The pharmaceutical market is one of the most dynamic sectors within Russia and the CIS economy. With a population of around 140 million, Russia is a potentially vast market. However, in comparison with Western countries, spending on health is very low in Russia. Russia can boast of a sizeable domestic generic industry, it has no large companies. Currently, the Russian pharmaceutical market has grown by 35 per cent to $9 billion in 2005 and is expected to reach $17.2 billion by 2010. Contributing to this growth is the para-pharmacy sector, which has seen a 41 per cent growth in 2005. The growth of para-pharmacy sector can be attributed to the development of pharmacy networks and implementation of open trade, popularization of the healthy life-style and growth of personal income, which has caused people to spend more money on pharmacies, particularly over-the-counter (OTC) drugs.
Russian charm
Russia is one of the most attractive export destinations for Indian pharma companies. According to the Russian State Customs Committee, drug imports from India grew 49 per cent to grab a 4.81 per cent share of the country's pharma market in 2003-04. Over the period, India, which accounted for just 4-5 per cent of Russia's pharma imports, increased its share to 8.36 per cent.
The Indian pharma companies are now dominating the Russian and CIS market with a major presence in all therapeutic areas. Indian companies such as J B Chemicals, Themis Medicare, Ranbaxy, Torrent, Ajanta, Lupin and a host of other pharma companies are spreading their presence in the Russian market. Though the returns are very low as compared to highly regulated market, the Indian companies have captured significant market share in these markets.
Challenges
The growth of the Russian pharmaceutical market faces quite a few challenges. The poor state of the healthcare system encourages the use of generics. Thus generic pharma market occupies around 80 per cent of the market. With no proper reimbursement system, the patients have to pay hefty sums to avail any primary healthcare service. More over, lack of proper manufacturing facilities and standards to govern the quality of the drugs have led to flooding of spurious generics and fake drugs in the Russian market. Trading in the region is impeded by unfriendly import licensing policies and political interferences. Other factors that act as stumbling blocks to the companies which intend to enter the Russian market are insufficient infrastructure, poor implementation of intellectual property rights and unfavorable atmosphere for foreign investments.
Presently, India and China get much more government support than Russia, which has led to emergence of more planned outsourcing sector in these countries. As a result, these countries attract higher venture capital funding than Russia. Apart, though outsourcing is more mature in Russia due to their tradition in chemistry, biological services are just being added.
Opportunities
Amidst all the challenges, the Russian pharmaceutical market projects a potential future. The Russian pharmaceutical market has witnessed a steady growth for the past five years. The market is likely to grow in double digits during the next five years. Also, the market for branded drugs and over the counter (OTC) drugs is on the rise.
The government has proposed various changes in the healthcare system such as improving primary care, efficient implementation of insurance and increasing the healthcare funding. Though these initiatives are yet to take a tangible form, they are likely to provide a facelift to the healthcare system in future.
The increase in smoking, alcohol abuse and lack of exercise has propagated the incidence of diabetes, hypertension and cardiac related diseases. Infectious diseases like HIV/AIDS are also on the rise. Hence, the demand for various medicines is expected to rise in the near future.
Apart, the Russian soil is transforming to be a conducive environment for clinical trails. Russia offers an easy reach to a wide variety of patient population, especially for India. The demographic profile is quite complementary as the demographic pyramid for Russia is inverse that of India, with Russia having a large base of geriatric population. In addition to this, the physicians in Russia are more than willing to work as investigators for clinical trails. The market attractiveness for clinical trials is luring many pharmaceutical companies to launch their R&D centres in the region. Since India too has built up significant capabilities in the outsourcing space, Russia can emerge as a second level outsourcing destination for India.
In addition, Russia has expertise in chemistry, including medicinal and synthetic chemistry and it is emerging to be a growth driver for Russian market. Russia has a long tradition in synthetic chemistry and enjoys largest community of chemists in the world. After the collapse of the Soviet Union, there were lots of chemists looking for work. Alert U.S. companies tapped into this talent pool by setting up operations in Russia. This has led to the emergence of Russia as a major player in discovery chemistry. Over 75 million samples for big pharma libraries have been made in Russia. Russian CROs are skilled enough to build screening libraries, blocks and research-intensive discovery chemistry. This is a highly fragmented market with over 50 private companies competing. The big leaders in discovery chemistry are: ChemBridge, ChemDiv and Asinex
Russia possesses great potential for the pharmaceutical industry. However, companies need to address certain challenges to explore the untapped potential. The major pharmaceutical companies like Sanofi-Aventis, Pfizer, GlaxoSmithKline and Roche are vying to take advantage of the opportunity. Other companies like Sandoz, Servier and Menarini are also planning to expand their market position in Russia. The market offers great opportunities for growth and in future significant mergers and acquisitions are expected to take place in the Russian pharma industry
(The author is Program Manager,Healthcare Practice, Frost & Sullivan, India)