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Prescription for growth


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Prescription for growth

  1. 1. The RussianFederationPrescription for growth*Part 5: The Russian pharmaceuticalsmarket is growing very fast, and theclinical trials sector is booming. But anycompany that wants to do business therefaces considerable challenges*connectedthinking
  2. 2. The pharmaceuticals market in the Russian Federation is growing very rapidly,with six consecutive years of economic growth and a corresponding rise in livingstandards. But the state-run healthcare system is seriously under-funded and mostRussians cannot afford the best new drugs. Moreover, the country still suffers fromSoviet-style management practices; political interference remains a real risk; and theadministrative and legal system is very weak. Russia thus offers genuine opportunitiesboth for selling and testing pharmaceuticals, but these opportunities come with somesubstantial challenges.
  3. 3. The pharmaceutical industry’s So where should the industry performance – which prompted the growth in the third quarter of 2004. But,main markets are under serious leaders look next? Analysis by major ratings agencies to raise the with crude oil exports bringing in overpressure. North America, Europe PricewaterhouseCoopers shows that country’s sovereign credit rating to BBB- $500 million a day, it is now back on several regions offer considerable (investment grade) at the start of 2005 track. PwC Macro Consulting estimatesand Japan jointly account for potential, either as areas with untapped – has been fuelled primarily by energy that the economy will increase by 6.0% inmore than 82% of total global demand for innovative drugs or as exports. Russia possesses huge coal 2006, and that it will rise by another 5.5%pharmaceutical sales – which suitable places for conducting research and natural gas reserves. It is also rich in 2007 – more than in any country exceptreached US$ 602 billion in 2005, and development (RD). In our fifth article in non-fuel minerals such as iron ore, China and India (see Figure 1).according to IMS Health. But we shall focus on the Russian Federation. manganese, chromium, nickel, platinumNorth America and Europe are and titanium. If it can overcome its current difficulties, Russia’s long-term economic potentialexperiencing quite sluggish However, several factors have impeded may be even greater. US investmentgrowth; sales rose 5.2% in the its transition from Communist heartland bank Goldman Sachs has identified itformer and 7.1% in the latter. And Russia’s strong economic to modern industrialised state. Soviet- as one of the four biggest developingthough the Japanese market saw performance era management practices are still economies (together with Brazil, Indiaits highest year-on-year increase widespread and the infrastructure and China), and estimates that real GDPsince 1991, with sales rising 6.8%, The Russian economy has been requires substantial investment. Higher will grow by between 4.8% and 1.9% a growing rapidly. In 2004, real gross marginal tax rates in the oil industry and year for the next 45 years. Should thisthis was still a much slower rate domestic product (GDP) rose 7.2%, higher production costs, as a result of happen, Goldman Sachs predicts thatof growth than various emerging marking the sixth consecutive year rapidly rising wages and the appreciation Russia could overtake Italy in 2018,countries experienced. of economic expansion. The federal of the rouble, have also taken their toll. France in 2024, the UK in 2027 and budget ran a record surplus of 4.2% Germany in 2028 – making it the world’s and inflows of foreign direct investment All these problems contributed to a sixth-largest economy, measured by GDP peaked at $9.4 billion. This remarkable marked slowdown in Russia’s economic (see Figure 2). Figure 1: The Russian economy is expected to grow more rapidly than the economies of almost every other Figure 2: Russia could become the world’s sixth largest economy by 2050 country in the world *GDP for India refers to fiscal years beginning 1st April Source: PwC Macro Consulting Source: Goldman Sachs, “Dreaming with BRICS: The Path to 2050”
  4. 4. Higher living standards but Furthermore, although living standards regularly participate in sports or fitness- over one million and the United Nations have improved, the health of the nation related activities; hence the fact that Development Fund reports that the rateshorter lives has deteriorated significantly since the the mortality rate from cancer and heart of infection is amongst the highest in break-up of the Soviet Union in 1991. Life disease is much higher in Russia than the world.Russia’s economic strength has already expectancy at birth is now just 65 years it is in many other transitional countriesboosted living standards. Goskomstat, – a full decade less than it is in many (see Figure 4). Alcohol abuse is another The effect on the Russian populationthe State Statistics Service, reports that developed countries – while the infant major problem and health experts believe is already visible; it has fallen from 147between 2001 and early 2005 the average mortality rate is three times higher than that it accounts for half of all accidents million to 143 million over the pastdollar wage tripled from $79 to about it is in the EU or US. The discrepancy – the second leading cause of death. 