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Russia Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Jan 2012, Pages: 93
BMI View: Renewed liberalisation of Russia’s pharmaceutical market could follow the final approval of the country’s membership of the World Trade Organisation (WTO) at the end of 2011. Liberalisation in terms of market entry and increased intellectual property (IP) protection (illiberal in the view of local generic drugs players) under WTO TRIPs guidelines should, theoretically, answer most of the concerns of multinational drugmakers operating in the Russian marketplace. In practice, WTO accession is unlikely to affect areas such as regulation of pricing and poor enforcement of new and existing IP rules.
Meanwhile, all players will be hoping the Russian market can avoid contagion from the eurozone crisis – observers will be looking for signs of over-leveraging by local producers, distributors and retailers that hit the market in the 2008-09 crisis, as well risks of devaluation, which still look low but not negligible.
Headline Expenditure Projections.
- Pharmaceuticals: RUB544.2bn (US$17.92bn) in 2010 to RUB609.5bn (US$20.6bn) in 2011; +12.0% in local currency terms and +14.9% in US dollar terms. Forecast upgraded from Q411 due to updated data and adjustments to exchange rate forecast.
- Healthcare: RUB2,324bn (US$76.53bn) in 2010 to RUB2,550bn (US$86.13bn) in 2011; +9.8% in local currency terms and +12.6% in US dollar terms. Forecast virtually unchanged from Q411.
- Medical devices: RUB156.70bn (US$5.16bn) in 2010 to RUB181.84 (US$6.14bn) in 2011; +16.1% in local currency terms and +19.1% in US dollar terms. Forecast upgraded from Q411 due to updated data.
Business Environment Rating: Russia’s score in BMI’s Business Environment Ratings has increased slightly to 58.7 from 57.5, although the country fell from fifth to sixth place out of 20 Central and Eastern European (CEE) markets. Russia’s status as the most populous country in Europe, the government’s commitment to healthcare spending and stable (if unspectacular) economic growth put Russia well ahead of other Commonwealth of Independent States (CIS) markets. Downsides include growing market regulation and other forms of intervention, corruption and the economy’s long-term dependence on cyclical commodities and potential exposure to a renewed global credit crunch. .
Key Trends & Developments
- We believe Russia’s latest healthcare reform law will act as a further modernising force and, due to late-stage amendments, is broadly positive for the pharmaceutical industry. While drugmakers may have to re-examine their marketing strategies in response to the law, we note that many of the early-stage unfavourable aspects of the legislation relating to contact between drugmakers and healthcare professionals have been dropped. The fact that orphan diseases are now recognised in law is major step forward, but we highlight continued deficiencies in the adopted bill. In the context of demonstrations following the December 4 2011 parliamentary election, we do not believe these actions represent a major shift in the political landscape. In fact, in relation to healthcare, additional government funding may be seen as a tool for appeasement.
- In November 2011, a working panel approved final terms that will enable Russia to become part of the WTO after a long wait of 18 years. This development followed work by Swiss mediators, who convinced Georgia to withdraw its objection regarding Russia's accession to the WTO. Russia's membership was likely to be approved during the WTO's ministerial meeting scheduled for December 15-17. Russia has been negotiating membership of the 153-nation WTO for 17 years and is the only major economy still outside the organisation.
- The Russian government has said relatively little about the impact of WTO and TRIPS compliance on domestic pharmaceutical companies, although it chose to re-state a firm deadline of 2014 for mandatory Good Manufacturing Practice (GMP) compliance for domestic manufacturers, with non-compliant facilities slated to close if they fail to meet certification standards.
- On December 14 2011, Prime Minister Vladimir Putin finally approved the list of vital and essential medicines for 2012. The ZHNVLP list includes 567 drugs listed by international nonproprietary names (INNs), of which 93 items (16.4%) are produced only by domestic drugmakers, 207 items (36.5%) are produced only by foreign producers and 267 items (47.1%) are produced by both Russian and foreign pharmaceutical companies. Compared with the list in 2011, there are an additional 27 drugs listed by INN.
- In October and November 2011, the Federal Antimonopoly Service (FAS) was in consultation with industry organisations over proposed future pricing models for the industry. The proposed Russian system of reference prices will limit the compensated prices of medicines in groups according to the principle of biological or therapeutic equivalent and fixing general compensation prices for all medicines in a group. If a medicine's price exceeds the fixed reference prices, the patient will be expected to cover the difference at their own expense if they opt for one of the more expensive medicines. However, BMI believes that one of the greatest challenges for the FAS will be to establish and propose fair and transparent criteria to determine what constitutes biological or therapeutic equivalence, particularly for innovative medicines.
BMI Economic View: We have lowered our real GDP growth forecasts for Russia to 3.3% and 3.2% in 2011 and 2012 respectively, placing us substantially below consensus, as the external environment grows increasingly more challenging. With major contagion risk spreading from the eurozone periphery to regional banks, we note that the domestic picture also looks set to moderate going forward.
BMI Political View: Policy continuity is unlikely to be affected by the March 2012 presidential elections. But, over the longer run, Russia faces monumental political challenges over the coming decade that will determine whether it evolves along more liberal lines or consolidates as a one-party authoritarian state. The key challenges include: addressing institutional weakness; managing demographic decline; combating a continued insurgency in the North Caucasus; and planning for a highly uncertain geopolitical environment. These will be priorities regardless of who rules Russia
- Benchmark BMI’s Independent 5-year Pharmaceutical and Healthcare Industry Forecasts on Russia to test other views - a key input for successful budgeting and strategic business planning in the Russia pharmaceutical and healthcare market.
- Target Business Opportunities & Risks in the Russia Pharmaceutical and Healthcare Sector through our reviews - and major deals, projects and investments in Russia.
- Exploit The Latest Competitive Russia Pharmaceutical and Healthcare Intelligence & company SWOTS on your competitors and peers through company rankings by sales, market share and ownership structure – includes multi-national and national companies in Russia. '
Business Monitor International's 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 Poland's pharmaceuticals and healthcare industry.
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