With falling incomes and lower purchasing power, the Russian government is planning to allow more high quality lower priced generic medicine imports into the country. As a part of this, recently Russian President Vladimir Putin decided to lift some of the stringent regulatory requirements for foreign pharmaceutical producers supplying drugs to Russia.

“With growing demands for cheaper and high quality drugs, apart from supporting generic drug manufacturers within the country, the government is also creating conditions to help Russian inspector to visit production facilities aboard and procure drugs to meet the healthcare requirements of the country,” says an official spokesman of the Russian Presidential Administration.

According to according to Russian Federal State Statistics Service reports, with recent devaluation of Russian currency, the prices for drugs in Russia had increased by 10 to 15 per cent for the year 2016. However, this is significantly lower compared to prices in 2015, which was at 22.8 per cent compared to the previous year.

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

According to DSM Group, 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, and this growth was mainly due to inflation and the ever growing drug prices.

“The purchasing power of Russian consumers is steadily declining, which is mainly due to the socio- political and economic crisis in the country. This is forcing the customers towards good quality cheaper drugs. And India, as always being a potential exporter of generics, stands a good chance to reap benefits of this opportunity, observed, an industry analyst from BDMA.

However, according to Ivan Glushkov, deputy director of Stada CIS, the local unit of German drug maker Stada Arzneimittel, a significant part of drugs in Russia is currently manufactured at a 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 vital list.

At the same time public procurement of drugs in Russia has 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 DSM Group, 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 Danil Blinov, chief executive of Pfizer Russia, the turbulent economic and political situation had a negative impact on the Russian pharmaceutical market and it is clear that 2016 will be no less challenging for producers.

Easing conditions for foreign imports
Having learned about hard conditions prevailing in Russia with regard to availability of affordable drugs, the 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 by foreign drug makers will be allowed once the registration of their drugs is translated into Russian documents confirming the compliance Russian quality standards and rules.

Growth story of Russian pharma market
Globally Russia is ranked 12th largest pharmaceutical markets and the commercial sector has shown the lowest growth of 9.4 percent growth, the lowest in rouble terms. The share of imported medicines in the commercial sector remained almost unchanged at 74 per cent in monetary terms which has decreased to two per cent less from 76 per cent in 2014.

The public sector i.e., the hospital purchases and extensive drug coverage programmes have grown by 6.4 per cent. The Rouble value of extensive drug coverage programme volumes has grown by 11.4 per cent. According to DSM Group’s retail audit, in March 2016 the commercial segment of pharmaceutical products amounted to RUB 47.6 billion. However, the pharmaceutical market’s commercial segment shrank by 10.2 per cent (in RUB terms) during the first three months of 2016 year-on-year.

According to experts, inflation is the root cause of the pharmaceutical market’s growth in monetary terms in 2016. Prices for medicines in March 2016 grew by 0.1 per cent in RUB terms, while the US$ price index in March grew by 6.8 per cent. From January to June 2016, the rise in medicine prices increased by 5.5 per cent in RUB terms and by 8.6 per cent in US$ terms. From January to June 2016, inflation on medicine prices was 5.5 per cent in RUB terms and 8.6 per cent in US$ terms.

As compared to February, the average price per unit in March 2016 rose by 0.7 per cent and comprised RUB 147.3.

According to the Russian Federal State Statistics Service, the average medicine prices for January-December 2015 grew by 23.8 per cent year-on-year; inflation had slowed down to 19.6 per cent by December.

Experts expect consumers to seek cheaper medicines because of income decline, which could be critical for manufacturers of brand generics, forcing some of them to stop the production of unprofitable medicines.

According to the Economist Intelligence Unit (EIU), Russia is not in the top 10 list of countries in terms of pharmaceutical products sales (in US$). The EIU forecasts that Russia will rank 16th in 2020.

According to DSM Group, the Russian pharmaceutical market grew by eight per cent in the year 2016. However the medicine consumption decreased by 2-3 per cent in terms of units sold.

State procurement is expected to be at around RUB 334 billion which accounts for 24 per cent of the overall market and 29 per cent of the market less pharmaceuticals, holding constant the forecast market growth of eight per cent.

IMS Health expected annual growth of 5-7 per cent (in RUB terms) throughout the year; consumption in units sold is expected to decline due to low purchasing power.

According to RNC Pharma, though the Russian market is expected to grow by nine per cent (in RUB terms) in the coming days, however it is expected to decline by four percent in terms of units sold.