USSR: UPGRADING THE PHARMACEUTICAL INDUSTRY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T01451R000300310001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 27, 2016
• Document Release Date: January 29, 2013
• Sequence Number: 1
• Publication Date: June 1, 1988
• Content Type: REPORT

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USSR: Upgrading the
Pharmaceutical Industry
A Research Paper
0079996
SOV* 10033X88
SOVA*0313*88
0471-0471.
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so V 88-10033X
June 1988
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USSR: Upgrading the
Pharmaceutical Industry
A Research Paper
This paper was prepared by
Soviet Analysis, with contributions from
he Office of Scientific and Weapons Research
the Office of Leadership
Office of
and
Analysis.
Comments and queries are welcome and may be
directed to the Chief, Economic Performance
Division, SOYA,
Secret
SOV 88-10033X
June 1988
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Summary
Information available
as of! April 1988
was used in this report.
USSR: Upgrading the
Pharmaceutical Industry
Increased availability of pharmaceuticals and vaccines could substantially
improve the health and morale of the Soviet people. Insufficient supplies of
pharmaceuticals have resulted in increases in the infant and child death
rate, poor nutrition, a high death rate from strokes and heart attacks, and
extended recovery periods from illness. The Soviets report that each year
the 3.5 million people absent from work because of illness cost the economy
12-20 billion rubles in lost production.
The leadership has begun to recognize the economic cost of poor health
care and the vital role that pharmaceuticals play in the prevention and
treatment of illness. According to one Soviet medical official, "use of
modern treatment methods including new pharmaceuticals could save 2-3
billion rubles paid for sick leave" over a five-year period.
The pharmaceutical industry is a microcosm of Soviet industry, displaying
many of the problems that the leadership is trying to address in restructur-
ing the economy. Output of the pharmaceutical industry has grown
rapidly, but the industry is plagued by shortages and erratic supplies of raw
materials and a relatively low technological base. Like other Soviet
industries producing consumer goods, it has had neither the capital nor the
incentives needed for technological innovation. As a result, most of its
enterprises are equipped with machinery and processing facilities that
Western companies would consider obsolete, uneconomical, and unhygien-
ic. Other deficiencies include excessively long research-to-production cy-
cles, poor planning and management, an undisciplined work force, and
inadequate quality control. Furthermore, pharmaceutical prices, which are
set by the state, often are not high enough to compensate enterprises for
the costs of modernizing.
An ineffective distribution system compounds the effects of production
problems. Although the number of pharmacies and pharmacy personnel
has grown over the last 15 years, the system is hampered by shortages of
pharmaceuticals and storage facilities, poor management and training,
insufficient automation, lack of incentives, theft, and black-market activi-
ties. And, because there is no organized mechanism for systematically
providing information about drugs to physicians and the public, some
patients do not receive available medications.
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soV 88-10033X
June 1988
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To improve supplies of pharmaceuticals to the Soviet consumer, Gorbachev
has:
? Merged the Ministry of the Medical Industry with the Main Administra-
tion of the Microbiological Industry and replaced ineffective leaders.
? Accelerated technological progress in medical and biomedical research
and development.
? Improved labor discipline and cracked down on the black market.
? Set plans to triple investment allocations for the Ministry of the Medical
and Microbiological Industry (MMMI)?which produces the bulk of the
country's pharmaceuticals?in 1986-90.
? Expanded the network of pharmacies to improve distribution and
increased the funds health-care institutions can spend for medications.
Ongoing changes will marginally improve availability of medicines in the
next five years, but sufficient amounts of many types of pharmaceutical
products will still be lacking, especially in rural areas. Unless the problem
becomes more important in the eyes of the populace, leadership attention
will remain focused on those sectors critical to industrial modernization
and on those that will have an impact on popular perceptions of improve-
ments in living standards. If Moscow does not follow through with the
resources and incentives to signal a real change in priority, the Soviet
consumer will continue to be shortchanged in supplies of new antibiotics,
vitamins, and anticancer and cardiovascular drugs.
Moscow could alleviate domestic shortages of medicines by increasing
imports. Most of any increase will come from East European countries?
the major suppliers today?under intra-CEMA product exchanges, but
these countries cannot offer the scale of support needed. Imports of
medicines and equipment from the West are also likely to increase, but
hard currency constraints probably will limit purchases to high-priority
commodities. The Soviets generally purchase from the West only sophisti-
cated medicines not available domestically or from CEMA countries.
These are usually bought in relatively small quantities for use in special
medical facilities or for laboratory analysis and clinical trials in domestic
drug programs.
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Opportunities exist for Western sales of production licenses and plants,
particularly in the biotechnology area, and the Soviets also are interested in
joint ventures with Western firms. They are currently negotiating with US,
French, and Japanese companies for jointly operated pharmaceutical
plants in the USSR. In addition, Moscow will continue to seek access to
Western research programs, chemical and microbiological products, and
technology through scientific-technological cooperation agreements with
Western companies.
This approach, however, faces long leadtimes and an uncertain future.
Meanwhile, a failure to substantially increase the availability of pharma-
ceuticals?from either domestic or foreign sources?will leave Soviet
health care more on a par with that in the Third World than that in the de-
veloped West. At present, the Soviet populace seems inured to this
situation, but morale could be seriously affected if health problems
increase or the labor force becomes more knowledgeable about the relative
state of Soviet health care.
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Contents
Page
Summary
111
Scope Note
ix
The Impact of Insufficient Pharmaceutical Supply
1
Performance of the Industry
2
Production Problems
3
Problems of Technological Innovation
4
Problems in Supplying Pharmaceuticals
5
Drug Shortages?Real and Imaginary
5
Infrastructure and Personnel Problems
6
Information Deficiencies
8
Imports of Pharmaceuticals
8
Upgrading Production and Improving Supply
9
Measures To Improve Pharmaceutical Supplies
10
Getting Help From Abroad
12
Viability of the Program
13
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Scope Note
This study examines problems of pharmaceutical production and distribu-
tion, steps that have been taken to improve supplies, and prospects for
success. It addresses the role pharmaceuticals play in improving the health
of the labor force, but does not address other aspects of the Soviet health-
care system, such as the adequacy of medical facilities, services provided
by physicians and other health-care personnel, and the supply of medical
equipment and commodities other than medicines and vaccines.
