Best Practices and Success Stories towards Effective Growth Strategies for the Soaring Russian Healthcare Market

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The fundamentals of the Russian Healthcare industry continue to be strong. A large population base, growing middle-class consumers, underpenetrated sectors, and low installed base all point toward a lucrative market. Attendees will learn about challenges in this diverse marker and pitfalls to avoid; hear about best practices and success stories; and gain insights on effective strategies.

Why Should You Attend:

- Learn best practices and what works and does not from the trenches
- Discover lessons to take from India and China and adopt to Russia
- Assess specific market opportunities for growth

Published in: Health & Medicine, Business
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Best Practices and Success Stories towards Effective Growth Strategies for the Soaring Russian Healthcare Market

  1. 1. Best Practices and Success Stories towards Effective Growth Strategies for the Soaring Russian Healthcare Market Key lessons and best practices vital to reap rewards from the hidden opportunity in Russia Healthcare September 4, 2013 © 2013 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
  2. 2. 2 Today’s Presenters 25 years of healthcare marketing consulting expertise, which includes engaging with global clients to develop and implement growth strategies. Extensive expertise in product launches, repositioning studies, pricing, due diligence and corporate strategy working with global top 25 companies across healthcare segments. Reenita Das, Partner Healthcare & Life Sciences USA Siddharth Saha, Research Director Healthcare United Kingdom Vitaliy Lehkvyy, Senior Consultant Moscow Dmitry Raspopov, Healthcare Analyst Moscow 15 years tracking healthcare industry trends in Europe and the emerging markets. Providing thought leadership and big picture business implications of research conclusions to commercial and executive teams within client organizations in the healthcare industry. 3 years of experience in market research and consulting in the healthcare markets. The core competencies include - industry strategic analysis, competitive analysis and benchmarking, country economy and policy analysis among other aspects of the healthcare industry. 5 years of research and consulting experience, with expertise in market assessment, competitive and policy analysis, product benchmarking. Experience base covering broad range of sectors: Healthcare, financial services, ICT, power generation and environment among others.
  3. 3. 3 Focus Points Covered in Today’s Briefing An Outlook on the Russian Healthcare Markets • Fundamentals of the Russian Healthcare Industry • Continued Growth Across Healthcare Segments • Top Opportunities in Life Sciences and Medical Technologies • Notable Business Models in Russia
  4. 4. 4 Fundamentals of the Russian Healthcare Industry
  5. 5. 5 Why Does Russia Continue to be an Attractive Market? The Metrics are Improving • Expenditure on healthcare – as a segment of overall household consumption – has nearly doubled in the past five years • Quantum leap in public sector expenditure to improve infrastructure The Russian economy is forecasted to expand at a CAGR of 3.6% in 2012- 2017, however, healthcare expenditure as a % of GDP is below the OECD average of 9.6% • Healthcare Development Program 2020 with budget allocated for specific programs • Strategy for Drug Provision • Technology Transfer and Commercialization Support Total Pharmaceuticals market ~ $25 billion, growing at 9.5% Medical Technologies segment valued at ~ $9 billion, growing at 13.9% Nearly 1 million more surgical procedures conducted as compared to 2000 Retail sales of drugs by ATC groups increased by 120 million packages for Cardiovascular, 79 million for rheumatology Source: Frost & Sullivan analysis.
