Vladimir Nesterenko, CEO of Nanolek, told Kommersant why the company, which has traditionally relied on cooperation with international partners, is now focusing on a complete in-house production cycle and technology transfers.

— This year, there has been a significant increase in the number of unsuccessful state tenders for medical purchases. How critical is this for medical institutions, and what do you think is causing it?

— When setting initial prices for auctions, the costs from previous tenders are considered. However, some companies deal with excess products and offer small drug quantities to regions at very low prices. This practice influences the pricing at major federal auctions, which these smaller companies do not participate in. As a result, large market players find it unsustainable to supply drugs in large quantities at such reduced prices.

— How do you think can we reverse this trend?

— I believe we need a different approach to pricing that takes into account production capacity, market demand, and the actual costs involved in drug manufacturing. Pricing should also be more flexible to accommodate various factors, such as changes in the ruble exchange rate. For instance, it could be beneficial to allow price adjustments during the term of a government contract.

—The deadline for including new vaccines in the National Vaccination Schedule (NVS) for 2023 has been postponed. How has this affected your company's plans to develop new products?

— My perspective on this may differ from that of officials who believe that manufacturers should first produce a domestic vaccine before it is considered for inclusion in the schedule. I think the government should assign manufacturers specific tasks—be it for polio, chickenpox, or meningitis—regardless of the terminology. The companies should then fulfill these tasks, whether by first importing vaccines into Russia and later localizing production or by developing new drugs domestically from the start. In reality, pharmaceutical companies often decide to start producing certain vaccines based on the expansion plans of the NVS, taking on considerable risk. For Nanolek, this approach applies to our development of vaccines for meningococcal disease and varicella, as well as the herpes vaccine we are currently developing.

— Why did you choose to develop this particular vaccine?

— This vaccine has significant potential. Globally, it is increasingly being administered to older adults and the elderly to prevent infections to which they are more susceptible due to weakened immune systems.

— Are there many companies producing this vaccine worldwide?

— No, the market is quite limited with only two or three manufacturers.

— Until April 2023, Nanolek was a part of Vladimir Khristenko's structures and his partners. Then, the business transitioned to Management-Aktiv CEIF, managed by K2 Group (main co-owners are Sergey Ostashevich's Interno Invest and Vasily Kulkov's DD Kalita (son of Egor Kulkov, co-founder of Pharmstandard). You then took over the company. What objectives were you tasked with when you took over?

— When I joined, Nanolek was well performing business with a robust portfolio of drugs, substantial orders, and strong financials. The primary objective in such a scenario is to maintain the existing success. I believe we have achieved this. Rather than being given specific tasks, the challenges are more self-imposed.

We recognize that to thrive, especially in the current challenging climate where many companies have left the Russian market, development and innovation are crucial. One of our key goals is to achieve technological sovereignty and pharmaceutical independence for the country. We need to establish our own vaccine production through a full-cycle process, which includes the creation of a cell bank, which is our current focus.

— Does the goal of full-cycle production apply to specific products?

— It's an integral part of our overall strategy. Even the transfer of technology to prepare the final dosage form is extremely challenging. Not only is it costly, but the process of technology transfer also requires extensive expertise, production readiness, and several years of dedicated effort. We recognize that even after obtaining a Russian manufacturing certificate, we will still be dependent on our international partners who have the necessary know-how. As a result, it is imperative that we develop our own products that are produced entirely in-house, from the creation of the cell bank and the active pharmaceutical ingredients to the final product.

— You have a long-standing partnership with Sanofi. Do you plan to manufacture own products at the same time?

— We collaborate with Sanofi on two products—the Menactra meningococcal vaccine and the Pentaxim pentavalent vaccine. Sanofi is a strategic partner for us, and we plan to further develop our relationship. We also have agreements to deepen our production processes.

— You have a full production cycle for Pentaxim, haven’t you? How profitable is the production, especially since your company has faced challenges trying to increase the vaccine's marginal price?