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ix
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USSR: Upgrading the
Pharmaceutical Industry
The Impact of Insufficient Pharmaceutical Supply
The USSR suffers from widespread shortages of
pharmaceuticals and vaccines. According to a recent
Izvestiya article, only 80 percent of the population's
requirements for medicines are being satisfied and
only 60 percent of needs for cardiovascular prepara-
tions are met) Major deficiencies include:
? The insufficient quantity and poor quality of vac-
cines for infectious diseases.2
? Shortages of vitamin supplements, particularly vita-
mins B, C, and D.
? Insufficient drugs to treat cancer and cardiovascu-
lar diseases.
? Shortages of new antibiotics to treat infections as
bacteria become more resistant to existing
medications.
? Lack of sufficient antihypertensive medications.
? Sporadic availabilit of medications to treat chronic
diseases.
As a result, the health of the Soviet populace has been
jeopardized.'According to data of the Ministry of
Health, 3.5 million people are absent from work each
year because of claimed illness, resulting in produc-
tion losses of 12-20 billion rubles.3 Inadequate sup-
plies of pharmaceuticals and vaccines manifest them-
selves in several ways:
? The incidence of largely preventable infectious dis-
eases remains relatively high (see table 1).
some 30 to 50
such
staples of modern medical treatment as Tagamet for ulcer disease,
Sinemet for Parkinsonism, beta blockers and calcium channel
blockers for angina and hypertension, and antihistamine-deconges-
tant preparations for the relief of common cold symptons are
extremely hard to obtain.
Although vaccines are not technically classed as pharmaceuticals,
they have been included in our discussion as preparations produced
3
to prevent disease.________
A Soviet medical official claimed that annual payments
for sick leave exceed 7 billion rubles and that use of modern
treatment methods including new pharmaceuticals could reduce the
duration of illnesses and save 2-3 billion rubles over a five-year
period.
1
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percent of children in their first year of life are not
innoculated against diphtheria. The incidence of
measles in the USSR is on a par with that of Brazil.
A Western study reports that the effectiveness of
Soviet-made vaccines is very low compared with
Western products, particularly those against influ-
enza, measles, mumps, and typhoid.
? The lack of proper nutrition in the Soviet diet and
shortages of vitamin supplements have resulted in
widespread vitamin deficiences. An article in Izves-
tiya in December 1985 reported that the average
citizen is getting only 60 to 70 percent of the
vitamins needed for proper nutrition. The lack of
vitamin supplements affects most severely mothers
who are breast-feeding, infants, and other vulnera-
ble groups.
? Infant and child death rates remain high. Surgery
on newborns is more precarious than need be be-
cause of a lack of good antibiotics. Childhood
diseases are frequently fatal because of shortages of
medications and vaccines, particularly in rural areas
and small towns.
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? Hospital death rates are high. Chronic illnesses are
rarely treated successfully because of the sporadic
availability of medications; thus, recovery periods
are prolonged. Staphylococcus infections are ram-
pant in hospitals because of the lack of good
antibiotics. 25X1
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? Death rates from strokes and heart attacks are high.
Very few antihypertensive drugs are available to the
majority of the population.
? A widespread black market in prescription drugs
has evolved because of chronic shortages of medi-
cines and the low wages of pharmacy and medical
personnel (see inset).
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Table 1
Incidence of Selected Infectious Diseases
Cases per 100,000 persons
1960
1970
1980
1985
1986
Typhoid/paratyphoid
USSR
22
9
6
6
5
United States
0.45
0.17
0.22
0.16
NA
Scarlet fever
USSR
313
194
87
100
128
United States
174
211
162
NA
NA
Diphtheria
USSR
24.8
0.45
0.13
0.55
0.41
United States
0.5
0.21
0.001
0.001
NA
Whooping cough
USSR
259
16
5
19.4
6.3
United States
8
2
0.7
1.4
NA
Tetanus
USSR
1.1
0.27
0.11
0.10
0.09
United States
0.2
0.07
0.04
0.03
NA
Acute poliomyelitis
USSR
3.3
0.11
0.06
0.05
0.06
United States
1.8
0.02
0.01
0.002
NA
Measles
USSR
972
194
134
98
59
United States
244
23
6
NA
, Including streptococcal sore throat.
Source: Narodnoye khozyaystvo SSSR za 70 let and Statistical
Abstract of the United States, 1987.
Performance of the Industry
The pharmaceutical industry is a microcosm of prob-
lems pervading Soviet industry as a whole and reflects
all of the symptoms that the leadership is trying to
alleviate in its restructuring program. Output of the
industry has increased substantially since 1970, but
production still lags behind the growing requirements
of the health service, according to the former head of
the Ministry of Health's Main Pharmaceutical
Administration (GAPU), Mikhail Klyuyev. Moreover,
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overall growth rates have been falling in recent years
(see table 2).?
'The Ministry of the Medical and Microbiological Industry ac-
counts for 90 percent of domestic output of medicines and medical
equipment. GAPU controls over 80 factories that use simple
technologies to produce medicines from plants. Important raw
materials and other medically related commodities such as glucose,
menthol, and endocrine preparations are produced by enterprises of
the Ministries of Light Industry; the Chemical Industry; the
Petroleum Refining and Petrochemical Industry; the Construction
Materials Industry; the Timber, Pulp and Paper, and Wood
Processing Industry; and the State Agroindustrial Committee.
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Black-Market Activities
20 percent of the narcotics
used by drug abusers in the USSR come from
medical institutions. Drug dealers also obtain narcot-
ics from medical supplies for geological teams goinz
to remote areas and from civil defense kits.a
A September 1986 article in Kommunist Tadzhikis-
tana reported that the republic's pharmacy system is
inundated with false inventory reports, embezzle-
ment, and forgery. The author noted that at the
central pharmaceutical warehouse in Dushanbe a
shortage of 7,000 rubles' worth of drugs was covered
up by an accountant to show only a 274-ruble
shortage. These drugs undoubtedly found their way
onto the black market. In Uzbekistan, special re-
serves of drugs that are maintained for infants and
war veterans ended up in the possession of various
pharmacy managers. Inspectors who checked several
hundred prescriptions for drugs in very short supply
found that almost one-half were forged.
a Narcotics are often stolen with the cooperation of storekeepers.
