I used to do a lot of driving around post-industrial towns in upstate New York, reporting on the economy. And, at first, my tour of Yaroslavl, Russia, feels rather familiar: the shuttered factories, the fields of grazing cows.
I've taken a four hour train ride from Moscow to get here. I'm touring the city with Eugene Solovjev, who formerly oversaw public relations for the region. He hands me a presentation booklet he assembled. It represents the city he envisions: Yaroslavl, The Capital of Advanced Pharmaceutics. This glossy bilingual brochure is based on some promotional material that Solovjev picked up at a conference in Buffalo, NY some years ago.
"Like Buffalo," Solovjev says, "Yaroslavl used to have a big industry, in Soviet time." And like Buffalo, Yaroslavl is pinning its economic future on the health care industry.
Apparently, it's working. Solovjev drives me through two metal gates and we come to a stop in a field of bulldozers, steel girders and hard hats. It's a factory being built by Nycomed, the European drug maker, for a hundred million dollars. When it's finished, the factory will create hundreds of jobs and tax income for the city. The winding road we took here will be a four lane highway.
What's less clear is how this factory benefits Nycomed. It's expensive to build a factory in Russia, for lots of reasons: The winters are brutal, utility hookups a challenge, infrastructure non-existent, land is expensive, and labor costly. So why is Nycomed choosing to establish a factory here? And why are pharmaceutical giants like Pfizer, Novartis, Astra Zeneca, GlaxoSmithKline and Sanofi-Aventis all expanding their manufacturing operations in Russian cities like this one? Big drug companies have been doing business in Russia for two decades without setting up shop here.
To answer this question I met with Yuriy Krestinsky, the founder of "Pharmexpert", still one of the most widely read trade publications about the Russian drug industry. Krestinsky told me what pharmaceutical companies doing business in Russia have now learned. "If you construct your factory in Russia," he says, "you will have better conditions for your business activity in this country."
Better conditions. Let's unpack that a bit, okay? And just consider this anecdote for what it's worth: About a year ago the pharmaceutical company Novo Nordisk got a visit at its Moscow office, from the Federal Antimonopoly Service, or FAS. The FAS charged Novo Nordisk with refusing to sell drugs through Russian distributors. An anti-trust violation punishable by millions of dollars in fines.
Novo Nordisk had what it thought was a good defense, told to me by Gennady Shirshov, the head of a coalition of drug manufacturers in Moscow. It's something called the "cold chain issue." Basically, to get a drug distribution license in Russia a company does not have to guarantee that it will keep the drugs refrigerated during transport. Novo Nordisk didn't deal with those distributors because it didn't want its insulin to be compromised.
"Because safety comes first!" Shirshov says.
"But not according to the FAS," I say.
"That's their opinion!"
"But their opinion is pretty important right?"
"Yes, but..." Shirshov pauses. "We are a real democracy by the way!" Shirshov starts to laugh, but quickly collects himself. "No no this is a serious business a serious business..."
And it's a big business, too. The Russian drug market is projected to grow at 20 percent a year. And where there's profit, there's compromise. Novo Nordisk announced it would build a factory in Russia. No one can say for sure whether the timing of that announcement was tied to the ongoing investigation of the company. The Moscow office of Novo Nordisk declined to be interviewed. But Shirshov says that many companies are bowing to government pressure to invest here.
"If you want to highlight what I'm saying in one word," Shirshov says, "It's about product. You want your product to be here at whatever cost. So sooner or later they will make peace with the government initiative in some way." There are ways besides building a factory, he says. "Like establishing a lab. Or helping to establish a R&D branch of a university and this will be viewed as a localization thing."
The Federal Antimonopoly Service declined my request for an interview. In fact the only official that would talk on the record was one who stands to gain a lot from this factory building boom: the deputy governor of Yaroslavl, Viktor Kostin. He's figured out a way to tap the mutual self-interest of both pharmaceutical businesses and Russia's government, to benefit his region.
I caught up with the deputy governor at Sheremetyevo Airport in Moscow. He spends a lot of time on the road, courting investors. From his carry on bag he pulled a glossy brochure (the same 'Capital of Advanced Pharmaceutics' brochure I was given in Yaroslavl on my factory tour). "In my opinion the Federal Antimonopoly Service was not exactly right in their claims," he said. "In any case, the Russian pharmaceutical market is growing rapidly and the market is very attractive to foreign companies. These 'confusions' that happened in the past will be resolved in the nearest future. And the solution will be positive for pharmaceutical business."
With that, the deputy governor tucked the brochure back in his suitcase and rose to catch his flight. There was a drug company in Israel awaiting his visit.