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Russia Pharmaceuticals and Healthcare Report Q2 2010

BMI expects the Russian pharmaceutical market to rebound from a difficult year in 2009 and return to double-digit growth in 2010. After a 9.5% US dollar decline and 15.5% ruble increase in 2009, the market is expected to post a five-year compound annual growth rate (CAGR) of 17.41% in US dollar terms for the period 2009-2014. This figure is boosted by the anticipated strong appreciation of the ruble against the US dollar on the back of an economic rebound – BMI is currently forecasting rising commodity prices and a 3.4% GDP growth for 2010.

Robust growth will be driven primarily by consumer expenditure unless previous government promises of universal medicines coverage are realised but government regulation will play a greater role than it has since the end of the Soviet Union nearly two decades ago. New regulations have been put in place to control the prices of 5,000 medicines on an ‘essential list’ established in late 2009. Manufacturers have until April 1st to register the maximum sale price for their products. Notably, the federal regulator Roszdravnadzor reported that prices of domestically-produced drugs increased by 12.4%, compared with 11% growth in the overall market while preliminary statistics show domestic drug output falling by 8.3%.

Aside from pricing regulations, perhaps the most controversial developments are measures included in a new Medicines Law, which require all medicines to undergo local clinical trials and substantially increase the cost and time needed to launch a new drug. Along with potential barriers, the countrys Strategy for the Development of the Pharmaceutical Industry foresees a vastly increased role for state-owned companies. High-profile projects, such as Rosnanos announcement that it is leading a RUR3.9bn (US$133mn) project to produce nanodrugs for the treatment of malignant neoplasms, will be driven by the state sector. In February 2010, President Dmitry Medvedev announced the adoption of a list of 500 medicines that should be domestically produced. In addition, a new 2014 deadline for Good Manufacturing Practices (GMP) enforcement will almost certainly require private firms to seek government aid.

Unlike other Commonwealth of Independent States (CIS) members, Russia has a large enough market that foreign players will adapt to new regulations and, if needed, set up local manufacturing in the country. Outgoing Novartis CEO and Chairman Daniel Vasella said in February 2010 that Russia could be the next big market for the company, although it still needed to understand the risks and opportunities of the market before investing on the same scale as it has in China. A senior vice president of Swiss-based Nycomed which is reportedly developing an US$80mn manufacturing site in Yaroslavl summed up the situation by saying that 2010 would be a year of uncertainty…and adapting to changes.

Meanwhile, there are signs of a return to normalcy in the retail market, which was hit hard by the crisis. Pharmacy Chain 36.6 sold a 25% stake to wholesaler SIA International while distributor Protek resumed deliveries to 36.6, offering to resolve a dispute which had dogged the countrys largest pharmacy retailer. Rival chain Dr Stoletov bought a Taganrog chain, one of the first merger and acquisition (M&A) moves on the retail side since the global crisis began to bite in Russia in Q408, while chains such as Rigla have announced new store openings.


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