Russia. Government Procurement of Pharmaceuticals - Preferences for Russian and Belarusian Producers

[May 31st, 2013] On April 17, 2013, the Russian Ministry of Economic Development adopted Order No. 211 on Procedures for Admitting Goods Originating from Foreign Countries for the Procurement of Goods for Public Needs (the “Order”). The Order establishes preferences in Government Procurement for products (including pharmaceuticals) of Russian or Belarusian origin. These preferences include:

• Price preferences: In an auction, if a supplier submitting the lowest bid offers to supply products that are not of Russian or Belarusian origin, the final contract price paid to the supplier will be reduced by 15%. Similarly, in a tender, if the winner offers products of Russian or Belarusian origin, the final contract price paid to the winner will be increased by 15%.
• Selection preferences: Where the same terms and conditions are offered by two or more suppliers in a state tender, the government will be required to award the contract to the supplier that offered products of Russian or Belarusian origin.

Under the Order, these preferences will not apply if:

• the tender also includes goods to which preferences do not apply;
• the tender has failed and the purchaser places an order with a single supplier;
• none of the tender applications includes goods of Russian or Belarusian origin;
• none of the tender applications includes goods of foreign origin; or
• the winner of the tender offers goods of both Russian or Belarusian and foreign origin, and the goods of Russian and Belarusian origin comprise at least 50% of the offered goods.

Pharmaceuticals qualify as being of Russian or Belarusian origin if:

• the manufacturer has rights to intellectual property in respect of the final product and/or the method of production in the territory of the Russian Federation, as evidenced by the patent;
• technologically significant components are produced in Russia from a list approved by the Russian government and/or are used in the production of the pharmaceutical in accordance with procedures established by the Russian government;
• production of pharmaceuticals is related to a transfer for value of technological solutions from a list approved by the Russian government and/or in accordance with procedures established by the Russian government; or
• production of pharmaceuticals at all stages of the production process (production of an active pharmaceutical ingredient and/or drug form) takes place in Russia.

A pharmaceutical would qualify as a product of Russian or Belarusian origin if any one of these criteria is satisfied. The Order will be in effect until December 31, 2013.

These rules will continue to make it difficult for manufacturers and distributors of pharmaceuticals that do not qualify as being of Russian or Belarusian origin to compete in the Government Procurement process with manufacturers and distributors of pharmaceuticals that do so qualify. However, because the Order will remain in effect only until December 31, 2013, it is not entirely clear to what extent these criteria for qualifying pharmaceuticals as products of Russian origin should be taken into account by foreign pharmaceutical companies in determining their long-term strategy in the Russian market.

Source: Debevoise & Plimpton LLP