  6. 6. 6 Why Does Russia Continue to be an Attractive Market? The Policies are Changing 2 Strategy for Drugs Provision until 2025 Looking to address the demand supply imbalance, distribution and access and reimbursement and last but not the least awareness and education 3 Strategy for Medical Science Development Looking to enable the transfer of innovation and technology to applied medicine – right trough from infrastructure development to commercialization of products 1 Healthcare Development Program 2020 11 sub-programs with an outlay of $200 bn, addressing morbidity, mortality, education, health service provision, diagnostics and therapy and quality of human capital 4 Development of Pharma and Medical Devices Industry 2013-2020 Creation of competitive and innovative Russian Pharma and Devices Industry sub sectors in the long term
  7. 7. 7 Perseverance Needed to Deal with the Headwinds Timing, Positioning and Strategy are Key Source: Frost & Sullivan analysis. Leveraging on the opportunity does not come easy, with the complexities introduced due to mandates for localization & import restrictions as well as the rigid perceptions of clinicians and consumers alike • Import restrictions on finished goods • Mandate to increase the localisation content • Restrictions on import of drugs • Lengthy registration processes • Will the 2020 plan actually pan out? • Will the far flung areas in the Country realise the benefits of funding • Will policy be consistent? Distribution challenges Budgets for procurement Switch criteria for end users Ideal local partner selection
  8. 8. 8 Poll Question Healthcare Development Program 2020 The State has outlined an ambitious program to incentivize the development of the local medical devices and pharmaceuticals industry in Russia, improve infrastructure, skills, funding and access to care in the medium term. Qs. What in your opinion is the continuing challenge for medtech and pharma suppliers in Russia? Rank in decreasing order of impact: 1. Transparency with regard to rules of the road for international players 2. Ability of this program to influence medical care quality in far flung areas 3. Resources, both financial and human skills to support a self sustainable local industry 4. Opportunity for local Russian suppliers/ manufacturers to flourish 5. Realistic budgetary outlays under Federal or Regional quotas to enable care
  9. 9. 9 Growth Across Healthcare Segments
  10. 10. 10 Pharmaceutical Sector in Russia – I 7th Largest Pharma Market Globally The total pharmaceutical market in Russia was valued at $24.9 billion in 2012 and is forecasted to expand at a CAGR of 9.5% till 2017. This in spite of mandates on prescription guidelines. Key therapeutic areas act as engines for this growth. 0 2 4 6 8 10 12 14 16 18 20 5.2 5.4 5.6 5.8 6 6.2 6.4 6.6 Attractiveness Russia Brazil India China Growthrate Size of the bubble represents relative pharma market size Source: Frost & Sullivan Analysis Can Russia replicate the success of China and India in the pharma sector?
  11. 11. 11 Pharmaceutical Sector in Russia - II The 2020 Pharmaceutical Development Program’s major goal is to secure at least 50 per cent of drugs (in value terms) through domestic sources. Another notable milestone is the mandate that all domestic manufacturers comply with GMP standards by January 2014 20% 80% 50%50%2009 2020 Pharmaceuticals Market: Strategy Pharma 2020 Timeline 2018-2020: Development of export potential of the pharmaceutical industry 2013-2017: Development of domestic pharmaceutical market 2009-2012: Localization of manufacturing and development of drugs in Russia Growing Importance of Generics
  12. 12. 12 Pharmaceutical Sector in Russia – III Cost-cutting measures being implemented in the pharma industry will favour generics penetration Pricing  Current price controls apply to approx. one third of drugs sold.  The Russian government has regulated the prices for essential medical products, and monitors (maximum) margins for all transactions throughout the supply chain. Separate regulations for factory price, wholesaler and pharmacy mark-ups. Reimbursement • 2 National Reimbursement Programs: • 7 Diseases: covers drugs for expensive treatments. • ONLS (state reimbursement) provides necessary drugs to socially vulnerable groups • MoH regulates the reimbursement process. • High level of patient co-payment. Impact • Ministry of Health is currently developing legislature to further link ZNVLS listed drugs with treatment standards, preferential drug provision and pharmaceutical procurement.  Drug pricing will be more controlled with price regulation for ZNVLS-listed drugs. Manufacturers will be obliged to perform annual registrations of the maximum factory price calculated according to the Ministry of Health’s methodology.  The maximum selling price of a Russian manufacturer will be based on prices for similar (according to INN, form and dosage) pharmaceuticals in Russia.  The maximum selling price of a foreign manufacturer will be based on the minimum price for a pharmaceutical drug applicable in the country of the manufacturer’s registration.  ZNVLS would be a double-edged sword for pharmaceutical manufacturers, both ensuring stable sales via governmental contracts and at the same time driving profits margins down , particularly for generics manufacturers.
