The Common Wealth of Independent States (CIS) is increasingly becoming an export haven for pharma players in India. The region, which consists of countries like Russia, Ukraine, Kazakhstan, Uzbekistan, Georgia, Armenia and Turkmenistan, is taking measures like mandatory medicines insurance scheme to revive and boost the growth of the drugs industry.
Also, these countries are becoming more and more conscious about the quality of the drugs imported and made locally. As a result, authorities are encouraging the use of patented pharmaceuticals and branded generics. They are also planning to inspect the plants of foreign players, who are indulged in export activities to the region, to make sure compliance of quality standards.
In the export front, India's export of drugs, pharmaceuticals and fine chemicals to CIS rose more than 8 per cent to around US $460 million in April-March 2007 from US $390 million in the comparable period of the last year. During the period under review, the country's export to Russia amounted to US $278.78 million, while its export to Ukraine stood at US $108.74 million. Other major export destinations in CIS include Kazakhstan ($26 million), Uzbekistan ($13.68 million) and Belarus ($10.56 million).
"The export of pharmaceuticals from India to CIS is sure to soar in the coming years. There is a growing need for formulations in these regions than for bulk drugs. Hence, it's a good opportunity for the Indian companies with special focus on formulations to explore this market. Also, the demand for nutraceuticals and herbal products is on the rise in CIS," said, Dr P V Appaji, executive director, Pharmexcil.
"The government of India has also taken enough measures to boost Indian pharma companies' export to CIS region. The government has decided to reimburse 50 per cent of the product registration costs to the companies, which register their products in CIS. This reimbursement process is done through Pharmexcil," he added.
Dr Appaji also revealed that the CIS countries' proposed move to inspect the facilities of drug exporters would in no way slow down the Indian export activities to the region.
"Like any other developing countries, countries in CIS are also streamlining their regulatory requirements to meet the growing quality needs. The reported move of regulatory authorities in CIS countries to inspect the facilities of foreign players who export to it would in no way affect the prospects of the Indian companies to this region. However, there would be some delay in the process that comes naturally as a result of inspection procedures. Otherwise, the Indian companies with their Schedule M and WHO GMP compliant manufacturing facilities, most of which have US FDA approvals, are in a healthy condition and well equipped to meet the special audits from CIS," he noted.
The Pharmexcil plans to set up warehouse in Russia soon to meet the requirements of small to medium Indian pharmaceutical exporters to CIS.
Russia
Russia faces a greater disease burden than any other CIS country. The government has a major opportunity to address this crisis under ambitious plans to expand medicines provision and revive the pharmaceutical industry. Implementation, however, will remain the biggest challenge. In June, Prime Minister Vladimir Putin announced plans to launch a mandatory medicines insurance scheme with state subsidies by 2010. These will in turn provide funding for a new and comprehensive medicines provision programme.
The new medicines insurance scheme is also intended as a vehicle for reviving the domestic pharmaceutical industry, which now accounts for just 25 per cent of sales in value terms. The government likes to see the State Pharmaceutical Holding, a diverse group of research institutes and generally small manufacturers, take on important substitution duties in areas such as vaccines, hormones and other segments, where Russia was previously strong.
Medicines prices are emerging as a stick with which to beat international drug makers as well as a major headache for the government as it aims to tame inflation driven by record high food prices. The country's Audit Chamber reported in June that 'baseless' increases in the price of imported medicines had cost the state around US $117 million in 2006 and 2007, with 90 per cent of state purchases going to imported medicines.
The auditor criticised the lack of a single pricing regulation for state purchases. It is perhaps this level of political uncertainty - and the high price of existing assets - that has slowed the tide of merger and acquisition and new market entries in Russia.
Further, activity in the wholesale and retail market may slow as the Russian Federal Anti-Monopoly Service (FAS) probes concentration in the sector and new retail restrictions are on the table. Russia remains a difficult market, with the threat of government intervention on the horizon.
