Business ethics and morality

Quote: "Long-term operation of an enterprise is impossible without a social component, believes Alexey Egorov, General Director of JSC 'AVVA RUS'."

Any business should be built on the principles of ethics and morality, and the long-term operation of an enterprise is impossible without a social component. This is the conviction of Alexey Egorov, General Director of JSC "AVVA RUS". He spoke to "BN" about the current work and prospects of the Kirov-based company, interaction with officials, and his attitude towards charity.

– Alexey Glebovich, JSC "AVVA RUS" has been operating in the Kirov market since 1996, specializing in the production of medicines. Tell us about the main products presented on the market.

– We have indeed been on the market for over 20 years. We started from scratch as a private company. Today, it's rare to find a company that was created out of thin air, solely thanks to the initiative of young and active entrepreneurs. There was and is no state money involved in the establishment of our business, no participation in privatization, bankruptcy of other companies, or anything like that in the company's history. For example, look at the photographs of the buildings we bought from the former "Biokhimzavod" and how these production buildings of JSC "AVVA RUS" look today. I am sure this is a clear illustration of proper business conduct, where the owner invests in the enterprise and develops it, rather than living for today and stripping it for parts. In 2017, we planned to allocate over 220 million rubles for the modernization of our production. Requirements for the quality system and the organization of production processes for pharmaceutical manufacturers have increased significantly recently; we need to keep up and even stay ahead of regulatory requirements, implement modern Good Manufacturing Practices in production, otherwise it's not worth being in the pharmaceutical business, it won't work. Today, our line of medicines consists of 45 items. These are drugs for pediatrics, gastroenterology, cardiology, neurology, allergology, dermatology, and for the treatment of infectious diseases (for example, tuberculosis), medicinal products from enzyme raw materials (pancreatins). There are drugs included in the standard of treatment for cholelithiasis, diseases of the gastrointestinal tract. By order dated June 26, 2015 N 1706 "On Amendments to the List of Organizations Having a Significant Impact on Industries and Trade," approved by order of the Ministry of Industry and Trade of Russia dated April 13, 2017, No. 798, JSC "AVVA RUS" was included in the list of organizations having a significant impact on industries and trade.

– As far as I know, you also work a lot on finding innovative solutions in pharmaceuticals?

– The creation and development of original drugs with a unique safety profile for patients is indeed one of the promising areas of our work. Today we have two such products. The first is the dual-action drug "Lactofiltrum"®, which stimulates the growth of beneficial intestinal microflora and also binds and removes allergens, toxins, and pathogenic bacteria from the body. Another original drug is the laxative also of dual action "Dinolak"® (emulsion of lactulose and simethicone), which has the laxative effect of lactulose and reduces gas formation in the intestines – this is the action of simethicone. Currently, "Dinolak"® is produced in Denmark according to our development; the start of production in Russia is planned for 2018.

In addition, we conduct many clinical and preclinical studies aimed at researching the minimization of the impact of drugs on the human microbiome. Such studies are very capital-intensive and complex. For example, in research we use sequencing methods that allow us to determine the species and genus composition of bacteria in the body of a particular person at the genome level before and after taking medications. (There are contraindications, it is necessary to consult a specialist).

– What is your supply geography? Do you plan to expand points of presence outside the country or intend to focus on working under the import substitution program and work for the domestic market?

– First of all, we are focused on Russia. This is our main strategic direction. JSC "AVVA RUS" has been a participant in the state program "Pharma-2020", supervised by the Ministry of Industry and Trade of the Russian Federation, for several years. The company has implemented five state contracts for the development and organization of production of medicines included in the list of Vital and Essential Drugs (VED). In addition to the Russian Federation, we supply our products to countries close to us – Kazakhstan, Georgia, Azerbaijan, Moldova, Kyrgyzstan, Uzbekistan. We are currently working with the regulatory authorities of a number of European countries to organize supplies to Europe. We are already supplying the drug "Lactofiltrum" to Romania. The requirements and standards of government agencies regarding the circulation of medicines in European countries are very serious, with high and stringent requirements for product quality, the operation of the quality system at the enterprise, and the production site, but this is one of our tasks for 2017-2018. In the near future, state inspectors from the Republic of Cyprus will come to Kirov to audit our quality system and production for compliance with GMP requirements (Good Manufacturing Practice – an international system of production standards in the pharmaceutical and other industries). I am confident we will pass the inspection successfully.

– In that case, are you planning to increase production capacity?

– We are planning to. Pharmaceutical enterprises operating in the Russian Federation can be divided into two groups. The first were created from scratch, initially designed and built as pharmaceutical productions. The second were formed on the basis of already existing buildings and structures, as in our case. When planning, designing, and creating production, we were forced to "fit" into the geometry of existing buildings, which imposed a number of limitations and inconveniences.

Today we understand that we have outgrown the existing production, and the question of reorganization and modernization of capacities has arisen. This year, the reconstruction of the existing production building is planned. I emphasize: this is not the construction of a new one, it is the reconstruction and modernization of existing production.

