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Russia plans to launch obligatory medical insurance, possible impacts on Hungary's Richter, Egis

The Russian government intends to launch a major reform in healthcare by 2010, planning to bolster both public health and the health of the national pharmaceuticals industry with the introduction of mandatory medicine insurance for prescription medicines, Kommersant reported. KBC Securities said this could have a positive impact on all CEE generic pharmaceutical companies, including Hungary's Richter and Egis.

Russian Prime Minister Vladimir Putin, along with the Minister of Health and Social Development Tatyana Golikova and Minister of Industry and Trade Viktor Khristenko, announced last week in Kursk that the insurance reform would be tied to the development of the Russian pharmaceuticals industry.

Khristenko promised the PM to create a development plan for the industry by September 2008.

The inclusion of medicine in mandatory medical coverage means that everyone in the system will be guaranteed partially-paid or free prescription medicine at a predetermined price from a predetermined list. Now only recipients of social benefits have the opportunity.

Per capita drug spending in Russia is low, not only in global but also in regional comparison. Therefore it is a logical decision that the state budget, which has accumulated a hefty surplus over soaring oil prices, will earmark money to bolster drug spending. This foreshadows a larger-than-average drug market growth in the years to come.

Analysts expect yet another pickup in growth on the Russian drugs market this year. Local Pharmexpert projects turnover growth to come in at 19% yr/yr after last year's 6% (at gross retail prices), and further 12-13% by 2012.

The marked decline in growth dynamics in 2007 was caused by stricter DLO regulations. The fall last year was 20% from 2006.

According to Pharmexpert's projection, generic drugs will ensure the growth of the Russian pharmaceutical market. Their share in turnover is seen stable around 85% in the years to come.

“We believe this news could have positive trading impact on all CEE generic pharmas with significant sales and manufacturing plant in Russia as probably they could benefit from an increase in Russian pharmaceutical spending triggered by an obligatory medical insurance system," Barbara Jánosi of KBC Securities commented on Monday.

In KBC's CEE generic pharma coverage Egis has the largest revenue exposure to Russia (of 27.8% estimated for 2008), followed by Richter (of 22.6%), Krka (of 17.7%) and Zentiva (of 7.1%) on a consolidated basis.

“With the exception Zentiva, all these drug makers have manufacturing factories in Russia, which we expect will provide a strong base for them to claim that they are local producers. However, until more details will be released on the size of the obligatory medical contribution and about the exact protectionist measures, we believe the market will take these reform plans cautiously," Jánosi added.

It has been already long-awaited from Russia to launch a wide-scale medical insurance programme as current medicine reimbursement program (DLO) covers only 9.8% of the population, the analyst noted.


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