16 years, even with surging levels of$240 per month, while the proportion of between the life expectancies of men The number of people killed in traffic immigration from former Soviet states.the population living below subsistence and women is especially notable; at accidents, for example, is almost the But the long-term impact could be farlevel fell from 28.9% to 17.8%. But GDP 59 years and 72 years respectively, same as it is in the US, a country with worse. Goskomstat predicts that, ifper capita (adjusted for purchasing power these are the lowest figures and largest 100 times as many cars on the road. current trends continue, the populationparity) is still much lower than it is in the difference by sex for the population of could plummet to just 80 million by 2050.US and EU, including many of the new any country reporting to the World Health The prevalence of infectious diseasesmember states (see Figure 3). Organisation (WHO). is also on the rise. Russia ranks 11th on the WHO’s list of 22 countries with aThe gap between rich and poor is also The stress generated by the economic high incidence of tuberculosis; Hepatitis A healthcare system underconsiderable. In the first half of 2005 and social upheaval of the past 15 years C from intravenous drug use is growingthe wealthiest 10% of the population has played a big part in this decline, rapidly; and the spread of HIV/AIDS is huge strainreceived 29.6% of the country’s total compounding the adverse effects of even more alarming. According to officialincome, while the poorest 10% received widespread smoking, a diet high in statistics, there were 300,000 cases Despite all these problems, Russia’sonly 2%. Indeed, according to Forbes animal fats and lack of exercise. An of HIV in early 2005, but independent expenditure on public healthcare hasmagazine, Russia has more billionaires estimated 67% of Russian men and 33% estimates put the actual number of been dropping. Government financingthan any other country except the US. of Russian women smoke, while only 6% people infected with the disease at of the state-run, free-for-all system Figure 3: GDP per capita in 2004 is lower in Russia than it is in many Western countries Figure 4: The mortality rate from chronic diseases is much higher in Russia than it is in other transitional countries Source: World Health Organisation Note: Age-standardised death rates from chronic disease (per 100,000) Source: CIA World Factbook by country for ages 30-69 years, estimates for 2005
  5. 5. has shrunk by more than a third since private health insurance than to pay the major changes to the social protectionSoviet times; in 2004, for example, it equivalent in wages. Private healthcare system with the signing of Law #122-FZ Changes to the socialwas just 2.8% of GDP, roughly half the is also expensive, since it is largely (see sidebar on Changes to the sociallevel many developed countries invest. supplied by inefficient public facilities. protection system). protection systemMoreover, the system is badly organised, So private schemes will probably remainwith the result that much of the money the preserve of the wealthy for many Law #122-FZ came intoit consumes goes on maintaining a vast years to come. effect on 1 January of hospitals rather than providing A small but fast-growing It replaced a number ofprimary care. And because funding is The federal government is also makinglargely regional – there are 89 regions visible efforts to address the worst of pharmaceuticals market existing social subsidies– standards vary widely from one area to the problems in the public sector. It has and guarantees to certainanother; some rural hospitals have no hot lifted funding for the healthcare system to For obvious reasons, then, Russia categories of the population,water, while some have no running water $3.6 billion this year – an 89% increase still spends relatively little on including victims ofat all. on the $1.9 billion it allocated in 2005. It pharmaceuticals. IMS Health estimates Chernobyl and war veterans, has also proposed a number of reforms, that, in 2005, the market was worth with cash benefits. It alsoThe vast majority of Russian patients such as switching to direct financing just $3.74 billion. That said, the markettherefore have to dip into their own of medical services; reducing the free has increased substantially since the transferred responsibility forpockets to cover their medical costs, medical assistance guaranteed by the economic crisis of 1998 and is now compensating those whosince the government reimburses state; closing down a large number of one of the fastest-growing in Europe. were previously entitledless than 30% of expenditure on hospitals; emphasising primary care; and Between 2000 and 2004, sales of to subsidised healthcarepharmaceuticals. They