— Currently, we are only involved in the aseptic filling stage, not in the production of the substance itself. Pentaxim is a complex drug with a 36-month production cycle and is marketed in both France and Russia. For several years, the margins from Pentaxim have been sufficient for us to operate profitably and invest in our production capabilities, including plans to deepen localization in cooperation with Sanofi. However, fluctuations in the ruble exchange rate in 2022 pushed the product to the brink of profitability. By the end of 2023, losses from the Pentaxim project exceeded 300 million rubles. In 2023, we approached the Ministry of Health to explore the possibility of raising the marginal price. We were advised to utilize Government Decree No. 1771, which allows for the revision of marginal prices for drugs deemed economically inefficient, and we acted on this advice. This resulted in the re-registration of the maximum price per package of the drug to 1.36 thousand rubles, up from 1.079 thousand rubles. Despite these adjustments, the profitability of the project is now only 6%, which is half of our target rate of return. This experience has shown that although Government Decree No. 1771 is an effective policy, the process of implementing price changes is lengthy.

— What other factors affect the pricing of pharmaceutical products?

— The cost of pharmaceuticals is affected by a number of factors including rising prices for energy, raw materials, supplies, software updates, and equipment replacement. Another significant issue is that pharmaceutical manufacturers often artificially limit their profitability, which hinders development and leads to stagnation. Profits of manufacturers are vital for developing production capacities, acquiring and creating new technologies, generating employment, and eventually contributing back to the state in the form of taxes.

— Nanolek supplies the National Vaccination Schedule with the pneumococcal vaccine Pnemotexbased on raw materials from South Korean SK Biosciences. However, in the summer of 2023, the Seoul Central District Court ruled that your partner had infringed on a Pfizer patent. Are you still able to source these raw materials?

— We transferred the technology and started to produce Pnemotex using SK Biosciences’ raw materials. However, we faced a situation when the South Korean side indicated that they could no longer supply us due to patent restrictions, halting our production of the vaccine from these materials. Nevertheless, we are actively working on localizing production and are looking for new partners. We are also in discussions with SK Biosciences about transferring the cultivation stage of the active pharmaceutical ingredient to our facility, as it is not covered by patent restrictions. In addition, we plan to acquire a cell bank to establish a full-cycle production. These negotiations are complex but ongoing. Additionally, Pfizer’s vaccine is expected to lose patent protection by 2026, which may ease some restrictions quite soon. Meanwhile, SK Biosciences is appealing the court ruling to a higher court. With new pneumococcal vaccines containing up to 16, 20, and 21 serotypes emerging globally or under development, we are also exploring these opportunities.

— In Russia, Poliovaxin is currently the only inactivated monovaccine against poliomyelitis, produced by the joint venture between Nanolek and the Chumakov Center. Is the production volume sufficient to meet the demand within Russia?

— Pricing also plays a role in this scenario. We started production of Poliovaxin in collaboration with the Chumakov Center using leftover consumables from our production of CoviVac, another vaccine developed by the Center. The initial registered price was 390.46 rubles per dose. However, after depleting the initial supplies, the costs—and consequently the marginal price—were recalculated. We initially filed for a price re-registration to 1.1 thousand rubles per dose under Decree No. 1771. Following further analysis by the Chumakov Center, which considered supplier departures and economic changes, the cost per dose was adjusted to 1.8 thousand rubles. According to the Center, it’s now impossible to produce the vaccine at the previous price under the new economic conditions. We are in constant dialogue with the Chumakov Center as this is our joint product. We've proposed to transfer the technology to our facilities. With our existing vaccine portfolio, we may be able to optimize the production process and reduce the costs of producing Poliovaxin, although this could take up to two years.

— Is Nanolek currently producing the vaccine?

— We are one of the facilities involved in the filling phase of vaccine production.

— Would you consider restarting production of another polio vaccine, Polimilex, using raw materials from the Dutch company Bilthoven Biologicals?