According to a Soviet emigre, ampules in the civil defense kits
containing promedolum, a strong narcotic, are replaced with ones
containing water or analgin, a mild painkiller. Storekeepers are
paid 1.5 to 2 rubles per ampule; promedolum ampules can fetch 10
rubles on the black market
Some drugs are only available from relatives or
friends abroad or on the black market, where the
supply is sporadic and the price high. Patients are
often encouraged by their physicians to obtain phar-
maceuticals that are not available in the USSR from
abroad through friends and relatives. Certain drugs 25X1
used in chemotherapy can cost up to 10 times the
official price on the black market. Other medications
are available under the counter?for a price?at
pharmacies. 25X1
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According to a Soviet emigre, a black market even
exists inside hospitals. Patients often have to pay
extra for anesthetics and certain medications that are
nominally free under the Soviet health system. Diver-
sion of pharmaceuticals intended for patients in
hospitals is illustrated by a May 1987 article in
Pravda vostoka that describes a situation at the
Ilyichevsk Central Rayon Hospital in Uzbekistan
where one-half of the obstetrical and gynecologic-al
patients did not receive many of the drugs prescribed
by their physicians. Inspectors found that the head
nurse had 107 of these medicines available, but only
20 were being used routinely. Similar situations have
been uncovered at other Soviet hospitals.
Production Problems
The most important problems are shortages and errat-
ic supplies of raw materials and the low technological
levels of factories. Inadequate supplies of raw materi-
als from other ministries, particularly the Ministry of
the Chemical Industry, have hindered production.
Moreover, the Soviets have not adequately developed
small-tonnage and high-purity chemicals such as re-
agents, which are critical to pharmaceutical produc-
tion.
The pharmaceutical industry, like others producing
consumer goods, traditionally has had a low priority
for resources and has not used its investment funds
3
efficiently.' As a result, many of the industry's enter-
prises have machinery, equipment, and facilities that
are obsolete and uneconomical. Difficulties in obtain-
ing suitable replacement machinery and equipment
from other ministries result in low-quality output,
above-norm repair expenses, and high operating costs.
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Capital investment allocated for the medical industry's develop-
ment in 1981-85 was 1.3 times greater than that in the previous
five-year period, and more than 80 new plants started up. However,
only 78 percent of capital investment allocated for 1985 was used.
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Table 2
USSR: Growth of
Medical Industry Output
Average annual percent
1971-75
1976-80
1981-85'
Total
11.6
9.6
7.0
Of which:
Prepared medicines b
8.7
8.5
6.7
Antibiotics and
organic preparations
11.7
12.6
9.0
Vitamins
19.8
9.9
6.6
Synthetic medical
substances
8.0
8.1
7.1
. Calculated on the basis of planned 1985 output.
b Including processed medicinal plants.
Source: Christopher Davis, "Developments in the Health Sector of
the Soviet Economy, 1970-90," in Gorbachev's Economic Plans,
study papers of the Joint Economic Committee, Congress of the
United States, Washington, 1987.
only 35 percent of the demand
for equipment needed to manufacture medicines is
currently being satisfied. Moreover, the equipment
that is available is often of poor quality
The quality of output also is affected by poor hygienic
conditions, below-standard raw materials, and pres-
sure to fulfill ambitious production targets. According
to a former Soviet physician, doctors are often wary of
using domestically produced injectable penicillin and
streptomycin because of poor quality contro1.6
Problems of Technological Innovation
In spite of Soviet claims of substantial development of
new medicines, Soviet biomedical research and devel-
opment remains characterized by low technological
'Because of the large number of visible crystals in domestically
manufactured penicillin solutions and the poor quality of antibiotics
in general, Soviet physicians prefer higher quality antibiotics from
Poland.
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levels, poor-quality research materials, rigid hierar-
chies in scientific institutions, and isolation from
world developments. A July 1986 article in Meditsins-
kaya gazeta assessed the situation:
Great claims are made by scientific-research
and design institutes. But up to now they still
do not satisfy the demands for new economic
and effective technologies, they know poorly the
problems of production, and the quality of their
contributions lags behind international stan-
dards.
Research and development institutions themselves are
also partly to blame for sluggish technological innova-
tion. They often fail to recognize what is new, engage
in irrelevant projects, and frequently cannot produce
results after spending excessive amounts. It was noted
at the 27th CPSU Congress that the Scientific-
Research Institute for Biological Testing had not
produced a single medical preparation, after having
spent 50 million rubles during a 12-year period.
Another example, according to the head of MMMI, is
the All-Union Scientific-Research Institute of Bio-
technology, which "in all of the years of its existence,
has so far failed to come up with a single significant
development that has broad application in the indus-
try."
As with many other civilian industries, the gap be-
tween research and production presents another orga-
nizational obstacle to innovation. Of the 30 to 35
pharmaceutical products introduced each year, less
than one-third are original Soviet formulations. This
may be explained in part by the difficulties encoun-
tered in getting a Soviet pharmaceutical into produc-
tion. It takes an average of eight to 12 years in the
USSR to create a new pharmaceutical preparation,
and research institutes have no real leverage, or
incentive, to press factories to put the results of this
research into production. An article in Izvestiya in
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1985 cited the example of a sorely needed drug for the
treatment of alcoholism that was developed over a
decade ago. After impressive initial and clinical trials,
the drug was recommended for production. The Ka-
zan' Chemical Technology Institute developed and
documented a simple, inexpensive method of produc-
tion. The task of making the drug was presented to
the Ministry of the Chemical Industry, which had the
facilities for the production of trial batches, but after
several years none of the drug had been produced.
According to the head of the pharmacology faculty at
Kazan', a number of other products have had a
similar fate. Even in cases where institutes and enter-
prises have been linked and experimental factories
have been established to expedite production of lab-
oratory discoveries, the industrial enterprises fre-
quently have tasked those facilities to mass-produce
existing goods in short supply rather than to manufac-
ture new products.
Another problem is the dispersion of biomedical re-
search and development facilities throughout the So-
viet bureaucracy. Drug development involves basic
research, applied research, prototype development,
laboratory testing, animal testing, clinical trials, reg-
istration, trial production, quality control testing, and
mass production. The entire development process may
involve the Academy of Sciences, the Academy of
Medical Sciences, the Ministry of Health, MMMI,
the State Committee for Science and Technology, and
various other ministries and organizations that pro-
duce needed equipment and chemicals. Coordinating
such operations is extremely difficult; as a result, only
a small share of laboratory discoveries ends up as
medicines for the public.'
