Russia Pharmaceuticals and Healthcare Report Q2 2008

After posting 20% year-on-year (y-o-y) growth in 2007, the Russian pharmaceutical market is forecast to see slowing growth rates through 2008, with BMI forecasting growth of 12% to a market value of US$13.1bn over the course of the year. The five-year forecast presently sees an annual average growth rate of 8.9% through to 2012, with market value reaching US$17.8bn. This works out to a stable if less impressive 4.3% annual rate in rouble terms, based on BMI's current exchange rate forecasts. A key trend to watch as 2008 wears on is a shift by local and foreign producers away from the Supplementary Medicines Coverage (DLO) state reimbursed scheme - given its reduced budget and poor bargaining terms - back to the private retail market.

This quarter, BMI is introducing coverage of the Russian medical device market. Russia's US$1.67bn medical device sector is displaying robust growth. BMI believes high-end medical equipment will see the greatest demand as Russia continues to modernise its hospitals, and we expect diagnostic and monitoring equipment to outstrip the other segments in terms of growth in the coming years. By 2012, the total market valuation should reach US$2.79bn after growing at a compound annual growth rate (CAGR) of almost 9% over the forecast period.

The results of the March 2008 presidential election were a foregone conclusion long before the polls.

President-elect Dmitry Medvedev, who had previously overseen healthcare as part of his brief as deputy prime minister, is believed to be planning to break up the present Ministry for Healthcare and Social Development into separate health and social insurance bodies. Also, the Ministry of Industry and Energy was reported in February 2008 to be developing a new 'concept' for the Russian pharmaceutical industry aimed at 'protecting' local producers from Western competitors. New regulations are also expected to be announced shortly to update medicines registration procedures and a new Law on Medicines is reportedly due to be drafted by early April 2008, again with the purpose of putting in place mechanisms to increase the share of domestically produced medicines in the market from the current 25%. As is frequently the case, there is scant detail about what sort of policies might be put in place to achieve this aim.

Moves against importers could benefit international generics producers that have acquired local facilities.

Germany's Stada, which owns local players Nizhpharm and Makiz Pharma as well as a newly built plant via its Serbian affiliate Hemofarm, reported a 53% jump in 2007 sales. Hungary's Gedeon Richter picked up Russian producer Akrikhin and Poland's Polpharma late last year and appears undaunted by the short-term but severe hit its Russian business took in 2007 due to DLO cutbacks. The question is whether there are many attractive production assets left, short of a major and costly takeover of local leader Pharmstandart, a move the Russian government could find troubling. In the wholesale sector, US player Texas Pacific Group reportedly acquired a 50% minus one stake in distributor SIA International for around US$1bn in late March. Meanwhile, Celesio's long-rumoured tie-up with Protek (and its retail arm Rigla) was reportedly put on hold in late January 2008, with the two parties reportedly clashing over price. It appears that wholesale and retail will be key battlegrounds in 2008.