— We have resumed discussions with Bilthoven Biologicals to transfer the technology to our facility. However, these negotiations are challenging. Bilthoven is understandably concerned about the possibility of losing access to the Russian market again.

— What is the current status of the human papilloma vaccine developed by Nanolek?

— We have started the third phase of clinical trials, which now includes children. We hope to complete these trials by the end of 2025, which will allow us to proceed with registration for expanded indications. In addition, we are building a production facility at our site specifically for this vaccine. Our goal is to fully meet the domestic demand for the vaccine in Russia, with plans to begin exporting it thereafter.

— Do you currently export any of your products?

— Not at the moment. However, we have identified two vaccines, including those for polio and human papillomavirus (HPV), that have the potential for export in the future.

— Nanolek has announced plans to invest 5 billion rubles to expand its facilities in Kirov. What products do you plan to produce there?

— We are allocating at least two sites for the production of the varicella vaccine and the human papillomavirus (HPV) vaccine. We are in talks with a South Korean partner to produce a live varicella vaccine, a product not yet domestically available in Russia. We aim for full-cycle localization in the future, but this will require significant investment. Firstly, the construction of a facility equipped to handle live vaccines requires specific conditions, and secondly, the cost of the technology itself is quite substantial. Initially, the vaccine will be imported in a frozen state. We're also exploring the production of a pneumococcal vaccine, starting with the development of a cell bank and the cultivation of the active pharmaceutical ingredient, if we can secure the necessary technology. If negotiations on polio are successful, this site could also become a new center for polio vaccine production.

— Are you preparing any other products for the commercial market?

— Yes, for instance, the herpes zoster vaccine is aimed at this segment. We are also looking into producing quadrivalent and nonavalent HPV vaccines.

— Nanolek has registered two drugs based on monoclonal antibodies, Bevacizumab and Rituximab. Are there plans to introduce more biologic drugs to the market?

— Rituximab has been available for a year, and we are launching Bevacizumab this year. However, these are currently the only monoclonal antibody products for Nanolek. We have determined that competing with major players in the market to produce a wide range of monoclonal and polyclonal antibodies is not our ambition. We aim to excel in our areas of expertise, and we welcome others to try to replicate our success. This same philosophy guided our decision to opt out of producing antiretroviral drugs.

— Are there any plans to manufacture in Russia the oncology drug Brookinza, based on Zanubrutinib from BeiGene? According to Roszdravnadzor, only one batch was released in Russia in 2021.

— We've made significant progress in this area. We have been negotiating and consulting with BeiGene for almost a year and a half. Brookinza has demonstrated excellent clinical results and has the potential for broader use than currently approved. The methods of control were also being revised, which temporarily halted its supply. BeiGene has recently confirmed that the first 108 packs of Brookinza will be delivered to us by the end of May. We expect to evaluate the demand from our medical institutions by the end of this year and assess our production capabilities. By 2025, we aim to begin systematic deliveries of this product to the Russian Federation in the required quantities. In addition, we have submitted an application to include this drug in the list of vital medications.

— Do you plan to expand your partnership with BeiGene?

— Yes, we are discussing another product with BeiGene. Given their strong focus on oncology, BeiGene has significant potential in this field, partly due to their collaborative efforts with partners.

— Have Chinese pharmaceutical companies shown increased interest in the Russian market recently?

— Absolutely, and our interest in Chinese companies has grown as well. While our focus was previously on Europe, China has been advancing significantly. We are looking to introduce a new product to the Russian market that is currently undergoing clinical trials, not only in China. This gene therapy drug could be revolutionary for ophthalmology.

— Is Nanolek considering importing these drugs or localizing their production in Russia?

— We'll start with secondary packaging for Brookinza, and then we'll explore further options. Nanolek is not content with partial localization. However, localization of gene therapy in Russia seems unlikely at this stage. Chinese developers have previously declined to transfer technology to one of the big pharma companies they had an agreement with, opting instead to centralize production in China.