Moving away from its conventional practice of sourcing medicines from abroad, the Russian government is now strategically moving to promote its local pharmaceutical industries and procuring medicines manufactured by domestic producers. According to experts, this is a strategic move taken up by the Russian government to attract multinationals to manufacture locally and thereby improve Russia’s domestic pharmaceutical production capabilities.

As part of this initiative, Russian government has increased the purchase of locally sourced drugs for its social welfare programmes. In fact Russia aims to double-down on growth in its pharmaceutical manufacturing sector.

A recent study conducted by the British consultancy Global Counsel has concluded that firms operating in Russia’s healthcare sector are the “most optimistic” among multinationals present in the country.

In spite of global recession which has impacted many sectors across the world and of course in Russia, the country’s pharmaceutical industry has not faced sanctions from the U.S. or Europe, and sales have continued to grow in spite of the recession.

As part of government’s policy to focus on growth of its industry, the Russian government had announced a plan for increasing the share of domestically-produced drugs purchased by the state for its hospitals and pharmacies to 90 per cent by 2018, up from the current level of 65 per cent.

According Dr. P.V. Appaji, Director General of Pharmexcil, despite of policy changes in Russian markets, the Indian firms are planning accordingly to make their presence felt in the Russian markets. For instance Dr. Reddy’s, Indian leading generic manufacturer has set up manufacturing plants in Russia and accordingly moulding to meet their requirements.

“ Though the policy changes in the Russian pharma sector has impacted exports from India, still the Indian pharma firms are competent enough to mould themselves and make their presence felt in Russia. A part from this, the Indian manufacturers are also exploring avenues to invest in Russian markets and provide services to the domestic players wherever necessary,” says Appaji.

According to Viktor Dmitriyev, General Director of the Association of Russian Pharmaceutical Manufacturers, despite of new policy initiatives to promote domestic pharma sector, there is ample potential for drug companies already working in Russia as well as those exploring the market in the government’s import substitution drive.

“For localized foreign companies, it is an opportunity to recoup faster the investment they have made here; whereas for those who do not have plants in Russia, it is an incentive to set up local production as soon as possible,” observed Dmitriyev.

At present according to the Russian State Statistics Service Russian-made medicines make up 55 per cent of the product mix available on the market, and just 20 per cent of the market value, Over 90 per cent of innovative medicines consumed in the Russian pharmaceutical market are foreign.

According to experts, the main aim of Russia’s policy change is to boost the local pharma sector and replicate the success of India, which has earned billions by luring international pharma companies into its boarders and by producing vast quantities of generic drugs that are sold all over the world.

The Russian Government’s ambitious Pharma 2020 plan is one of the most important drivers for the Russian pharmaceutical industry. There is an influx of foreign interest as a direct result of the Russian Drug Authority’s declaration to have 80 per cent of the total pharmaceutical market supplied through local manufacturing sites by 2020. This is consequently is generating greater investment into domestic facilities both from overseas companies and domestic investors.

The Russian Government's ambitious Pharma 2020 plan, introduced in 2009, includes funding of nearly US$5 billion with the aim of dramatically increasing domestic pharmaceutical manufacturing and R&D capabilities.

As a result of the Pharma 2020 plan, the demand for international pharmaceutical ingredients and manufacturing and packaging equipment will increase dramatically to bring existing manufacturing sites to GMP standards.

With Russia’s economy expected to keep growing, and with the increased healthcare investments being made by the government, the Russian pharma market is all set to have a sustained and prolonged period of expansion. The market is positioned at the forefront of pharmerging markets and is projected to reach a value of US $31.2 billion by 2019.

In the meanwhile according to a data of the Russian Federal State Statistics Service, the prices for drugs in Russia will increase by 10 per cent to 15 per cent this year, which, however will be significantly lower than in 2015, when the price hikes was equivalent to 22.8 per cent, compared to the previous year.

According to one of Russia’s leading analyst agencies in the field of pharmaceutical sector, in 2015 the Russian pharmaceutical market grew by almost 12 per cent, compared to 2014 - to 1.28 trillion roubles ($16.5 billion), in value terms. According to the analysts, the market increase was mainly due to inflation and the ever growing drug prices.

According to spokesmen of some of the leading Russian pharmacies, the purchasing power of Russian consumers is steadily declining, which is mainly due to the crisis, while customers are forced to cheaper drugs, and in particular generics of Indian and Russian origin.

One of the major reasons of the ever growing prices in the Russian pharmaceutical market is devaluation of the local currency, which affected profitability of pharmaceutical companies, both domestic and foreign. The increase of the level of localization partly allows resolution of this problem, however import content still remains high.

According to some experts ,a significant part of drugs in Russia are currently produced at loss, while producers are trying to compensate for their losses on the production of other, more expensive drugs. Currently the biggest losses of foreign drug makers, operating in Russia, are associated with the production of drugs from the list of vital.

At the same time public procurement of drugs in Russia in 2015 grew by 10 to 15 per cent to 324 billion roubles, but declined by three to five per cent in volume terms.

This year, public procurement of drugs in Russia is expected to remain on the level of 2015 and will not exceed 334 billion roubles, while the Russian government has no plans of massive cuts of its program of drugs’ public procurement.

According to an estimate, the Russian pharmaceutical market could grow by eight per cent to 1.4 trillion roubles in 2016.

Experts predict that because of falling incomes, consumers will look for cheaper drugs, which may result in a cut in production for some generics, due to low profitability.

According to some experts,the turbulent economic and political situation had a negative impact on the Russian pharmaceutical market and 2016 will be no less challenging for producers.

In the Meantime, Russian President Vladimir Putin has decided to lift the existing requirement for foreign pharmaceutical producers supplying their drugs to Russia to create conditions for the visits of their production facilities by Russian inspectors

This means that foreign drug makers will be able to supply their drugs to the Russian market without additional bureaucratic hurdles and delays. This will also allow them to significantly increase the volume of supplies.

The latest decision means that the supplies of drugs to Russia may take place by foreign drug makers in the case of the confirmation of state registration of their drugs in Russia, and in the case of presence of translated into Russian documents confirming the compliance of the quality with the Russian standards and rules.