By Tracy Corrigan
Novartis AG's (NVS) new $150 million manufacturing plant outside St Petersburg will be built in two years, Joseph Jimenez, chief executive officer of the Swiss pharmaceuticals company said.
All the building permits are in place. Registration and certification of the site will be required before production starts, he added. In an interview at the St Petersburg International Economic Forum, Jimenez, an American, described the project as a "substantial" investment.
In late 2010, Novartis announced it would invest $500 million in Russia over the next five years, in an attempt to strengthen its position there.
That followed warnings from the country's prime minister at the time, Vladimir Putin, that global pharmaceutical companies would face restrictions if they failed to establish manufacturing facilities and transfer technology to the country. Putin has since been re-elected as Russia's president.
Many pharmaceuticals companies currently export to Russia but "the government has been very clear that over time they will face hurdles" in the form of tariffs, Mr Jimenez noted.
That reflects Russia's aim to reduce its dependence on imported drugs.
Novartis is already the largest foreign operator in the Russian pharmaceuticals market, its CEO told Dow Jones.
"This government really wants to attract foreign investment," he added. It has offered tax incentives and infrastructure support in economic zones to encourage foreign pharmaceuticals companies to start manufacturing on Russian soil.
The Russian government exerts control over the sector through import duties, subsidized purchases of drugs for people with low-incomes, and funding purchases of medical equipment for hospitals.
Novartis expects the Russian pharmaceuticals market to grow at an annual rate of 7 per cent in the next few years, assuming the economy continues to expand at around 4-5 per cent annually. The healthcare market is growing faster, partly because of the government's commitment to increase life expectancy, which will involve increasing the number of diseases for which treatment costs are reimbursed by the state, according to Mr Jimenez.
Novartis will also increase the number of clinical trials it conducts in Russia, as well as collaborating on research with Russian universities. The company is also involved in a number of public health projects. Novartis's global clinical standards apply in Russian trials, Mr Jimenez said.
Commenting on the euro zone crisis, Mr Jimenez said Novartis is being "very conservative in how we are managing cash" in some euro zone countries and is working to reduce receivables from hospitals in those countries.
He added that in extreme cases, Novartis has not cut off shipments of life-saving medications. "We are working with these governments", he said.
Write to Tracy Corrigan at Tracy.Corrigan@dowjones.com