The main reason that the pharmaceutical industry has
been slow to innovate is the absence of effective
incentives. Producers face no effective domestic com-
petition, operate in a shortage environment, are pro-
tected from foreign competition, and are judged on
the basis of fulfillment of quantitative plans rather
than consumer satisfaction. As a result, managers
' Minister of Health Yevgeniy Chazov noted in a recent speech
that, of the 373 preparations approved for clinical use during 1981-
85, only 15 to 20 are widely used.
5
prefer to stick to old methods and products rather
than risk introducing new technology. A December
1985 Soviet press article commented:
The reality is that for the enterprise it is more
profitable to gradually increase its indicators
by traditional "debugged" processes than to get
involved with new technology or new prepara-
tions. Innovation demands additional invest-
ment, the acquisition of equipment, reconstruc-
tion of shops or sections, an increase in energy
expenditure and much more, which will pay off
not tomorrow but in the future. This frightens
many directors, all the more because with the
existing system of planning and rewards one can
be in the vanguard without introduction of new
processes or products.
Furthermore, pharmaceutical prices, which are set by 25X1
the state, often are not high enough to compensate
enterprises for the costs of modernizing, particularly
under the new conditions of self-financing and "full
economic accountability." 25X1
Problems in Supplying Pharmaceuticals
Despite a relative abundance of pharmacies and phar-
macists, the system cannot provide an adequate sup-
ply of medicines to the population (see inset "The
Soviet Pharmacy System"). It experiences chronic
difficulties in obtaining sufficient goods from both the
domestic medical industry and foreign trade organiza-
tions. Planning errors and poor organization exacer-
bate the situation.
Drug Shortages?Real and Imaginary. Nationwide,
new medications are unavailable from pharmacies or
are in such short supply as to make them ineffective in
treating chronic illness. Under conditions of limited
supply, it is extremely important to get the right
medicines to patients promptly. Drugs suffer from the
same bottlenecks in distribution as other industrial
products, but, in addition, GAPU's errors in estimat-
ing drug needs cause both shortages and large stocks
of medicines whose expiration dates pass, rendering
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The Soviet Pharmacy System
The Ministry of Health controls most pharmacies
through GAPU, which operates on a self-financing
basis designed to provide profits from sales. Several
other ministries are also involved in providing phar-
maceuticals. The Ministry of Railways, for example,
manages its own system of over 1,000 pharmacies.
The Ministry of Defense also maintains an indepen-
dent pharmaceutical system.
From 1971-85 the number of pharmacies increased
by nearly 30 percent, to 29,516. During the same
period the number of pharmacists increased by 62
percent, to 271,300, compared with 172,000 in the
United States in 1985. According to a Western study,
sales of medicines by the pharmacy network grew 150
percent between 1970 and 1985 to reach nearly 3.5
billion rubles.
Sales to medical facilites such as hospitals and
clinics are at wholesale prices, by written order only,
and are financed by the state. Medicines adminis-
tered to patients on the premises are provided free of
charge. Soviet consumers can also buy pharmaceuti-
cal products directly from pharmacies. Medicines are
given free to infants under one year of age, war
invalids, and those suffering from specific illnesses.
In the USSR, retail prices are relatively low, but the
patient very often is unable to obtain necessary
prescription and nonprescription drugs. In the United
States, in contrast, the pharmaceutical system is
relatively expensive at the point of purchase but
efficient in supplying US patients and hospitals with
precisely what is prescribed when it is needed.
them useless. As an example of inefficiency, GAPU
has also been criticized for importing medicines that
are no more effective than domestic drugs.
Widespread shortages of pharmaceuticals stem from
a variety of causes other than production problems.
These include lack of funds to maintain adequate
Secret
Inventories, poor stock control, regional supply imbal-
ances, improper use, and hoarding (see inset "Drug
Shortages: Guaranteeing Inadequate Health Care").
Pharmacies with adequate stock on their shelves, for
example, may not have the funds to buy replacements
until their existing stock is sold. Patients often cannot
obtain medicines that are in the pharmacy warehouse
and sometimes in the pharmacy itself because of
negligent pharmacy workers. Even in hospitals, pa-
tients frequently do not receive the full course of drug
treatment. As a result, a patient's family often has to
purchase drugs on its own because of inadequate
supplies in hospital pharmacies.
Many of the most effective drugs are available only to
VIPs.' In addition, private hoarding, encouraged by
temporary availability and the low prices of certain
domestically produced drugs, is widespread. Consum-
ers as well as pharmacies needlessly stockpile medi-
cines to insure against future shortages. Exacerbating
these supply problems is the frequent use of unneces-
sary or nonprescribed drugs for illnesses that should
be treated with other drugs or with nondrug therapy.
Infrastructure and Personnel Problems. Although
seemingly adequate on a national basis, the network
of pharmacies is still insufficient in Armenia, Azer-
baijan, Tajikistan, Kirgizia, Kazakhstan, Turkmenia,
the Moldavian SSR, and in a number of oblasts and
rayons of the RSFSR. According to a September
1986 article in Kommunist Tadzhikistana, for exam-
ple, the national ratio of pharmacies to population is
nearly twice that of Tajikistan. Pharmacy personnel
also are unevenly distributed. For example, the num-
ber of pharmacists and pharmaceutical technicians
per capita in many oblasts in Central Asia and
Kazakhstan is only 50 to 75 percent of the national
certain Western pharma-
ceuticals such as lekoverin and prednisone are available in the
USSR only for inpatient treatment of VIPs. These drugs were
never fotind in pharmacies, and physicians were not allowed to
prescribe them. The Ministry of Internal Affairs and the KGB
reportedly routinely stockpile Western pharmaceuticals at the
expense of ordinary Soviet citizens.
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Drug Shortages: Guaranteeing Inadequate
Health Care
Stories abound about Soviet hospitals and clinics
unable to supply a full course of drug treatment,
dentists working without adequate supplies of anes-
thetics, and chronically sick people living month to
month, never sure whether their prescriptions can be
refilled. The following examples are typical of the
widespread problems in pharmaceutical supply:
a
pamphlet issued by the Pharmaceutical Adminis-
tration of Novosibirsk. Of 216 primary medications
listed for specific illnesses, only 23 were actually
available to practicing physicians. Moreover,
secondary and tertiary
alternatives on the list were considerably different
in pharmacological properties from their counter-
parts. Furthermore, only one-half of the 216 drugs
were even produced domestically.
