There is no doubt that Russia’s pharma market is one of the fastest growing markets in the world, and is the largest pharma market in central and eastern Europe.
The Russian pharma market witnessed a growth of 15 per cent (CAGR 2006–2010) to exceed ¤14 billion in 2010, with its dominant segment, ethical drugs, witnessing growth of about 18 per cent (CAGR 2006–2010) to reach about ¤10 billion in 2010. The Russian pharma market is expected to grow at eight per cent (CAGR 2010–2015), to reach over ¤21 billion in 2015.
But these growth figures also come with challenges. The Russian pharma industry which is mandated to abide by Good Manufacturing Practice (GMP) regulations by 2014 which facilitate drug quality and compliance in line with global standards, is also likely to improve Russian pharmaceutical exports. However the domestic industry would seem to have a long way to go towards achieving this goal as in 2011, it was estimated that only 10 per cent of 1,100 plants fully complied with GMP regulations in Russia.
In 2010, a law on medicine distribution was introduced, which requires a manufacturer to register the maximum selling price of their drugs, listed in Essential Drug List; this law restricts companies from increasing drug prices at their discretion.
Hitesh Gajaria, Partner, KPMG |
Analysing the hurdles, Hitesh Gajaria, Partner, KPMG says, “The Russian market is unique in its own capacity. Entry into the Russian market has always been a challenge owing to the non- tariff barriers Russia imposes which makes it difficult for foreign companies to enter this market, in terms of drugs registration and research and development (R&D) of new drugs. However, it cannot be ignored that the market is gaining traction and there are many opportunities. Indian companies would have to be cautious about investing in Russia. If the governments of both countries can amicably reach an agreement on mutual investment policies, it is certain that both countries would have much to gain from each other.”
These concerns got highlighted on the recent visit of Union Minister for Commerce & Industry and Textiles, Anand Sharma to Russia. In his bilateral meeting with D Rogozin, Deputy Prime Minister of Russian Federation, at St Petersburg, the Minister pushed for the opening up of opportunities to Indian pharma companies for favourable joint venture partnerships in Russia. He pointed out that Indian pharma products are of international standards and cheaper than other markets on an average by 30-40 per cent.
He outlined specific steps that need to be taken in this direction, mentioning that if Indian pharma companies wanted to participate in the Pharma 2020 Programme of Russia by setting up production units in Russia, this would require suitable facilitation by Russia.
He also asked for the streamlining the registration process, sharing of information on drugs that are imported by Russia and on assessed production volumes of strategically identified medicines.
“We are keen to participate in the Pharma 2020 programme of Russia where the Russian Government has ambitious plans to develop the pharma industry with an objective to reducing healthcare cost. I believe that India is best suited to partner with Russia in this endeavour and I would like our industry and regulatory bodies to work together to see that we are able to achieve the social health objective,” said Sharma.
Notwithstanding the many obstacles, Indian pharma companies have managed to operate in the Russian market. Companies like Glenmark Phama, Themis Medicare, Ranbaxy, Cipla, Torrent, Himalaya, Shreya Life Sciences and a host of other pharma companies have established their presence in the Russian market. Gajaria points out, “Though the returns are very low as compared to highly regulated markets, companies believe that eventually the Russian market will yield benefits owing to an evolving regulatory and political regime.”
Market scenario
The Russian pharma market is dominated by foreign manufacturers’ branded generics. From 2007 to 2008, drug consumption increased by approximately 26 per cent, while the share of domestic manufacturers fell to two per cent. In 2008, the share of domestic drugs in Russia was approximately 23 per cent in terms of value. The market share of biological products was approximately 39 per cent, of which domestic pharma companies manufactured only two per cent.
The Russian pharma industry is directly dependent on imports of bulk drug substances, approximately 70 per cent of which come from China and India. Imports have been increasing in recent years while domestic manufacturers’ share has been falling.
Conversely, in the hospital sector, domestic drugs’ market share increased from 19 per cent in 2008 to 22 per cent in 2010. In terms of life-threatening diseases, the share increased from a negligible figure in 2008 to 10 per cent in 2010. In 2010, there were 15,280 trade name drugs distributed in Russia, of which 13,860 were formulations and 1,420 were bulk drug substances. In 2008, although Russia had approximately 600 licensed pharma manufacturing companies, the collective market shares of 10 major companies amounted to more than 30 per cent.