– Does this imply the creation of new jobs? Do you have a problem with staff shortages?

– Today, 403 employees work for the company in Kirov. Another 65 employees work in the office in Moscow. After the reconstruction, we plan to open an additional 25-30 new jobs in Kirov. As for the "staff shortage"... It exists today, I won't hide it. The fact is that pharmaceuticals is developing quite effectively: in Kirov alone, another five or six companies work in this direction. Some of them view us as donors for solving their personnel issues and periodically poach our specialists. We solve the personnel problem through cooperation with universities. We are currently "educating" three technologists from Vyatka State University. I think they will stay to work with us: the salary at the enterprise is decent, we provide all social guarantees, and there is a system of financial incentives that motivates employees to work for results, not just for the process.

– As far as I know, you do a lot of charitable work...

– The issue of charity is very important to me personally. JSC "AVVA RUS" indeed cooperates with various charitable foundations and also provides direct assistance and support to specific institutions. In 2016, products worth 1,333,273 rubles were shipped to medical institutions in the Kirov region alone. For example, medicines were supplied to the Kirov Regional Clinical Hospital, the Kirov Children's Home, the Kirov Regional War Veterans Hospital, the Kirov Regional Oncology Center, the Kirov Tuberculosis Dispensary, and the Kirov Regional Children's Clinical Hospital. Across Russia, on the terms of targeted charity, we supply our drugs to about 40 medical institutions. Although there is one "but": a logistics problem arises. We do not have the ability to deliver drugs to medical institutions, even if they request them; it is difficult for us. We are now solving this issue with the Ministry of Health of the Kirov Region. I think we will find a solution, and in 2017 we will continue supplies to medical institutions in Kirov and the region under charity agreements.

Another point I want to particularly emphasize. Last year we started working closely with children's institutions in the Kirov region. In December 2016, we visited and congratulated the children and staff of the Kirov Children's Home, the boarding school (village of Fileyka), and boarding school No. 1 for students with disabilities in Kirov. We congratulated them on the New Year, brought not only sweet gifts but also Apple tablets and a projector necessary for education and development programs. We also don't forget our own – schools located in the Oktyabrsky district of Kirov. In January, we gave laptops and projectors to school No. 4, school No. 54, and kindergarten No. 58.

Before the trip, we prepared press releases inviting media and bloggers to visit these children's institutions. The press release specifically mentioned that writing about us was not necessary at all, we simply invited them to go and make a report, a report about the children, the staff, about the school... An amazing thing: not a single editorial office (blogger) showed interest, no one went, it's not relevant. I don't think good deeds should only be covered for money. The lack of publications on the topic of charity in the Kirov region leads to people becoming callous. I myself am a graduate of a Leningrad boarding school for children from socially disadvantaged families, and the topic is very close to me personally.

"I ask you, don't be stingy," – the President's words from the address to the Federal Assembly. "A special sign of our time is the broad involvement of citizens in charitable actions..." Without the support of the press, without the support of active citizens/bloggers, this goal is difficult to achieve. Not everything is measured by the clink of coin. Who knows, if the media had not covered the charity of the Morozovs, Golitsyn, Mamontov, Tretyakov... Would we know these names today? Would we have an idea that thanks to them, significant positive changes occurred in Russia in many spheres of society, such as education, medicine, culture?..

I perfectly understand that here we need to act subtly; coverage of such events should not turn into PR for individual companies or personalities, as sometimes happens. But on the other hand, I am convinced that residents should know about such events and about the people who participate and organize charitable events. Journalists are competent people, I am sure they can find a balance in this matter.

– In a recent interview, acting Deputy Chairman of the Government Maxim Kochetkov said that negotiations are underway to re-register your company in the Kirov region. Are you really ready to take such a step?

– Indeed, one of the main issues for the acting governor and the government, which requires a competent solution, is to find growth points for forming the revenue part of the regional budget.

We talked about this back in November of last year, during the visit of acting governor Igor Vladimirovich Vasilyev to our production facility in Kirov. I promised to consider the possibility of re-registration, but it is still legally difficult to implement this transition. Today, pharmaceuticals are heavily regulated. To change our legal address, we need to do a colossal amount of work to make changes to the instructions for medical use of our drugs, registration certificates, and regulatory documentation. This is a large set of measures requiring enormous investments (each change requires payment of a state duty).

Therefore, we agreed to move gradually. The company has already taken a number of steps aimed at increasing the tax revenue of the Kirov region.

At the end of 2016, changes were made to the company's accounting policy, and starting from 2017, property tax payments are made to the budget of the constituent entity of the Russian Federation, i.e., the budget of the Kirov Region. And the share of profit tax attributable to the budget of the Kirov Region is growing in proportion to the increase in the number of employees in Kirov and investments in fixed production assets.

This compromise solution, from my point of view, will protect the interests of both JSC "AVVA RUS" and the Kirov Region. But at the same time, we are working on issues and measures for the complete re-registration of the company.