However, increases in pharmaceutical prices and rising imports of high-price pharmaceuticals are expected to strengthen the market growth in Russia over the next five years. "The local production growth is still lagging behind import growth, despite higher price rises over 2007 for locally-made pharmaceuticals than for imported," according to sources close to developments in Russia.
The Russian Industry and Trade Ministry is all set to build the local industry and increase the patients' access to innovative drugs. By the end of the next decade, the Ministry wants the market share of locally produced pharmaceuticals to reach 50 per cent, while 80 per cent of all drugs sold should be patented pharmaceuticals.
Russia's total drug market was worth around US $11.7 billion in 2007. The market is expected to grow at an average of 13.6 per cent in the next couple of years. In 2007, sale of patented drugs contributed to 31.2 per cent of the total market. This is expected to increase to 34.6 per cent by 2012.
Ukraine
Ukraine's pharmaceutical market is expected to grow by 12 per cent in 2008, following 22 per cent growth recorded in 2007. According to BMI's updated five-year forecast for the period 2007 to 2012, Ukraine's pharma industry is expected to grow at an average rate of 8.7 per cent to reach US $3.65 billion. Much depends on the Ukrainian government's ability to deliver on promises to introduce major healthcare reform and a level of universal coverage. If successful, the market could see strong double-digit rates through the forecast period.
From a regulatory perspective, Ukraine's accession to the World Trade Organisation (WTO) - agreed and due to be completed later this year - is a major boost for long-term improvements in the intellectual property (IP) environment and more immediately, an elimination of duties on pharmaceuticals for member countries. This should provide the biggest boost for generics makers in Central and Eastern Europe (CEE). While accession is a clear plus for patented drug makers, poor enforcement of IP laws and a lack of government and private-sector buying power will remain major barriers for some years to come.
The cost of pharmaceuticals is causing widespread controversy in Ukraine after retail prices surged by up to 70 per cent during mid-October 2008. The medicines concerned are mostly imported products, which hold a market share of over 75 per cent. Importers have attributed the rises to strengthening of the US dollar.
The government has tightened supply chain regulations within the Ukraine, capping maximum margins for products on the national list of essential drugs to 10 per cent for wholesalers and 25 per cent for retailers. The list has also been extended to cover 70 per cent of approved products from 17 per cent. Furthermore, customs must ensure the prices of imported drugs do not exceed their ex-manufacturers prices for Ukraine. Over the longer term, the state will require manufacturers to register medicines with an upper and lower price threshold.
Kazakhstan
The pharmaceutical market in Kazakhstan is one of the most dynamic in Central Asia, typified by increasing numbers of foreign entrants. The country, being the second largest (after Russia) of the former Soviet republics, offers considerable commercial opportunities to foreign pharmaceutical players. Kazakhstan also boasts the most secure and stable political environment in the region, which has propelled its economic growth since independence in 1991. By 2012, pharmaceutical market in Kazakhstan would be worth around US $1.14 billion, growing at an annual rate in excess of 12 per cent.
Kazakhstan's drug sales have posted a strong growth in recent years, largely on the back of high oil revenues. Moreover, the government is planning to raise health spending to 4 per cent of gross domestic product by 2010, with some US $1.3 billion set to be invested.
The pharmaceutical market is largely reliant on imports. Leading players on the local pharmaceutical market include foreign companies like Sanofi-Aventis, Gedeon Richter, Nycomed and Chemie-Menarini. Chimpharm is the key domestic producer of pharmaceuticals, accounting for over half of total local output. However, its presence in other markets is limited. In recent years, Asian generic companies (including Indian and Malaysian producers) have made more of an impact on the Kazakhstan's pharmaceutical marketplace, with the trend likely to continue in the coming years.
In terms of other medical industries in Kazakhstan, the production of medical devices is relatively limited. Key barriers to market access for foreign producers include costly registration, the need for a certificate of conformance, tax levied on some medical devices and the lack of transparency in public-sector procurement. On the other hand, healthcare system modernisation, work on telemedicine and mobile medicine in rural regions and the government's desire to increase the role of the private sector will provide promising commercial opportunities for imports, which are mostly sourced from Germany, Russia, US and Japan.