? A 1986 article in Sovetskaya Rossiya reported that
at the central pharmacy in Khabarovsk?which has
a reputation for being well supplied?it was impos-
sible to obtain several ordinary drugs such as
analgin or nitroglycerin. In Kalinin Oblast planned
supplies of insulin covered only one-half of the
known cases of diabetes in the region.
? An article in Pravda vostoka in May 1987 com-
plained that burn patients in Samarkand Oblast
Hospital were not treated with 14 needed drugs that
were available in the hospital pharmacy. Although
the pharmacy at Khavast Central Rayon Hospital 25X1
was supplied with a dozen effective antihypertensive
agents, only Epsom salts, which is ineffective, was
routinely prescribed. 25X1
? According to a Soviet emigre, at City Hospital No.
51 in Moscow, only the very basic medicines were
routinely available. Antibiotics, narcotics, and ef-
fective analgesics were always in short supply. A
Soviet acquaintance of a US Embassy official
recently told him that, after an appendectomy in a
Soviet hospital, her daughter's incision had to be
reopened three times because of infection. This was
done without anesthesia?a frequent occurrence?
because the hospital rewarded doctors and nurses
for saving antibiotics and painkillers. In most hos-
pitals, abortions often are performed without effec-
tive anesthesia.
average. The shortage of these specialists lowers the
quality of drug services and impedes improved drug
supply to the public.
In spite of a 60-percent increase in the area of
pharmaceutical warehouses in 1976-84, storage facili-
ties are still inadequate throughout the country, con-
tributing to pharmaceutical shortages and distribution
problems. For example, in Tajikistan only 40 percent
of the republic's pharmacies have warehouses, and
many do not have adequate refrigeration. The lack of
refrigeration in some warehouses, where temperatures
reach 40? C (104? F) or more in summer, results in
deterioriation of pharmaceutical products.
7
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The complexity of modern diagnostic and treatment
methods demands better training of pharmaceutical
specialists. University pharmaceutical science pro- 25X1
grams were criticized in a report at the June 1985
plenary meeting of the CPSU as being generally
obsolete. The report claimed that graduates of phar-
maceutical schools are not familiar with the most
recently developed medications that are available.
To increase the number of trained pharmacists,
pharmacy departments have been opened at medical
institutes in Kirgizia, Tajikistan, Turkmenia, and in a
number of cities in the RSFSR. 25X1
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Low average wages and the lack of adequate wage
differentials for pharmacy personnel have had an
adverse effect on the quality and quantity of labor
supply and on work performance.' To improve the
efficiency of pharmaceutical workers, the former head
of GAPU suggested in mid-1986 that they be given
material incentives commensurate with their personal
contribution.'? He also recommended that the coun-
try's pharmacies incorporate the brigade form of
labor, which is designed to improve labor productivity
by group pressure and allocation of wages according
to each worker's contribution.
Information Deficiencies. Improvement of drug sup-
plies also depends on an effective system of pharma-
ceutical information. The lack of a mechanism for
systematically providing information about drugs to
physicians and the public has led to a situation where
some patients do not receive available medications.
Current therapeutic practice does not take full advan-
tage of all the drugs available in the pharmacy
network, and the absence of advertising means that
Soviet doctors are often unaware of what medicines
are available. Sometimes doctors prescribe drugs that
have long since been withdrawn from the market,
while newer drugs go unused.
Imports of Pharmaceuticals
The Soviets have not traditionally relied on foreign
pharmaceutical technology and products from areas
other than Eastern Europe, because of a reluctance to
become dependent on the West and the low priority of
the public health sector for hard currency expendi-
tures. Since 1980, however, annual imports of phar-
maceuticals have more than doubled, suggesting an
increase in the priority of these commodities. In 1986
'Pharmacists normally are paid 110 to 140 rubles ?er month. The
average wage of Soviet workers is 196 rubles.
In October 1986 the Soviets adopted a decree "On Raising the
Wage Payments of Public Health and Social Security Employees,"
which included a provision to raise the salaries of pharmaceutical
chemists and other pharmaceutical personnel. The new wage
payment conditions are to be introduced in stages in 1986-91. In a
recent television interview, economic adviser Abel Aganbegyan
noted that "health service workers" have received a 30-percent pay
increase. We do not know whether this applies to pharmaceutical
workers.
Secret
the Soviets imported 1.2 billion rubles' worth of
pharmaceuticals, 93 percent from East European
countries (see table 3). India supplied nearly 4 percent,
while imports from hard currency countries amounted
to only 1.4 percent."
The USSR obtains pharmaceuticals from CEMA
countries primarily through bilateral exchanges of
products. As a general rule, the USSR specializes in
the production of bulk pharmaceuticals, while East
European countries produce small-tonnage, higher
quality products. Poland, the major exporter of medi-
cines to the USSR in 1986, supplied 33 percent of
total Soviet pharmaceutical imports. Hungary?
which produces several drugs equivalent to those
made in the West?ranked second as a source of
imported pharmaceuticals, providing 22 percent. The
Soviets also obtain Western drugs from Yugoslavia,
which has licensing agreements with Western coun-
tries.
The Soviets generally purchase from the West only
sophisticated medicines not available domestically or
from CEMA countries. These are usually bought in
relatively small quantities for use in special medical
facilities or for laboratory analysis and clinical trials
in domestic drug programs. Imports include vitamins,
hormones, antibiotics, insulin, and anticancer drugs.
Finland supplied nearly 2 percent of imported phar-
maceuticals in 1986, while France was the leading
hard currency exporter. Austria, Switzerland and
West Germany supplied smaller quantities.'2
"Soviet imports of Western pharmaceutical technology and equip-
ment have been minimal. The Soviets have purchased three facili-
ties for the manufacture of penicillin- and cephalosporin-based
antibiotics from Italian and Swiss firms in recent years, but
equipment purchases have generally involved packaging and tablet-
and capsule-manufacturing lines, rather than technology for drug
production.
