED List products to medical organizations.
Concurrently, Section 5.6 of the Methodology for Regional Executive Authorities to Establish Maximum Wholesale and Retail Markups (approved by Federal Tariff Service Order No. 442-a dated December 11, 2009) stipulates that VED List items entailing additional transport and storage costs due to specialized handling requirements (such as narcotic and psychotropic substances) must be categorized separately. Regional executive authorities retain independent discretion to establish specific markup rates that account for these additional distribution expenses.
Furthermore, the clarifications state that wholesale suppliers deliver narcotic and psychotropic drugs to medical institutions without integrated pharmacies based on requisition invoices. In such instances, wholesale distributors may account for costs through their internal pharmacy divisions handling the fulfillment of these requisition invoices.
1.3. Accounts Chamber Recommends Streamlining Public Procurement Procedures Based on 2018 Audit Results
Report on the Results of the Expert-Analytical Initiative "Monitoring the Evolution of State and Corporate Procurement Systems in the Russian Federation for 2018"
The report highlights the inefficiencies of certain public procurement processes, which impose unnecessary costs on both potential bidders and contracting authorities. Specifically, expert analysis by the All-Russia People's Front 'For Fair Procurement' indicates that the methodology for calculating the Initial Maximum Contract Price (IMCP) under Ministry of Health Order No. 871n frequently results in aborted tenders. Errors within the IMCP calculation methodology leave approximately one in four procurement procedures completely devoid of bidders.
To mitigate these regulatory compliance risks and inefficiencies, the Accounts Chamber proposes:
• imposing liability on banking institutions for failing to timely block bidder funds earmarked for securing electronic bids;
• enacting regulatory acts to govern pricing frameworks with an automated system for calculating the Initial Maximum Contract Prices of state contracts;
• integrating requirements into the drafting procedure for Presidential or Government Decrees designating a sole-source supplier. These requirements must mandate a formal justification for subcontracting and compulsory coordination with the Federal Treasury and relevant federal executive authorities within their sector-specific competencies.
1.4. Expansion of Social Tax Deductions for Out-of-Pocket Pharmaceutical Expenses and Ministry of Finance Guidance
Federal Law No. 147-FZ dated June 17, 2019, "On Amendments to Part Two of the Tax Code of the Russian Federation"
Letter of the Ministry of Finance of the Russian Federation No. 03-04-05/43139 dated June 13, 2019
Previously, taxpayers could only claim a social tax deduction for out-of-pocket expenses on medicinal products explicitly enumerated in the Government Approved List (Government Decree No. 201 dated March 19, 2001) and prescribed by a licensed physician.
Under the new framework, the tax deduction covers the cost of any medication prescribed by an attending physician, effectively eliminating the restrictive historical list.
The Ministry of Finance clarified that taxpayers must present a Form No. 107-1/u prescription blank bearing the stamp "For Tax Authorities of the Russian Federation, Taxpayer TIN" as the foundational document to claim the deduction.
1.5. Regulatory Updates to Controlled Substance Precursor Lists Enter into Force
Decree of the Government of the Russian Federation No. 182 dated February 22, 2019, "On Amendments to Certain Acts of the Government of the Russian Federation Regarding Enhanced Control Over the Circulation of Precursors for Narcotic Drugs and Psychotropic Substances"
For List I substances, statutory restrictions will apply regardless of substance concentration. Additionally, the amendment removes "1-hydroxy-1-methyl-2-phenylethoxysulfate" from this list.
The updates integrate the following substances into Table I of List IV precursors: 2-bromo-1-phenylpentan-1-one; 1-(2,5-dimethoxyphenyl)-2-nitroprop-1-ene; despropionyl-3-methylfentanyl; despropionyl-ortho-methylfentanyl; (2-methoxyphenyl)acetone; 1-phenylpentan-1-one; and 2-nitro-1-(2-fluorophenyl)prop-1-ene. Furthermore, Table II of List IV now includes "1-(4-methylphenyl)propan-1-one."
1.6. Roscosmos Approves Procurement List for Small and Medium-Sized Enterprises
List of Goods, Works, and Services for Procurement Exclusively from Small and Medium-Sized Enterprises, Approved by Roscosmos State Corporation Order No. 179 dated June 13, 2019
The designated procurement list explicitly incorporates medicinal products and materials utilized for medical purposes.
1.7. Russian Government Establishes Regulatory Rules for the Clinical Application of Donor Blood
Decree of the Government of the Russian Federation No. 797 dated June 22, 2019, "On Approval of the Rules for the Procurement, Storage, Transportation, and Clinical Use of Donor Blood and its Components and on the Invalidation of Certain Acts of the Government of the Russian Federation"
The rules prohibit introducing any medicinal products or solutions into a donor blood container or its components, except for a 0.9% sterile sodium chloride solution.