are also routinely increasing doctors’ salaries by paying pharmaceutical products more than and drugs from the federalforced to bribe medical staff to obtain them for the treatments they dispense tripled. Currency fluctuations played a government to the regionalservices which are supposed to be free rather than the hours they spend at part in the rise, but the market still moreof charge. Research conducted by the a desk. These reforms have yet to be than doubled in constant dollar terms authorities. The governmentINDEM Foundation, one of Russia’s implemented (and some of them may (see Figure 5). This upward trend is allocated $1.8 billion forleading non-governmental organisations, prove quite difficult to introduce), but the expected to continue; sales are forecast funding this new programme,suggests that in 2004 Russians spent government has already made several to increase by about 10% a year between which covers 14 millionabout $400 million on such under-the- people and more than 2,300counter payments (compared with $600 Figure 5: The Russian pharmaceuticals market has been growing steadily for the past six years medicines, in 2005. Butmillion the previous year). industry experts questionThe weaknesses of the state healthcare whether this will be enoughsystem have driven an increasing number to redress the lack of publicof people into the private sector, although funding for medical treatmenthealth insurance is still relatively rare. and drugs.State insurance company Rosgosstrakhreports that premiums on optional healthinsurance reached 38.8 billion roubles($1.1 billion) in 2004 – up 25% from 2003– and predicts that the market will growby 13-16% a year for the next few years.However, corporate policies account formore than four-fifths of all premiums,because it is often more economicallyadvantageous for companies to offer Source: IMS Health
  6. 6. 2006 and 2010, on the back of rising which passed a first reading in the State unlike China, India or large parts of Latin percentage than in any other marketincomes, greater government expenditure Duma, would have required doctors to America, Russia does not have a history except China (see Table 2). In the US,and improvements in distribution. use international non-proprietary names of using competing alternative therapies. UK, France, Mexico, Hungary and and given pharmacists responsibility In 2004, for example, treatments for high Czech Republic, by contrast, the shareGenerics currently account for the lion’s for deciding whether to dispense a blood pressure and cardiac therapies held by the top 10 companies is moreshare of the market – particularly in the branded product or generic equivalent. accounted for 6.4% of retail pharmacy than sector, which generates 20% of But it was opposed on various grounds sales and 2.5% of hospital sales,all pharmaceutical sales. Indeed, 78% of and subsequently seems to have sunk while psychoanaleptics accounted Sanofi-aventis leads the way; Russiathe 13,000-odd drugs that are registered without trace. for 3.6% and 3.3% respectively (see is one of its main markets for over-the-in Russia are generics. However, the Table 1). Demand for drugs for cancer, counter (OTC) drugs. But Novartis isretail sector, which accounts for the At present, then, the market for branded AIDS and diabetes is likewise on battling hard to catch up. Sandoz, itsremaining 80% of sales, also features products is still quite strong, and the the rise. The potential for low-cost generics arm, reported sales growthmore expensive branded products and is majority of those drugs come from generics producers and for Western of more than 30% in Russia betweengrowing much more rapidly. overseas suppliers. Russia imported manufacturers operating at the top end January and September 2005, under the more than 60% of all the pharmaceuticals of the market is thus greater than the supervision of Metod Dragonja, formerConcerns about the increasing it used in 2004 – nearly two-thirds of initial picture might suggest. chairman of Lek. Servier has also beenamount of money consumers spend them from companies in Western Europe, expanding its Russian presence overon drugs prompted the introduction of the US, Canada and Japan. Demand for The market is also ripe for consolidation. the last few years. It sells six of the topa controversial bill to enforce generic new treatments for chronic diseases and The top 10 companies account for 100 prescription drugs and increased itsprescribing in July 2005. The measure, stress is particularly pronounced and, just 32.5% of sales – a much lower share of the retail pharmacy market from 2.2% to 2.9% (measured by value) in 2004, while Menarini leapt to first place, Table 1: Top 10 anatomical therapeutic chemicals by Table 2: The top 10 companies account for less than a third of sales with 3.7%. sales value ATC group Share in pharmacy sales, % 2004 sales ($m) Growth, US$ % Growth, constant % of market 2003 2004 currency % Limited domestic production Antibacterials for systemic use 6.4 6.9 Total Russia 3069 45 36 100.00 Analgesics 5.7 6.5 sanofi-aventis 203 47 38 6.6 In fact, local