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Table 3
USSR: Foreign Trade in Pharmaceuticals
Million rubles
Imports
Exports
1970
1980
1986
1970
1980
1986
Total
166.2
542.7
1,232.0
31.8
81.4
102.6
Communist countries
156.3
489.5
1,148.6
25.0
65.4
87.2
Eastern Europe a
156.3
489.5
1,139.5
18.3
51.9
64.4
Other
0
0
9.1
6.7
13.5
22.8
Non-Communist countries
9.9
53.2
83.4
6.8
16.0
15.4
Hard currency
6.5
33.0
17.4
5.7
14.7
14.7
Soft currency
3.4
20.2
66.0
1.1
1.3
0.7
Of which:
Finland
19.7
0
0
0.2
India
3.4
20.2
46.3
0.4
0.8
0.3
a Eastern Europe includes Bulgaria, Czechoslovakia, East
Germany, Hungary, Poland, Romania, and Yugoslavia.
Source: Vneshnyaya torgovla SSSR, various years.
The Soviets are using science and technology agree-
ments as another means to obtain Western pharma-
ceutical technology. Although there is often a cooper-
ative element to these agreements and a two-way flow
of information, they are part of a planned Soviet
technology acquisition effort, and generally the heavi-
est flow of information is from the West to the USSR.
In 1985 the Soviets concluded such an agreement
with a US pharmaceutical company for the develop-
ment and possible licensing of anticancer, anti-infec-
tious, and cardiovascular drugs."
Moscow also has several cooperative agreements with
other countries. For example, a 1987 joint research
agreement with the Italian firm Pressindustria is
designed to develop new antibiotics,
Another Soviet-
Italian cooperation agreement signed in 1986 provides
for joint research in developing new drugs and for
exchanges of information and technical personnel. In
' This agreement is a renewal of one that expired in the 1970s
under which two Soviet anticancer drugs were evaluated for
possible licensing in the United States. Clinical trials, however,
failed to duplicate Soviet results, and the drugs were never
marketed.
9
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mid-1987 the USSR and India signed a long-term
agreement that includes joint research, development,
and production of vaccines for hepatitis and polio and
development of immunodiagnostics and antibiotics.
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Upgrading Production and Improving Supply
There is nothing more valuable to each person
and to society as a whole than good 25X1
health. . . . It is essential to satisfy as quickly as
possible the public's need for high-quality ther-
apeutic-preventative and medicinal assistance
in all parts of our country. Considerable funds
will, of course, be required, and we shall have to 25X1
find them.
General Secretary Gorbachev
At the 27th CPSU Congress,
February 1986
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Measures To Improve Pharmaceutical Supplies
The Soviet leadership has taken a number of steps to
improve the technological base of the industry and
increase supplies of pharmaceuticals.' Policies adopt-
ed under Gorbachev include those designed to restruc-
ture management, improve the quality of products,
encourage technological progress, streamline foreign
trade, and foster cooperation among CEMA
countries:'s
? Gorbachev's openness campaign has resulted in a
substantial increase in the publication of articles
critical of all aspects of the health system including
the supply of pharmaceuticals.'6
? In November 1985 the Ministry of the Medical and
Microbiological Industry was created by amalgam-
ating the Ministry of the Medical Industry and the
Main Administration of the Microbiological Indus-
try (see figure). The merger of the medical ministry
, with the more technologically advanced microbio-
logical industry was designed to facilitate the devel-
opment of more advanced medicines.
? The appointment of Valeriy Bykov in December
1985 to head up the new MMMI highlighted a
series of management shifts (see inset).'7
? A Scientific-Technical Council within the MMMI
has been created to develop a unified technology
policy in the industry. The council will also play a
major role in managing contacts with Western
companies for licensing deals, sales of technology,
joint ventures, and other forms of cooperation.
According to estimates of the Ministry of Health, demand for the
most important categories of pharmaceuticals will double by 1990,
and by 1995 it will be two and one-half times that of 1985.
The state acceptance system, established in January 1987 to
upgrade industrial product quality through the use of independent
inspectors, may be in force at some pharmaceutical plants, but we
cannot confirm this.
'6 An article in Meditsins aya gazeta in December 1986, for
example, was openly critical of problems in the MMMI, such as
severe shortages of raw materials and high-quality machinery
"Several deputy ministers were removed in the ministerial reorga-
nization. By early 1987, the head of the Main Administration for
the Introduction of New Drugs and Medical Equipment, the chief
of the Planning-Finance Administration of the Ministry of Health,
and the health minister himself had been fired. The head of GAPU
was retired in disgrace for the poor performance of the pharmacy
system.
Secret
Valeriy Alekseyevich Bykov
Minister of the Medical and
Microbiological Industry
An experienced microbiologist, Bykov began his in-
dustrial career at the Kirishi Biochemical Plant in
Leningrad Oblast in the 1960s. He participated in the
plant's planning and construction and also served as
its director during 1971-76. In 1976 he became first
secretary of the Kirishi city party committee, and in
1979 he moved to Moscow as head of the microbiolo-
gy section of the Central Committee's Chemical
Industry Department. In July 1985, five months
before assuming his current post, he became chief of
the General Bureau of the Microbiological Industry.
In 1987, his close association with the Kirishi plant?
which had by then been identified as a source of toxic
pollutants?made him the target of protests during
which the local populace labeled any illness resulting
from the toxic leakage as "Bykov 'S disease." Bykov
holds a candidate of technical sciences degree. He is
49.
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Structure of the Medical and Microbiological Industry
Valeriy Bykov, Minister
Collegium of the Ministry
First Deputy Ministers
A. G. Sorokin Lev Telegin
Deputy Ministers
Nikolay Danilin
Yu. T. Kalinin V. Ye. Matveyev
Yuriy Shevyakov
M. M. Sobolev V. F. Romanenko
Administrations
Cadres and educational institutions
Equipping and outfitting
Sales of medical products
Production
Chief mechanic and chief power engineers
Design and capital construction
Material and technical supply
Finance
Accounting, bookkeeping, and financial control
Foreign relations
Labor organization, wages, and worker cadres
Technical
Economic planning
Economic
Production Associations
Medical glass and plastics
Supply of medical and microbiological output abroad
Medicinal plants procurement and processing
Medical industry products export
Antibiotics, blood substitutes, and organic preparations
Microbiological substances
Synthetic medical substances
Medical technology
Prepared medical substances manufacturing
? Vitamin manufacturing
Medical technical devices manufacturing
Medical instrument building
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? Many institutes of the MMMI have been incorpo-
rated into scientific-production associations in the
hope of shortening the time required for the intro-
duction of newly discovered medicines.