  13. 13. 13 Medical Devices Sector in Russia – I Immense Addressable Market that is Untapped due to Low Procedure Volumes 4.1 4.6 5.3 6.0 6.9 7.8 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2012 2013 2014 2015 2016 2017 RevenuesUSDbillion Total Medical Devices Market: Revenue Forecast Russia, 2012-2017 CAGR (13.9%) The Russian medical devices market was valued at $ 4.1 billion and is forecasted to grow at a CAGR 13.9% in the next 5 years Source: Frost & Sullivan analysis.
  14. 14. 14 Medical Devices Sector in Russia - II Underlying morbidity levels in the population, and the predicted increase in procedure volumes is seen to influence opportunities across segments - cardiovascular devices with 15% share, followed by ophthalmology (14%) and orthopedic devices (11%) are the largest segments among others. Along with the aim of increasing the share of domestic production of medical devices from 18% to 40% by 2020, the Development Strategy for the Medical Industry 2020 aims to increase the export share of domestic production to 25% Federal Quotas for the Following Specialities: Oncology, Urology, Gynaecology, Neuro Surgery, Cardio Vascular Surgery etc.
  15. 15. 15 Medical Imaging Sector in Russia - I Source: Frost & Sullivan analysis. The Medical Imaging market was valued at $ 1.2 billion and is forecasted to grow at a CAGR of 11.9% in the next 5 years. Technology transfer and localization requirements is resulting in MNC’s partnering with local players and in some cases setting up manufacturing facilities as well. 1,138 1,273 1,425 1,597 1,788 2,001 0 500 1,000 1,500 2,000 2,500 2012 2013 2014 2015 2016 2017 Revenue,USDmillion Total Medical Imaging Market: Revenue Forecast Russia, 2012-2017 CAGR (11.9%)
  16. 16. 16 Medical Imaging Sector in Russia - II Source: Frost & Sullivan analysis. Below average per capita installed base, obsolete models and increasing utilization for diagnostics and therapy especially in oncology and cardiovascular specialties is driving growth in the imaging equipment business sector $1.2 billion Imaging Equipment market is driven by sales across Ultrasound, X-ray as well as high end modalities like CT, MRI and PET
  17. 17. 17 Private Healthcare Services Sector in Russia Double Digit Growth Driven by Govt. Stimulus Source: Frost & Sullivan analysis. CAGR 2012-16: 14.7% 11.8 13.5 11.2 13.9 16.5 19.0 21.8 24.9 28.6 32.8 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 USDbillion Fee-for-service Healthcare Market Revenues Stimulation of the private healthcare market by way of supportive regulatory measures – zero income tax, VAT exemptions, mandatory health insurance extension to population; Increase in consumption by affluent segments of population and drive through general Govt. sponsored health initiatives; participation by private investors
  18. 18. 18 Top Opportunities Across Life Sciences and Medical Technologies
  19. 19. 19 Top Opportunities Across Life Sciences Market Revenue $36 bln (2016) Top Growth Opportunities Russia poised to benefit from Localized Manufacturing Therapeutic drugs market showing significant upside for cardiovascular, o ncology, rheuma tology Clinical Trials and Contract Research capabilities to continue to grow in Russia Trends at a Glance: • Increase in consumption of high end drugs, as income goes up • Tier 1 MNC’s have partnership and / or manufacturing arrangements at local level – complying with domestic production guidelines • General push towards prescribing generics and interchangeable drugs
  20. 20. 20 Top Opportunities Across Medical Technologies Top Growth Opportunities The addressable market for orthopaedics is immense, as procedure levels are low on a per capita basis . Minimal invasive procedures, cardi ovascular procedures set to drive devices consumption Imaging equipment installed base is obsolete & due for up- gradation Market Revenue $9 bln (2016) Trends at a Glance: • Major impetus being provided by orthopedics, trauma, minimal invasive surgery, instrumentation, wound care and capital equipment in imaging diagnosis • State investment body actively partnering with international investors to set up domestic capability • The 2020 plan may result in better independence of regional budgets
  21. 21. 21 Notable Business Models in Russia