production is now quite Vitamins 4.9 5.2 Novartis 137 53 44 4.5 limited. During the Soviet era, Russia’s Agents acting on the 3.9 4.0 Servier 113 66 57 3.7 pharmaceutical industry was under Rhenin-Angiotensin system Gedeon Richter 106 41 33 3.5 federal control and supplied 70% of Psychoamaleptics 3.6 3.7 Menarini 105 84 73 3.4 the country’s needs. Today, most of the Cough and cold preparations 3.4 3.5 Pfizer 88 48 40 2.9 700-odd domestic drug manufacturers Sex hormones and modulators 3.2 2.9 Krka 66 41 32 2.2 focus exclusively on the production of of the genital system generics. The relatively low prices of Valeant 64 38 30 2.1 Antiinflammatory and 3.0 2.7 such products, compared with imports, GlaxoSmithKline 61 21 14 2.0 antirheumatic products explains why, according to research Roche 54 56 47 1.8 conducted by DSM Group, domestic Immunomodulationg agents 2.9 2.5 Cardiac therapy 2.5 2.6 Top 10 997 32.5 production accounted for 69% of sales Total Others 2072 42 34 67.5 measured by volume, but only 25% of 39.3 40.5 sales measured by value, in the first half Source: AIPM-RMBC Market Bulletin of 2005. (February 2005) Source: IMS Health
  7. 7. The variable quality of domestic drug expanded into pharmaceuticals with CenterWatch reports that there were However, any company conductingproduction is a major problem. Many the purchase of a majority stake in the 523 new trial starts in 2004, including clinical trials in Russia must overcomecompanies economise on raw materials, Moscow-based Akrikhin. 252 international studies, 167 local several serious obstacles. Languagefor example. Indeed, some industry studies of local or international products is one major barrier. All study-experts estimate that only 15% source and 104 bioequivalence studies. This related documents usually need todirectly from manufacturers; the rest buy represents a 118% increase on the total be translated into Russian becausetheir materials from offshore sources An under-funded number of trials started five years ago. the study personnel lack sufficientand the quality of such materials is often The number of international studies has English – and this presents the addedinferior or the expiry date is imminent. research base risen an even more significant 136% over challenge of using the Cyrillic alphabet.Most Russian drug makers also lack the same period. There is also a shortage of trained andmodern manufacturing facilities – and If domestic pharmaceutical production experienced local staff to manage trialsthough the government introduced a new has suffered since the end of the The introduction of Good Clinical in some parts of the country.national standard for good manufacturing Communist era, so has medical research; Practice (GCP) regulations in 1999practices (GMP) with effect from January chronic under-funding has eroded the accounts for much of the surge. But,2005, it will take them a number of years country’s formerly strong scientific base. like other transitional countries, Russiato comply with the rules. In 1992, Russia employed about 900,000 has several additional advantages. The Distribution and retailing researchers in military, medical and other patient population is treatment-naïve andYet, despite the relative lack of domestic forms of research. By the start of the keen to participate in clinical trials, forproduction, very few multinationals millennium, it employed just 450,000 example, because this is the only way As clinical development becomes easier,currently have manufacturing operations researchers – of whom only about most people can secure access to new so the distribution network is alsoin Russia – although there are signs that 100,000 spent more than half their time drugs and high standards of medical improving. It is still quite fragmented;this may soon change. In a survey of the exploring new terrain. care. They are also easier to reach than there are an estimated 4,000 registeredleading foreign manufacturers recently patients in countries where primary care distributors, ranging from national andconducted by PwC and the Association However, a few centres of excellence plays a much larger role (see Table 3). regional firms to niche operations whichof International Pharmaceutical have survived and the country still In large cities such as Moscow and specialise in particular products orManufacturers (AIPM), 33% said that they retains a strong position in certain St Petersburg (with populations of 8.3 working with particular manufacturers.were thinking about establishing their therapeutic areas such as immunology million and 4.6 million respectively), mostown production facilities in Russia within and virology. In 2004, for example, patients are seen at the big teaching Table 3: Medical resources in Russia (2004)the next two or three years, and 19% Biomed launched Affinoleukin, a new hospitals. But even in less urban areas,said that they were thinking about doing active substance that boosts the cellular healthcare is provided primarily throughso within the next five years – largely immunity of patients suffering from specialist medical centres.because they are concerned