Belarus Pharmaceuticals and Healthcare Report Q3 2009

Belarus will remain one of the most resilient pharmaceutical markets in BMI's Emerging Europe Pharmaceuticals & Healthcare coverage universe. At the same time, we have downgraded the market growth rate in the face of more pessimistic economic growth data, aggressive import substitution policies and weakness in the ruble. We see this pushing euro and US-dollar denominated imported medicines out of the marketplace. We are predicting a compound annual growth rate (CAGR) of 6.04% in US dollar terms, with a contraction in value terms of 17.2% in 2009. We do not expect robust growth to return until 2011.

A voluntary pricing freeze was agreed and came into effect in early June. The move was not unexpected and follows the 25% fall in the value of the ruble vis-? -vis the euro in late 2008/early 2009. In theory, companies will be required to obtain permission from the Ministry of Health before raising prices and wholesalers and retailers will have to apply minimal mark ups. In practice, prices are likely to slide upwards - or shortages will appear. BMI sees real prices continuing to edge upwards as wholesalers and retailers seek to survive in straightened economic conditions.

Belarus is facing an unprecedented slowdown after a blistering 10.8% CAGR GDP growth rate from 2004-2008. The slowdown will only strengthen the government's long-declared policy of promoting in pharmaceutical import substitution, as reflected in an announcement in May that the state would invest around BYR 300bn (US$106mn) in modernising domestic production. Much of this will go to the Belbiopharm holding, where 11.3% sales growth in 2008 was only marginally higher than the overall US dollar market growth rate of 10.0% and slightly trailed the total growth of the country's pharmaceutical and chemicals output. In February, Prime Minister Sergey Sidorsky publicly called for the 'maximum possible' output by domestic producers with the aim of import substitution.

The government has also highlighted increased output of biotechnology products and the country has joined the Eurasian Economic Community's Innovation in Biotechnology programme aimed at pooling resources from research institutes in Russia, Belarus, Kazakhstan, Tajikistan and Kyrgyzstan. It has also joined forces with Russia to develop stem-cell research. The country retains significant, low-cost scientific research potential - although red tape remains a major impediment for Western partners.

There has been some good news for multinationals operating in Belarus - namely streamlined medicines registration procedures were included in amendments to the country's Law on Medicines passed by legislature in late May and due to become law imminently. However, the apparent shelving of tie-ups with state producers by Latvia's Grindeks in Q109 only serves to underline the difficulty even companies deeply experienced in CIS markets face in developing a significant local presence through joint-ventures, let alone cross-border M&A or green-field projects.