Reassessing Russia's pharma market

Continuing the eyeforpharma series on pharmerging markets, Rajesh Chhabara investigates why Russia remains a major opportunity, despite its many challenges.

Continuing the eyeforpharma series on pharmerging markets, Rajesh Chhabara investigates why Russia remains a major opportunity, despite its many challenges.

Russia is the worlds 11th largest pharmaceutical market, according to IMS Health, a leading pharmaceutical and healthcare research firm. In 2009, the Russian pharma market stood at $17.1 billion, up from $14.2 billion in 2007, according to DSM Group, a pharma market research organization in Moscow. The market is estimated to grow to $19.8 billion in 2010 and $24.3 billion by 2012.

One of the key reasons the pharma sector grew while other industries declined in 2009 is the fact that the Russian government did not cut expenditure on healthcare, in spite of the downturn in economy.  The government plans to increase healthcare expenditure from 3.8 per cent of GDP to 5.5 percent by 2020.

Currently, per capita finished pharmaceutical product consumption in Russia is $82 a year, about one fifth of the average consumption in Europe, according to figures from IMS and DSM. The Russian government wants to bring up consumption to the average European level within 10 years.

Boosting consumption

In the longer-term, the drive to improve life expectancy will also boost consumption, says David Campbell, senior principal at IMS Health, particularly of products for the treatment of chronic age-related conditions, which will improve the prognosis for patients diagnosed with conditions such as cardiovascular and respiratory problems. 

However, the governments ability to continue to fund healthcare reform will depend on a host of other factors. Campbell points out that government plans for healthcare expansion are based on a high oil prices.

With 40 percent of GDP linked to the oil industry, he says, the financial crisis will set back prospects for much-needed reform of the healthcare system. And funding is being challenged by significant exchange rate volatility.

New regulatory regime

Market observers say an important aspect to watch will be the effects of the new regulatory regime scheduled to come into effect this year. Two significant pieces of draft legislation are the law on circulation of medical substances and the improved government regulation of prices for vital and essential medical substances.

The former will likely increase the time it takes for a medicine to get to market. The upside, according to DSM, is that it also introduces the permanent validity of registration certificates.

The latter introduces a single method for price registration by manufacturers at the federal level for vital drugs and fixed mark-ups for distributors. This will make it relatively easier for the government to enforce compliance compared with the earlier practice, when local governments had their own regulations for mark-ups.

Other changes include regulating medical representatives visits to doctors and a proposal to allow the sale of OTC drugs by retail chains.

Going local

A significant government goal is to increase the share of local drug producers in the total market to 25 per cent by 2012 and 50 per cent by 2020. This could mean a regulatory regime that favors local manufacturers. Currently, imported drugs dominate the market.

According to a 2009 ranking by DSM, Sanofi-Aventis holds the top spot with a 4.2 per cent market-share. Other companies in the top five include Novartis (3.8%), Farmstandard (3.5%), F. Hoffmann-La Roche (3.4%) and Bayer Schering (3.1%). Farmstandard is the only Russian manufacturer in the top 20 list.

While Russia is pushing to expand the local pharmaceutical industry, the country needs to tackle several other challenges to grow the sector. A key area of concern is the lack of human capital and clinical standards.

Human capital

In terms of healthcare delivery, and despite improvements in physician education, low levels of knowledge about prevention, diagnosis and treatment at primary care level and the lack of clinical standards and guidelines still impede successful management of chronic disease, says Campbell.

Russias vast territory also makes the market complex, particularly for foreign companies. Large distributors with nationwide networks therefore play a critical role in Russia. Currently, Russias top five distributors include Protek, CIA, Katren, Rosta, and Alliance Healthcare.

A vital and complex market

The other key player in the market is the pharmacy chain segment. Russias leading pharmacy chains include Pharmacy Chain 36.6, Rigla, Farmakor, Implozia, and Raduga. But 2009 was tough on the chains; many of them shut dozens of loss-making stores.

Campbell says that the Russian market has experienced high double-digit growth over the last five years and offers clear potential for growth in private insurance and positive developments in the reimbursement system.

However, he cautions, this is countered by likely pressure on prices, increasing government influence over drug prescribing, and powerful lobbies in favor of local manufacturers.

The economic crisis notwithstanding, Russia remains a major opportunity for pharmaceutical growth and a vital and complex market with a high level of hitherto un-met need, Campbell concludes.

For more on pharmerging markets, see:

Breaking into the Brazilian Pharma Market

Cracking the Chinese Pharma Market

How to Get Ahead in 'Pharmerging' Markets

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