about the persistent bacterial or mycotic diseases. Number of physicians per 10,000 population 48competition or keen to expand their Shekovsk Vitamins launched a second The Russian government has also taken Number of medium-level medicalregional cover. new active substance – a nootropic drug a number of steps to open its health personnel per 10,000 population 109 called Phenotropil. system to foreign clinical research andSeveral generics manufacturers reduce the bureaucracy. And since many Number of hospital beds perhave also acquired local facilities. In doctors earn less than $100 a month, 10,000 population 113January 2005, for example, Germany’s they are often eager to supplement their Number of medical institutions providingSTADA Arzneimittel beat off several Clinical development incomes by working as investigators outpatient care per 10,000 population 22other suitors with an €80m-€85m bid or even as clinical research assistants.for Nizhfarm, Russia’s fourth-largest Lastly, the cost savings are considerable; Capacity of polyclinics (visits per shift)pharmaceutical producer. Similarly, Though Russia’s pure research base the clinical fees element in the overall per 10,000 population 251Health Tech Corporation (the holding may have been decimated, it is rapidly cost of a trial may be as much as 50%company behind a Cypriot firm which becoming an increasingly attractive less than it is the West. Source: Goskomstatmakes biologically active food additives) place in which to conduct clinical trials.
  8. 8. But only 700 of these firms are major Intelligence and Remedium suggests Organisation (WTO), with which itImport tariffs players, and the sector is consolidating that OTC drugs currently constitute is actively negotiating to become a rapidly. The top three distributors – CV about 35% of total pharmaceutical member. The new code simplified the Protek, SIA International and Shreya sales, although the average unit price is customs process and established aRussia revised its tariff Corporation – now control 40% of just $0.68. comprehensive list of documents andsystem in January 2001. the market. data required for the customs clearanceUnder the current regime, of goods. However, it has not yet beensome medicines are exempt The leading distributors wield fully implemented and some customsfrom customs duties. Tariffs considerable power. SIA International Red tape facilities have been slow in making the has just bought a stake in three shift to new procedures (see sidebar onotherwise range from 5% manufacturing plants run by the Pharm Import tariffs).to 20%, depending on Center Group, which specialises in the The Russian pharmaceuticals market haswhether the product being production of antibiotics, for example. more promise than might first seem the The import licensing procedureimported constitutes raw Similarly, CV Protek has invested in case, then. Yet Russia is by no means an can likewise be quite burdensome.materials, semi-finished several facilities for producing generics easy country in which to trade. The old Import licences and activity licencesgoods, foodstuffs or finished and a number of pharmacy chains. Soviet system has been comprehensively are required for all pharmaceuticals, dismantled, but the administrative, and the licensing requirements areproducts. Value Added Tax This interest in the retail sector reflects tax and legal framework is still very very broad and often confusing. In(VAT) is also applied to almost the speed at which it is expanding; inefficient. December 2002, the Russian Ministryall imports at the current Russia now has more than 20,000 of Health also established a mandatoryrate of 18% – although there pharmacies and about 5,000 smaller In January 2004, for example, Russia conformity assessment scheme, whichis a fixed rate of 10% for outlets such as kiosks, over 40% of introduced a new Customs Code duplicates some of the other certificationpharmaceuticals and medical which are privately owned. But it is also to bring its customs regimes and requirements. The ministry intended to a way of capturing a share of the OTC procedures more closely into line with replace this scheme with self-certificationequipment. market. Research from Espicom Business the requirements of the World Trade in 2004, but it has not yet issued any new guidelines. Figure 6: Deterrents to production in Russia The bureaucratic challenges are even greater for companies setting up manufacturing operations in Russia. Indeed, research conducted by PwC and AIPM shows that red tape is one of the biggest obstacles cited by foreign pharmaceutical companies thinking of setting up production facilities there (see Figure 6). Political interference Source: PricewaterhouseCoopers/Association of International Pharmaceutical Economic and political risks come a Manufacturers Survey, 2005 close second on the list of deterrents multinationals cite – arguably with good
