MarketNews

[ June 09, 2006 ]

Pharma Companies Poised to Unlock Russia's Potential

25 May 2006 — Russia offers substantial growth opportunities for the pharmaceuticals sector, according to report launched today by PricewaterhouseCoopers. ‘The Russian Federation - Prescription for Growth’, concludes that despite many significant challenges, Russia, with untapped demand for innovative drugs and as a suitable place for conducting research and development, offers considerable potential.

Sales of pharmaceutical products in the Russian Federation have more than tripled since 2000 and it is now one of the fastest-growing pharmaceutical sectors in Europe, with sales forecast to increase by around 10% a year between 2006 and 2010. Growth is being fuelled by rising incomes as the economy accelerates, putting more patients in a position to buy innovative medicines. Greater government expenditure and improvements in distribution are also facilitating growth. The federal government has lifted funding on the healthcare system to $3.6 billion this year, an 89% increase on the $1.9 billion it allocated in 2005.

Simon Friend, global pharmaceuticals leader, PricewaterhouseCoopers, commented: “The pharmaceutical market in the Russian Federation is growing rapidly, on the back of six consecutive years of economic growth and a corresponding rise in living standards. There is real scope to provide drugs to Russian consumers, especially through kiosks and pharmacies, where sales of relatively expensive branded products have started to accelerate.

“Life expectancy at birth in Russia is now just 65 years – a decade less than it is in many developed countries. With more money available to the population, there is a growing demand for improved healthcare. While the infrastructure does not yet provide the necessary support for the complete healthcare package, need for more effective medicines is increasing. Given the current pressure in the main pharmaceutical markets, where growth is sluggish, Russia’s untapped potential will be a target for foreign companies.”

The majority of drugs in Russia currently originate from overseas suppliers – Russia imported 60% of all pharmaceutical products in 2004, primarily from Western and Eastern Europe, the US, Canada and Japan. Demand for high blood pressure treatments, cardiac conditions and drugs for cancer, AIDS and diabetes is particularly strong. Indeed the mortality rate from chronic diseases is much higher in Russia than it is in other transitional countries (see note 1 in Notes to Editors).

The stress generated by the economic and social upheaval of the past 15 years has played a big part in the declining health of the population, compounding the adverse effects of widespread smoking, alcohol abuse, a diet high in animal fats and lack of exercise. The potential for branded generics producers and for Western manufacturers operating at the top end of the market is greater than the initial picture might suggest. Also, unlike China, India or large parts of Latin America, Russia does not have a history of using competing alternative therapies.

Foreign companies seeking to enter the market face obstacles, but they are by no means insurmountable. The state-run healthcare system is seriously under-funded and many Russians cannot afford the best new drugs. Moreover, the country still has a legacy of Soviet-style management practices; political interference remains a real risk; and the administrative and legal system is very weak. In an environment where bureaucracy is also prevalent, the risks of entering this market must be clearly understood. Research conducted by PricewaterhouseCoopers and the Association of International Pharmaceutical Manufacturers (AIPM) shows that red tape is the biggest barrier cited by foreign pharmaceutical companies thinking of setting up production facilities there.

Alina Lavrentieva, Director of pharmaceuticals group in PricewaterhouseCoopers, Russia, concluded:

“Despite the challenges, for pharmaceutical companies prepared to invest in the region, Russia offers more promise than might first appear. The Russian pharmaceutical market has grown faster than the markets of the developed world since the start of the millennium and it should not be overlooked as a source of growth for foreign players.”

from site www.pwc.com