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Russia Pharmaceuticals and Healthcare Report Q3 2009
Business Monitor International, July 2009, Pages: 93
The Russia Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's pharmaceuticals and healthcare industry.
Russia’s overall macroeconomic situation has stabilised markedly since the end of Q109 – most notably as the ruble’s managed devaluation earlier in the year did not turn into a rout for the currency, or consume all of the country’s stability fund. Still, in US dollar terms, 2009 will be a tough year for the Russian pharmaceutical market, with the author currently predicting a 13.9% contraction, while in ruble terms the market will grow by 15.9%. Much of this growth will be price inflation, and volume consumption will remain stagnant or fall – both worrying signs and likely to spur heavy handed regulation. The author’s current forecast sees a 7.83% compound annual growth rate (CAGR) for 2008 to 2013, with the market expected to reach a value of US$23.4bn by the end of 2013.
Not unusually, the state has resorted to a number of administrative measures to pressure multinational pharmaceutical companies as well as taking responsibility for legislation on pricing. In May, a Duma (parliament) committee began preparing legislation to impose maximum wholesale and retail mark-ups on medicines and maximum prices for essential medicines, which will reportedly be in force by July.
Russia’s Federal Antimonopoly Service (FAS) also signed an order allowing it to regulate the actions of a handful of major multinational pharmaceutical companies. Regional subdivisions of Bayer-Schering, Johnson & Johnson (J&J), Novartis, Novo Nordisk, Nycomed and Roche were added to a register of companies holding a ‘dominant market position’.
Since March, President Dmitry Medvedev and senior ministers have sought to convey the message that the country was not out of the woods yet, and that government spending would need to fall in the face of an expected budget deficit in 2009. It is not yet clear what impact this will have on healthcare spending – although Medvedev said in March 2009 that healthcare programmes would remain in place.
The crisis has put both green-field investments and mergers & acquisitions (M&A) on hold since late 2008. The long awaited sale of Verofarm, a maker of generic oncology drugs and plasters, appears on hold for now – despite reports that private-equity group Russia Partners had emerged as a prime bidder.
The drugmaker reported poor Q109 results amid plunging production numbers by the domestic sector as a whole in January – although output appears to be recovering. Q109 demonstrated the real risk of a liquidity squeeze in the sector through cascading late payments by cash strapped retailers, distributors and producers.
Poor market conditions all but preclude any producers or distributors from tapping into capital markets. In May, the Association of International Pharmaceutical Manufacturers (AIPM) reported that its 25 foreign members were prepared to make new ‘localised’ investments in production – and were ready to invest at least EUR50mn each – but for now, these appear to be statements of intent amid government complaints about import dependence. Meanwhile, most expect any major new projects to be funded by the Russian state, the one player in the market with sufficient cash and incentives for such work.
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