  9. 9. cause. Indian pharmaceutical company One such instance of the potential WTO. At present, for example, it does 3.5% and 12% of the pharmaceuticalsDr Reddy’s Laboratories has already minefield facing overseas investors is the not provide protection for test data market in Russia, although independentfallen foul of the authorities in the course so-called “Grandfather Clause”, which for pharmaceuticals. The enforcement experts suggest that the figure could beof trying to sell its stake in the formerly theoretically gives preferential treatment regime is also weak; judicial corruption higher – and domestic manufacturersstate-owned Biomed Russia to another to “priority” projects undertaken by is endemic, and the legal system is are thought to be amongst the mainRussian firm. Moscow’s office of the Russian companies in which foreign ill-prepared to handle sophisticated culprits. In 2003, the ministry suspendedpublic prosecutor issued an injunction shareholders own more than 25% of patent cases, although a specialised the licences of 321 pharmaceuticalsordering the return of the shares to the equity. The clause stipulates that all higher patent chamber has now been companies for manufacturing and tradingthe authorities, on the grounds that such companies should be protected established, bringing greater expertise in counterfeit medicines.Dr Reddy’s had failed to implement from increases in federal taxes and and efficiency to the resolution ofthe investment programme to which import duties until the initial investment patent disputes. Russian Health Minister Mikhail Zurabovit had committed itself when it bought has been recouped, but since there also promised that the ministry wouldits stake in the vaccine producer in are no corresponding tax and customs develop a new system for supervising1995. But political considerations may regulations the relief it affords is entirely pharmaceutical production; however,also have played a part in the legal hypothetical. Corruption it has not yet done anything. Onetussle; according to several newspaper suggestion is to mark products withreports, Biomed stores vital vaccines Nevertheless, the government has a bar code and hologram, but fewfor the Russian Ministry of Emergency now introduced certain incentives In fact, corruption is rife in Russia industry commentators believe this willSituations – prompting queries as to (including exemptions from customs – and, if anything, getting worse. work, since the use of special marks forwhy the government allowed Dr Reddy’s duties and VAT in respect of charter The latest Transparency International licensed video and audio productionto acquire shares in such a “strategic capital contributions) which may be Corruption Perceptions Index ranks has done nothing to stop the Russianfacility” in the first place. attractive to foreign companies setting Russia 126th on the list of 159 countries market from being flooded with fake up manufacturing operations in Russia. surveyed and reports that the situation DVDs and CDs. It has also supported the creation has deteriorated since 2004 (when of special economic zones, like the Russia was ranked 90th). A wide-Foreign investment Kaliningrad economic zone, which ranging study released by the INDEM provide customs and tax breaks for Foundation confirms these findings. It A weak infrastructure investors and companies operating in estimates that companies pay aboutThere are also numerous official and such areas. $316 billion in bribes every year, and thatunofficial barriers to overseas investment the average “sweetener” is $135,800 Russia’s transport infrastructure isin Russia, a fact that explains why – 13 times more than in 2001. Moreover, also lacking in a number of respects.Russia does relatively badly in the government officials are amongst the It possesses one of the largest railinternational competition for foreign Poor enforcement of worst offenders, even though President networks in the world, but the shift fromfinance. According to preliminary Putin came to power vowing that he a planned economy to a market-drivenbalance-of-payments data from the intellectual property rights would fight corruption. economy has dramatically changedCentral Bank of Russia, foreign direct the demands on the transport sector,investment (FDI) flows into the non- Russia’s poor record of enforcing producing conditions that favour roadfinancial sector reached $16.7 billion intellectual property rights is another rather than rail transport. Rail freightin 2005, but Russia’s total cumulative source of concern. It has been on the Counterfeiting volumes are now about 60% of theirratio of FDI to GDP is still only about US Special 301 Priority Watch List historical peak – and lower revenues6%. This is six times less than the since 1997, and its failure to comply have prevented the system from beingamount China attracts and less than with the TRIPS Accord on trade-related Counterfeiting is another major problem. maintained as thoroughly as it should‑third of the level in many other aspects of intellectual property rights According to the Russian Ministry fortransitional economies. remains one of the biggest stumbling Healthcare and Social Development, The situation when it comes to roads is blocks in its negotiations to join the fake drugs currently account for between even worse. The Russian government