And now let's look at this issue from the other side. Some people divide companies into "ours" and "theirs," as if we are at war. Meanwhile, there is a multiplier effect. Using JSC "AVVA RUS" as an example, I can say that being located in Kirov, we cooperate with more than 110 organizations, residents of the Kirov Region. These are our partners who provide various services to our production, supply products, and who are registered in Kirov. Our company's turnover under these contracts in 2015 amounted to more than 106.6 million rubles. The turnover for 9 months of 2016 with such companies amounted to more than 96 million rubles. The investments we planned for 2017 will also mostly remain in the Kirov Region.

We have over 400 employees working in Kirov; payments to the Kirov budget from the payroll fund for 9 months of 2016 amounted to over 34 million rubles. So it turns out that if you work honestly and pay salaries honestly, then even without being a resident of the Kirov Region, we are actively forming the revenue part of the Kirov budget; this money remains in the region and generates demand for goods within the region, thereby supporting local entrepreneurship. In general, our company made payments to budgets of all levels in 2015 of more than 169 million rubles; for 9 months of 2016, payments amounted to more than 167 million rubles.

On the other hand, there are a number of Kirov entrepreneurs who have well-known companies registered in the region. However, they often split their business, directly or indirectly creating a lot of some small LLCs that are connected to each other in one way or another and provide services to each other. After working for some time, such LLCs, as a rule, go through the bankruptcy procedure. I consider such schemes criminal and requiring the attention of law enforcement agencies, as in such a situation, honest entrepreneurs, business, and the budget of the Kirov Region suffer losses. Look at the website of the Arbitration Court of the Kirov Region, how much information there is about the liquidation of legal entities, including bankruptcy cases. At the same time, it is surprising that the manager who led the legal entity to bankruptcy rises like a Phoenix from the ashes and after some time heads a new legal entity. Unfortunately, our tax authorities, law enforcement system, and system of bankruptcy trustees do not use the norms of the bankruptcy law, subsidiary liability of individuals (director and founders) is not applied, disqualification of such failed managers is not applied, which would protect us from them managing new companies again.

You don't have to look far, take the same LLC "KIBIKH". Everyone has heard of it, but it is very difficult for an ordinary resident to figure out what and to whom belongs on this site. Even being neighbors of this enterprise, we for a long time concluded contracts for electricity supply and water disposal with various companies: LLC "TEK", LLC "Eko-Drev", LLC "Dion", while all negotiations on the conclusion of these contracts and their maintenance were conducted by employees of LLC "KIBIKH". Last year, from newspaper publications, I learned that the treatment facilities of LLC "KIBIKH" belong to some LLC "Vostokenergo" and are leased to some LLC "Dion". The gas pipeline passing through the land plot with cadastral number 43:40:001013:31 belongs to some LLC "Grand Lesprom", and is leased to LLC "Dion", and it is not clear in whose production processes the gas is used... And there is also LLC "Eko-Drev". This company is currently undergoing bankruptcy proceedings, there is a debt to our company, there are debts to the budget of about 4.5 million rubles, and so what? Mr. Ryazanov V.V., who was the general director of this LLC "Eko-Drev", is now quietly holding the position of general director of LLC "Dion". And there were also LLC "TEK" (General Director Gordin A.A. now holds a managerial position as technical director at LLC "KIBIKH"), LLC "Vostochnaya Energeticheskaya Kompaniya" has introduced a bankruptcy procedure (supervision) and other companies that were established like a jack-in-the-box, and after 2-4 years filed for bankruptcy, taking with them debts to honest entrepreneurs and to our, Kirov budget... It is very difficult to understand the intricacies, how the cost of products is formed and what the tax base for such enterprises consists of. But I believe that it is absolutely vital to understand these issues.

– In general, how are relations with the regional authorities built? And how do you personally assess the actions of the regional leadership?

– The relations are constructive. From my point of view, all actions and events happening in Kirov from a business perspective are very logical, reasonable, and economically justified. Indeed, first of all, we need to deal with the "growth points" that will help replenish local budgets. Of course, one can start strangling entrepreneurs and collect everything from them, but that is wrong, the effect will be temporary. At the same time, there is business in the region working according to gray schemes. And this is one of the areas that the new team is trying to correct. In the forestry sector, they announced the sale of timber through exchange trades. And this is correct, it will allow the formation of a maximally honest, open, transparent price. The forest is one of the serious assets of the region, and the money from the work of the timber industry complex should go to the region, and not flow into someone's pockets through gray schemes.

As for Igor Vladimirovich personally... He doesn't sit in a warm chair. During his visit, I said: "In 20 years of work in Kirov, the governor has come to us for the first time." Let me clarify, in 20 years, not a single official has ever visited our enterprise – neither regional nor city! As if we didn't exist in Kirov at all. You can't make the right decisions only by sitting in an office or looking out the window of a government car... You need to see what business breathes, communicate with people, hear their needs... Then there will be an understanding of the situation, your own, personal understanding, not information from advisors or other sources. Such trips are important; they create direct contact between business, government, and society. Personally, I will always support the position of officials if I see honesty in their actions towards business and people.

Interviewed by - Yulia Usinskaya