? Investment for modernizing existing pharmaceutical
plants and constructing new facilities?particularly
those for producing biotechnological products?in
1986-90 is three times that of the previous five-year
plan.
? A campaign to tighten labor discipline to boost
productivity and reduce absenteeism has been cou-
pled with an anticorruption campaign against medi-
cal and pharmacy personnel who engage in black-
market activities.
? The general foreign trade reform of January 1987
allowed MMMI to conduct trade directly with
foreign firms. Medeksport, the organization respon-
sible for trade in pharmaceuticals, was subsequently
transferred to MMMI."
? Moscow is pushing for greater scientific and techni-
cal cooperation with CEMA countries, particularly
in expanding output of interferon, insulin, and
growth hormones and in developing materials for
research in genetic engineering.
In August 1987 a resolution on priority measures to
improve public health services in 1988-90 was adopt-
ed by the Council of Ministers. It called for increased
spending on food, medicines, and bandages for hospi-
tals, and expanded eligibility for free and reduced-fee
medicines. The Ministry of Finance was instructed to
spend an additional 5.4 billion rubles to implement
the resolution's goals. In November the CPSU
Central Committee and the Council of Ministers
"This change is designed to provide the ministry with the adminis-
trative expertise necessary to conduct foreign transactions. The new
arrangement allows the ministry to retain a large share of any hard
currency its enterprises earn. These funds can be used to finance
imports of technology and products: MMMI also has increased
rights to engage in scientific-technical cooperation and establish
joint ventures with Western firms.
Secret
announced a major new program for restructuring the
health-care system during 1988-2000. Provisions that
are likely to affect the supply of pharmaceuticals
include:
? Increasing the output of "modern medications" to
completely satisfy needs with Soviet-made products
by 1993.
? Raising the quality of pharmaceutical products to
world standards.
? Doubling the volume of sales of medicines and
medical articles by 1995.
? Reducing production of ineffective drugs, using the
resources released to produce new medicines.
? Ensuring an equitable distribution of medicines to
various regions of the country.
? Expanding the network of pharmacies by 2,000 and
providing the necessary material resources.
? Increasing the money institutions can spend on
medications by 80 to 120 percent for hospitals and
100 to 200 percent for polyclinics.
Getting Help From Abroad
The USSR could alleviate domestic shortages of
medicines by increasing imports. Moscow is pressing
for increased supplies of pharmaceuticals from East-
ern Europe. For example, according to the Soviet
press, Soviet-Yugoslav pharmaceutical trade is sched-
uled to double in 1986-90, and the two countries also
will exchange technology for the production of new
medical preparations.
Moscow is also interested in joint ventures with
Western firms in the pharmaceutical area.l
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Moscow is also looking to the West for help in
boosting its capabilities in biotechnology, one of five
key technologies that Gorbachev has targeted for
improvement.'9 Advances in biotechnology will not do
much to alleviate the problems in supplying pharma-
ceuticals. In fact, Moscow's interest in biotechnology
may lie more in its agricultural and military applica-
tions than in its medical ones (see inset).
The Soviets are seriously committed to boosting their
biotechnology capabilities?including the allocation
of scarce hard currency?and recently hosted an
international exhibition of microbiological technology
and equipment. In 1987 an Austrian-led consortium
won a $60 million contract to build research and
production facilities at the Shemyakin Biotechnology
Institute in Moscow. Laboratories and pilot plants
will produce animal and plant growth regulators,
peptides, chemical reagents, pure solvents, mono-
clonal antibodies, proteins, and polymers. Many of
these products have valuable diagnostic and therapeu-
tic applications.20 Last year an Italian firm won a
$23.5 million contract to construct a biotechnology
research and production facility at Ufa.
Other biotechnology projects un-
der negotiation involve complexes at Taroussa and
another one at Ufa. All of these new facilities will be
able to produce a number of products used in the
medical, pharmaceutical, agricultural, veterinary, and
energy sectors of the economy, as well as provide the
Soviets with the potential capability to produce bio-
logical warfare agents.
'9 The others are nuclear energy, advanced materials, microelec-
tronics and computers, and machine automation.
" Monoclonal antibodies can provide better diagnostic agents for
human immunodeficiency virus?which causes AIDS?and more
effective therapeutic products, particularly anticancer agents. Pro-
teins could include such important products as human growth
hormone, insulin, interferon, and hepatitis-B vaccine.
13
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Viability of the Program
The steps that the Soviet leadership has taken proba-
bly will provide some improvement in the production
and distribution of medicines. But shortages of many
types of medicines will still occur, especially in rural
areas where, despite plans to increase availability,
progress will be slow.
Moscow needs to reduce obstacles that will prevent
effective implementation of some of these measures.
Foot-dragging and resistance, for example, have char-
acterized ministerial reaction to the decentralization
of some production decisions. Moreover, enterprises
cannot effectively influence the quality of their output
unless they are able to choose their own suppliers. The
gradual introduction of a new wholesale trade system
this year may help, but, since most pharmaceutical
products are likely to fall under the classification of
state orders, plant managers may still be faced with
the same unreliable suppliers.2'
The substantial increase planned for investment in the
MMMI certainly indicates an intent to improve phar-
maceutical supplies, but followthrough will prove
difficult given the demands on investment resources
elsewhere in the economy. Meeting the industry's
needs for new equipment, better materials, and prop-
erly trained workers from domestic resources alone
will be particularly difficult. The machine-building
ministries, for example, consider the drug industry's
orders for equipment unprofitable?the equipment
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2' A major new decree, adopted in July 1987, on restructuring the
USSR's material and technical supply system is designed to
eliminate shortages of material resources in the economy by
loosening central control over resource allocation and switching to a
system of wholesale trade. The decree proposed a four-to-five-year
period for the complete changeover. State orders will continue to
account for defense-related materials and certain national re-
sources, such as oil, gas, and metals, while a combination of state
orders and wholesale trade will apply to enterprises producing other
goods. Ultimately, certain sectors, such as consumer goods, are
scheduled to change completely to wholesale trade
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Applications of Biotechnology
New biotechnical methods, such as genetic engineer-
ing, make it possible to lower the cost of many drugs
and accelerate development of new compounds. In the
United States, commercial applications of biotechnol-
ogy have already resulted in new pharmaceuticals,
including products to minimize the effects of heart
attacks and to screen blood for antibodies to human
immunodeficiency virus. Interferon and interleukins
have been successful in treating some cancers, and
DNA is used in genetic testing and "fingerprinting."