  10. 10. recognises the importance of creating border. It therefore makes sense to targeta viable transport infrastructure, but the these areas first.World Bank estimates that it is spendingless than a sixth of the money required to Even so, the limitations of Russia’sproduce a road network that will meet the transport infrastructure and the fact thatcountry’s future needs. Despite a 35% distribution is particularly important inincrease in the last decade, for example, a highly competitive market dominatedthe density of the road network in by generics mean that any WesternWestern Russia (where traffic is greatest) company wanting to break into Russiais still only one-sixth of that in Latvia, will have to form a strategic partnershipone-fifth of that in Estonia and one-third with a distributor – and, here, the mid-of that in Ukraine. sized firms offer most promise. They are generally more willing than the leading distributors to work with a wide range of products and establish long-termStrategies for entering relationships with manufacturers and retail outlets.the market New entrants may also want to considerYet the difficulties associated with forming an alliance with a local producer;trading in Russia should not obscure its this is often an easier way of securingpotential. The Russian pharmaceuticals a foothold in new markets than settingmarket has grown faster than the up independently. If the arrangementmarkets of the developed world since the proves successful, they can thenstart of the millennium. This performance acquire their partners, but they willis expected to continue, with sales need to choose the firms with whichreaching about $6 billion by 2010 – 61% they work very carefully and ensure thatmore than they were in 2005. Moreover, they adhere to Russia’s anti-monopolyif the country maintains its positive legislation. This specifies, for example,economic trajectory over the long term, that when a company with assets ofdisposable incomes will rise still further, over $103m acquires a stake of moreputting more patients in a position to buy than 20% in another company, it mustWestern medicines. obtain prior consent from the Federal for pharmaceutical companies prepared a centre for clinical testing – no small Anti-monopoly Service (FAS). It must also to invest in the region. The potential for consideration, as development costsSo how should the pharmaceutical obtain consent for any further increases companies that focus on areas of unmet continue to soar. And though the legalmajors prepare to capitalise on these in its shareholding. need – including chronic conditions system for protecting patent rightsopportunities? One of the biggest like heart disease, diabetes and HIV remains a serious concern, there ischallenges is the country’s sheer scale. – is particularly significant. Conversely, reason to believe that this will improve.Russia is nearly double the size of the although the market for generic drugs is Russia has made no secret of its desireUS, covers 10 time zones and suffers Conclusion much larger in terms of volume, it is much to join the WTO by the end of 2006, afterfrom some of the planet’s harshest more competitive. more than a decade of discussions, andweather conditions. But over 80% of better provision for intellectual propertythe population is concentrated in the In short, the Russian Federation presents The introduction of GCP and easy may well seem a price worth paying to“European” part of the state, west of the some undeniable challenges, but it also access to a large patient population resolve its differences with the existingUral Mountains, and along the southern provides some genuine opportunities has also increased Russia’s appeal as member states.
  11. 11. This paper draws on the expertise of PricewaterhouseCoopers’ For further information, please contact the following pharmaceutical territory leaders:pharmaceutical industry group and the pharmaceutical division of theWINS team, a business development group that analyses companiesfrom a market perspective, creating a “market mirror” of how analysts Russiaview those firms. Christian Ziegler + [7] (495) 232 5461 Alina Lavrentieva + [7] (495) 967 6250 Natalia Kozlova + [7] (495) 967 6184 Global Leader Simon Friend +[44] (20) 7213 4875 Global Tax Leader Michael Swanick +[1] (267) 330 6060 US Mark Simon +[1] (973) 236-5410 Pharmaceuticals Industry Analyst John MacDonald +[44] (20) 7212 5642 member firms of the PricewaterhouseCoopers network ( provideindustry‑focused assurance, tax and advisory services to build public trust and enhance value Global Pharmaceuticals Director of Marketingfor its clients and their stakeholders. More than 130,000 people in 148 countries across our Attila Karacsonynetwork work collaboratively using Connected Thinking to develop fresh perspectives andpractical advice. +[1] (973) 236 5640© 2006 PricewaterhouseCoopers. All rights reserved. ‘PricewaterhouseCoopers’ refers to thenetwork of member firms of PricewaterhouseCoopers International Limited, each of which is aseparate and independent legal entity. Ref 2006BHM21578. 10