To safeguard clinical applications, entities must ensure comprehensive data traceability across donors, donations, collected blood and components, consumables (containers, reagents, solutions, medications), donor blood samples, storage and transport conditions, recipient blood samples, personnel, and compliance with stringent requirements throughout procurement, transit, storage, and clinical implementation.
1.8. President of the Russian Federation Approves National Healthcare Development Strategy Through 2025
Decree of the President of the Russian Federation No. 254 dated June 6, 2019, "On the Healthcare Development Strategy in the Russian Federation for the Period Up to 2025"
The strategy envisions enhancing pharmaceutical supply frameworks and drug pricing mechanisms. It also mandates the continued deployment of an information-analytical monitoring and control system for pharmaceutical procurement to suppress the circulation of counterfeit, adulterated, or substandard medicines and medical devices.
2. Draft Legislation and Regulatory Initiatives
2.1. Ministry of Industry and Trade Proposes Exemptions to Track-and-Trace Serialization Requirements for Specific Medical Products
Draft Federal Law "On Amendments to Article 4 of the Federal Law 'On Amendments to Certain Legislative Acts of the Russian Federation Regarding the Introduction of Medicinal Products for Medical Use into Commercial Circulation'"
The bill proposes to exclude medical gases from the national pharmaceutical track-and-trace monitoring system.
The rationale behind this draft stems from Government Decree No. 1556 dated December 14, 2018 ("On Approval of the Regulations on the System for Monitoring the Movement of Medicinal Products for Medical Use"), which requires identification markers to be permanently affixed to packaging.
In the production of compressed medical gases, manufacturers utilize refillable returnable cylinders as primary packaging, completely bypassing secondary packaging. For returnable cylinders, the presence of previous identification codes on the surface prevents unique data encryption. The explanatory note emphasizes the total absence of global precedents for serializing medical gases; notably, EU Directive 2016/161 explicitly exempts medical gases from mandatory serialization and safety features.
2.2. Ministry of Health Proposes Methodological Guidelines for Pharmaceutical Provisions to Disabled Children
Draft Order of the Ministry of Health of the Russian Federation "On Approval of Methodological Guidelines for Regional Executive Authorities Exercising Delegated Powers to Provide Citizens Entitled to State Social Assistance with Medicines, Medical Devices, and Specialized Therapeutic Nutrition Products for Disabled Children"
The draft guidelines stipulate that regional healthcare authorities must submit volume-justified requests to the state executive body for the supply of medical products, pharmaceuticals, and therapeutic nutrition for disabled children.
Authorities shall determine the required supply volume by referencing clinical recommendations (treatment protocols) and average course dosages, based on the actual monthly patient requirements and the necessity of maintaining a 3-to-4-month strategic safety stock.
Eligible citizens may opt out of receiving these social services by filing an application with the territorial branch of the Pension Fund of the Russian Federation handling their monthly cash payments.
The regulations permit beneficiaries to waive the entire social services package, a single specific component, or any two components simultaneously.
2.3. Ministry of Health Launches Public Consultations on Easing Prescription Frameworks for Narcotic Medications
Draft Order of the Ministry of Health of the Russian Federation "On Amendments to Order of the Ministry of Health of the Russian Federation No. 54n dated August 1, 2012, 'On Approval of Prescription Forms for Narcotic Drugs or Psychotropic Substances, the Procedure for Their Manufacture, Distribution, Registration, Accounting, and Storage, and Regulatory Formatting Rules'"
The proposal introduces specific formatting criteria for electronic prescriptions of narcotic and psychotropic drugs, requiring verification via an advanced qualified electronic signature of the medical professional.
Concurrently, to safeguard access to palliative care medications, the draft eliminates the requirement for counter-authorization by the head of the medical organization or departmental supervisor. The initiative also introduces provisions enabling physicians to issue electronic prescriptions for controlled substances directly at a patient's residence.
3. Judicial Practice and Enforcement Landscape
3.1. Sverdlovsk Regional Blood Transfusion Station Fined for Antitrust Violations
The Sverdlovsk Regional Office of the Federal Antitrust Service (Sverdlovsk OFAS) imposed a 4.85 million ruble administrative fine on the Sverdlovsk Regional Blood Transfusion Station.
According to the official FAS Russia website, the anti-competitive agreement routed the vast majority of procurement through a single corporate entity, resulting in "the complete inability of alternative buyers to purchase tick-borne encephalitis immunoglobulin, thereby restricting competition in the relevant commodity market."
However, we anticipate that this administrative decision is not final and remains subject to judicial appeal.
3.2. Presidential Directives Issued on Expediting Regional Pharmaceutical Procurement
Following the "Direct Line with Vladimir Putin" program, the President approved a list of directives instructing regional governors to execute timely procurement of subsidized pharmaceuticals for vulnerable citizen categories and to promptly transmit data regarding drug inventories and surpluses to medical and pharmaceutical organizations.