“The Russian pharma market is fairly fragmented, and the top three companies in the ethical and OTC drugs segment contribute about 10 per cent and 21 per cent, respectively in 2010; Bayer commanded a three per cent share of the Russian ethical drugs market in 2010. The key players in the market include Pharmstandard (Russian), Novartis, J&J, Novartis, Sanofi Aventis, Teva, GSK and Gedeon Richter. These players (with the exception of Pharmstandard) are MNCs based in the US or Europe. Indian players thereby have a market share of less than two per cent”, adds Gajaria.
Government’s role
According to a GlobalData report the Russian pharma industry will continue to expand due to government initiatives and increased healthcare spending, predicts a new report by healthcare business specialists. The report states that Russia’s efforts to boost its pharma sector have been rewarded with strong and steady growth and the increased implementation of domestically produced treatments.
| Glenmark’s spokesperson in charge of the Russia market |
| It’s definitely an entry barrier for new players, but not a hindrance for established players like Glenmark operating in the Russian market for around three decades now. On the positive side, it ensures a level playing field and ushers greater quality |
In 2010, the Government of Russia announced several initiatives aimed at promoting the local pharma industry and reducing its dependence on imports. By 2020, the government aims to increase local pharma manufacturers’ contribution to 50 per cent (with about 80 per cent of these being innovative drugs). To give a boost to this plan, the Russian government introduced a new law in 2010 which stated that foreign manufacturers must also conduct clinical trials in Russia prior to registration, and the results of international trials will only be accepted if they were conducted with the participation of Russian patients.
Glenmark’s spokesperson in charge of the Russia market, opines, ”The new law requires clinical trials to be conducted locally in Russia, as per GLP norms. It’s definitely an entry barrier for new players, but not a hindrance for established players like Glenmark operating in the Russian market for around three decades now. On the positive side, it ensures a level playing field and ushers greater quality.”
| Sun Pharma’s spokesperson |
| Many of the drugs that are on the reimbursed list had seen price cuts, and this is likely to continue. But volumes continue to increase. So companies will have to decide on their strategies carefully |
Sun Pharma’s spokesperson seem to see a positive side to this move on the Russian government’s part, opining that though there have been regulatory changes like biostudies in local population, this is true of several other markets as well. “Many of the drugs that are on the reimbursed list had seen price cuts, and this is likely to continue. But volumes continue to increase. So companies will have to decide on their strategies carefully”, he opines.
He highlights the therapeutic areas with good potential in Russia oncology, cardiovasculars, diabetes and asthma; these areas that the Russian government is addressing on priority. More complex drugs would stand a likelihood of not being brought under price control.
Gajaria concedes that the rationale behind the new law is to establish the efficacy/ safety profile for a drug in keeping with the Russian population, because there are geographical factors that play a role in the patient profile and testing the drug on Russian patients will ensure that the drug is safe and efficacious for the Russian population. But he believes that this an extra hurdle that pharma companies have to cross to enter the Russian markets as it leads to delay in conducting clinical trials. “A clinical trial is a tedious and expensive procedure and may demotivate companies from targeting the Russian market,” he opines.
He continues, “In the light of the Russian market introducing various legislations to promote setting up operations in the domestic arena and at the same time discouraging imports, JB Chemicals & Pharmaceuticals Ltd (JBCPL’s) move last year to sell their portfolio at a good price was a wise decision. It was reported that JBCPL wanted to expand its reach in the Indian drug market. The deal created many opportunities for JBCPL in terms of increasing its financial flexibility and making it possible for it to focus on the Indian market and other markets of interest. The Indian pharma industry has been witnessing an ongoing trend of companies selling their leading brands/divisions. The sale of the I-pill from Cipla to Piramal, the Abbott- Piramal deal and the Reckitt – Paras deal are all examples of this trend. But looking ahead Gajaria seems to have a positive outlook saying, “It is apparent that the Russian government is in the process of strengthening the domestic market, a move that could seemingly hamper the export of Indian drugs to Russia. However authorities in India and Russia are working towards promoting the trade of pharmaceuticals between the two countries. Bilateral trade between India and Russia in 2011 stood at $5.965 billion. Both sides have set a target of achieving $20- billion trade by 2015.
As far as the entry of Indian players into the Russian market is concerned, both governments have expressed interest in collaborating (JVs) in the pharma space. It is hoped that the recent meeting between Union Minister, Anand Sharma and the Russian Deputy Prime Minister will result in faster action on this front.