With the express purpose "to introduce the achieve-
ments of genetic and cellular engineering," the Sovi-
ets established Biogen, an interbranch scientific and
technological complex (MNTK), in December 1985.a
Biogen has been tasked with manufacturing the
"newest and latest generations of compounds for
medicine and agriculture based on biotechnological
methods." During 1986-90 about 250 kinds of new
products are scheduled to be developed on the basis
of biotechnology. The Soviets recently started an
enterprise for the production of biotechnological prep-
arations that they claim to be the first of its kind in
Europe. The plant will use flexible manufacturing
technology for preparing experimental test batches of
drugs. The first biosynthesized products will be da-
largin (used to treat ulcers), urokinaza (which dis-
solves blood clots), and analgesic compounds.
a MNTKs are complexes of research institutes and industrial
organizations that operate across ministerial lines. Each MNTK
has an academic or industrial institute as its nucleus and is
designed to coordinate all of the work in its field throughout the
USSR. Resources are supplied by the State Committee for Materi-
al and Technical Supply. When new technologies are approved, the
State Planning Committee selects the enterprises to use the
technology. Planners believe that this method of organizing inter-
sectoral development is simpler than organizational restructuring.
Using biotechnology techniques, it is possible both to
modify existing chemical and biological warfare
agents and to create new ones. Many of the fermenta-
tion processes and much of the equipment required to
create pharmaceuticals for commerical use are the
same as those required for the production of toxins
and other chemical/biological warfare agents. Genetic
engineering, for example, can be used to:
? Selectively modify existing infectious organisms to
provide greater infectivity and greater resistance to
environmental degradation.
? Change the molecular composition of toxins and
produce toxins derived from other organisms, such
as bacteria, fungi, and plants.
? Produce bioregulators, compounds normally pre-
sent in the human body only in minute quantities. LI
introduced in higher-than-normal concentrations or
if genetic or chemical manipulation has been used
to alter their structure or activity, they can produce
a wide range of deleterious effects.
Biotechnology-derived agents would have many ad-
vantages over traditional biological warfare agents.
Detection and identification would be more difficult
because the variety of potential agents is essentially
unlimited, and they would have a much wider range
of effects. The effects caused by these potential agents
could range from emotional and behavioral changes
to physical effects such as extreme pain, rapid induc-
tion of sleep, hemorrhage, and death. Properties
could conceivably be tailored to specific field require-
ments for stability, persistence, and rapidity of effect.
Secret
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a few pieces are needed. Furthermore, other sectors of
the economy?such as energy?command higher pri-
ority for supplies of machinery. The tightening of
labor discipline will provide some short-term gains but
little sustained benefit. Stiffer sentences for theft and
black-market activities should curtail some corrup-
tion, but there will always be those willing to take
risks to supplement their low wages.
Accelerated development of the pharmaceutical in-
dustry requires a corresponding development of its
raw material base. But many of the problems in
securing supplies from other ministries remain un-
solved. The Ministry of the Chemical Industry and
the Ministry of the Petroleum Refining and Petro-
chemical Industry, for example, have long delayed
expansion of production, and they have few plans to
produce certain raw materials such as small-tonnage
and high-purity chemicals that are critically needed
for the production of several medications. Moreover,
shortfalls in the delivery of raw materials from the
chemical industry will continue, because chemical
plants, having their own ministerial hierarchy, feel
that orders for the MMMI have less priority.
As a result of the industry's failure to obtain sufficient
resources, the system is likely to feel increased pres-
sure for expansion of pharmaceutical imports. Most of
any increase in imports will come from East European
countries, but these countries cannot offer the scale of
support needed. Imports of pharmaceuticals from the
West are likely to increase somewhat, and there
should be some opportunity for Western sales of
production licenses and plants, particularly in the area
of biotechnology. Hard currency constraints and a
conservative approach to borrowing, however, proba-
bly will limit purchases to those of highest priority. At
the same time, we can look for growing Soviet interest
in establishing additional scientific-technological
Reverse Blank
15
cooperation agreements with Western pharmaceutical
firms. Through cooperation agreements the Soviets
may be able to gain better access to research pro-
grams, chemical and microbiological products, and
more advanced production technology.
25X1
The quality and sophistication of pharmaceutical
products should improve with the increased role of 25X1
microbiology enterprises, and anticipated changes in
the research and development system should help
accelerate the pace of technological progress in the
biomedical area. Because of its high profile as a
leading-edge technology, biotechnology may receive
undue attention while the real problems in supplying
the Soviet consumer with necessary medications?
such as new antibiotics, vitamins, and anticancer and
cardiovascular drugs?get short shrift. 25X1
Unless the problem of inadequate pharmaceutical
supplies becomes a more significant concern to the
populace, leadership attention will remain focused on
sectors that either are critical to industrial moderniza-
tion or weigh heavily in consumers' perception of their
well-being such as housing and food. Even increased
funding and administrative efforts to improve phar-
maceutical supply and distribution run the risk of
bogging down in the morass of indifference, ineffi-
ciency, and lack of quality that has so enmeshed other
sectors of the economy not blessed with priority
attention of the leadership.
Failure to supply adequate pharmaceuticals will leave
Soviet health care more on a par with that in the
Third World than that in the developed West. At
present, the Soviet populace seems inured to this
situation, but morale could be seriously affected if
health problems increase and the labor force becomes
more knowled eable about the relative state of Soviet
health care.
Secret
Declassified in Part- Sanitized Copy Approved for Release 2013/03/18: CIA-RDP89T01451R000300310001-8
25X1
25X1
25X1
Declassified in Part- Sanitized Copy Approved for Release 2013/03/18: CIA-RDP89T01451R000300310001-8
aeCiel
Secret
Declassified in Part- Sanitized Copy Approved for Release 2013/03/18: CIA-RDP89T01451R000300310001-8