  22. 22. 22 Notable Business Models in Russia Pharmaceuticals Industry beginning to Reap Dividends Pharmaceutical industry leading the way in complying with Pharma 2020 guidelines, International players do not want to miss out on the business opportunity Local Manufacturing Capability: • Novartis (new facility) - planned • Abbott Laboratories - planned • Takeda - commenced • Novo Nordisk - commenced • GSK - partnership • Sanofi - ramping up • Merck & Co. (CM) - extension Investment into New Entities: • NovaMedica - Domain Associates and Rusnano collaboration (negotiating licensing rights from international drug and device developers) These initiatives are in support of Russia’s attempt to build out its domestic drug and device manufacturing industry by forcing participants / investors to build manufacturing plants and transfer technology
  23. 23. 23 Notable Business Models in Russia Devices Players Needing Perseverance Leading supplier of advanced wound care products that is growing at 20+% annually in Russia, started operations in 1997. Russian operations one of the most profitable divisions in Europe. Key to Success Included the Following Strategies:  Early development and nurturing of strong distribution channels to support a wide portfolio of 2,500 products  Enhancing local manufacturing capabilities and beefing up logistics operations near Moscow  Educational programmes for clinicians, nurses, social workers, patients and families  CSR initiatives include programme of discounted products for the disabled Devices companies also need to ride the wave of reform; Infrastructure improvement initiatives, specific investment programs in cardiovascular, oncology and surgery provide the impetus for device and consumable usage
  24. 24. 24 Notable Business Models in Russia Healthcare Services Investors are Cautiously Increasing Exposure to Russia Several international investment entities are now realizing the benefits of ever-growing private healthcare services market in Russia. The evolving mechanism of public- private partnership in healthcare is likely to attract further investments in this field Healthcare Service Businesses Created: • Euromedic International – chain of dialysis centers divested to Fresenius in 2011, plans to build oncology diagnostics and treatment facility • Invitro – over 300 in-vitro Diagnostics Laboratories across the country, franchising model • MD Medical Group (Mat i Ditya) – maternity hospitals and pediatric care; successful $300+ million IPO at London Stock Exchange in 2012 • International Financial Corporation (the World Bank) - $35 million investment in JSC Medicina (oncology) • Sberbank and John Hopkins International – an estimated $1.2-1.5 billion investment in medical cluster outside Moscow (planned)
  25. 25. 25 Outlook for the Russian Healthcare Industry Healthcare Development Program 2020 The State has outlined an ambitious program to incentivize the development of the local medical devices and pharmaceuticals industry in Russia, improve infrastructure, skills, funding and access to care in the medium term. Possible Outcomes: • Positive business outcomes will be experienced by market participants in the long term in spite of the execution plans being unpredictable • Import restrictions will definitely help the local manufacturing industry, as technology transfer will help plug the local innovation gap • R&D hubs and centers of innovation will be created over time •
  26. 26. 26 Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities
  27. 27. 27 Your Feedback is Important to Us Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by “Rating” this presentation. What would you like to see from Frost & Sullivan?
  28. 28. 28 http://twitter.com/frost_sullivan Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter http://www.facebook.com/FrostandSullivan https://www.linkedin.com/groups/Transform-Health-Frost-Sullivan-4823253 http://www.slideshare.net/FrostandSullivan
  29. 29. 29 For Additional Information Jennifer Carson Corporate Communications Healthcare +1 (210) 247 2450 Jennifer.carson@frost.com Andrey Uglovsky Business Development Russia +7 499 213 0273 andrey.uglovsky@frost.com Siddharth Saha Director of Research Healthcare +44 (0) 207 343 8374 siddharth.saha@frost.com Reenita Das Partner Healthcare & Life Sciences +1 (408) 857 9386 rdas@frost.com

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