Russia’s Pharmaceutical market 2018
Is the Russian pharmaceutical market on course for rapid growth or will it devolve into a market plagued by staleness and drug shortages?
With great market growth comes great responsibility
The Russian pharmaceutical market is in a precarious position.
Throughout 2017, we were awash with articles that praised the prospects of pharma in Russia.
“Strong growth potential” and predictions of the Russian pharma market being worth $38 billion by 2021 were the cause for more than a few headlines.
Seemingly, the Russian pharmaceutical bear was awakening. But, we’re partly through 2018 and it’s still in a slumber.
The Russian pharmaceutical market has a few gaping wounds which are linked to domestic and foreign affairs.
A history in brief: The makeup of the Russian pharma market
Over the last two decades, Russia’s pharma market sat outside of the world’s 10 largest pharma markets, but this may change in the coming years.
It is set to be worth $36.61 billion by 2021 according to leading business reports. This represents an annual compound growth of 13%, which should see it firmly placed within the top 10 largest markets in the world. Russia’s domestic drug market is predominately made of generics, which amounts to around 70% of its pharmaceutical makeup.
There two main markets. The commercial market and the state government procurement market. The commercial market accounts for a whopping 85% of overall volume
Suffice it to say, Russia has historically been an importer of drugs, predominantly European drugs.
But this is a trend that officials are ardently looking to change.
Is Russia's pharmacuetical market growing?
In recent years, the Russian economy hasn’t had the best of times.
Since 2013, we have witnessed the collapse of the Russian Ruble, resulting in currency devaluation, economic slowdown, and a significant decrease in purchasing power among the general population.
A spate of sanctions from foreign states has also rocked the economy, which included a reduction in pharmaceutical imports to Russia.
Typically, this would raise fears over the stability of the country’s pharmaceutical market.
But, there has been a silver lining.
The economic downturn has given the government impetus to push through legislative action to substitute pharmaceutical imports and give the region’s pharma market more self-sufficiency.
Here is a quick rundown of the regulatory rules and legislation that were activated or announced in 2017.
One of the chief programmes was the Federal Drug Reimbursement Programme which provides its citizens free access to over 350 pharmaceutical products.
In addition, revamped rules for the storage and transportation of medicine ensured that third party contractors were under more scrutiny to keep warehouses up to standard.
The Russian Ministry of Trade has also issued a state program to improve domestic healthcare in Russia in general. At the moment the domestic share of Russia’s pharmaceutical products made up 27%. The government aims to increase domestic share to 50% by 2020.
This has led to the revitalization of the industry and an overall positive effect of domestic drug production.
A Revolution for Russian Pharma? Self sufficiency comes at a price
If there is one area of the pharmaceutical market that the Russian government wants to tackle, it’s the reliance on imports.
To amend this, the government introduced the Pharma 2020 strategy back in 2011. The plan aims to improve the competitiveness of Russian drugs, improve the training of doctors and encourage the development of new medicines.
Easier said than done.
A combination of economic sanctions and the isolationist stance adopted by the Russian government has had adverse effects on the pharmaceutical industry. For example, government restrictions on set price points for imported drugs have left many Russian hospitals temporarily without vital medicine or equipment. This issue is compounded by the fact that the overwhelming majority of hospitals are state-owned.
Russian citizens with rare illnesses are at risk as their cures can only be found outside of Russian borders.
The likelihood of Russian manufacturers making their own drugs for rare illnesses is unlikely, as the Russian pharma procedure requires extensive human testing prior to production. Rare diseases intrinsically lack a pool of patients to test on.
In 2017, Russia passed the National Plan for Development and Competition. As part of the plan, the Russian Government may allow the creation of an invention without the consent of the patent holder.
The plan states that it will only pertain to matters of national defence and security and the protection of human life. However, the potential for misuse has been a source of concern for many American pharmaceutical companies.
Pricing legislation and imports
Pharmaceutical products in Russia are placed on a priority list to determine costs.
While this may sound beneficial to the people receiving the drugs (who doesn’t like cheap medicine) this does mean that many pharmaceuticals are delayed and in some cases fail to reach the market shelves at all.
The government negotiates prices with manufacturers, so they are inexpensive for even the lowest earners; meanwhile, the drug manufacturers want to protect their own interests to make a profit.
As a result, some manufacturers are priced out of the pharmaceutical market. This scenario is exasperated by the fact that newer manufacturers rely on selling a certain amount of product at a set price. The government may lower the price and the manufacturer will be inclined to stop shipping the drug to Russia.
Currently, this system has made it impossible for many important drugs to be created locally such as.
Russian pharma in 2019
For pharmaceutical companies hoping to profit from the Russian market in coming years, there are few areas to keep an eye on.
In August of 2017, the Russian government demonstrated its position on private companies with the merger of the manufacture, Marathon Group, and the state run Rostec. No doubt, this is just one step in Russia’s commitment to create a self-sufficient pharma market and the future relationship between public and private interests.
Medicine labelling is now mandatory, enabling drugs to be accurately tracked throughout the entire chain, further bringing the Russian industry in line with its western counterparts.
Generally, speaking, Russia has gone to great lengths to reduce the prevalence of counterfeit drugs, culminating in the Law on Amendments to the Law on Circulation of Medicines - which was passed late 2017. In addition to labelling, the law required that all hospitals, manufacturers, distributors and all other actors have to enter medicine information into the state system.
A new draft law was implemented late last year for the tracking and tracing of medicines, ensuring that legal drugs reach the shelves.
One area of interest that pharmaceutical companies will look towards is Russia’s increasing prioritisation of biotechnology, with a dedicated programme that is set to receive 31$ billion in financing through to 2020. Also, the region is said to be developing biosimilars guidelines.
In further good news, an additional 10 factories for the manufacturing of biosimilars is set to be completed by 2020, indicative of the high priority status of pharmaceuticals among Russian decision makers.
That said, the success of these initiatives is largely shaped by its domestic and foreign policymakers.
Recently, Russia announced a series of “counter sanctions” against foreign states. This could take Russia one step closer to banning the importation of vital pharmaceutical drugs altogether.
The ramifications of such action will be huge since the U.S. accounted for 13 percent of Russian pharmaceutical imports in 2017. That said, Russian counter sanctions will apply to pharmaceuticals that can be replaced with local products. However, in consideration of the quality gap and the frequency of drug shortages, Russia’s ability to rapidly replace imported drugs without hurting its own citizens will be difficult.
It will be interesting to see how these changes will play out in the long term.
The relationship between the Russian government, regulators, and private manufacturers in the market will likely change over the coming years, and the ability for the Russian market to self-regulate is already looking like a mountainous challenge.
Drug shortages and logistical issues are a common occurrence in Russia, with many patients suddenly finding that the drug they rely on has suddenly vanished from the shelves.
Other issues such as misleading advertisement, rampant price changes, and Low R&D expenditure will surely have to be dealt with before any drastic change can take place.
The pharmaceutical industry is constantly changing, a thriving pharmaceutical industry requires innovation, plenty of financial support, and the right government legislation to tie it all together.
While the Russian government continues to show signs that they are building a modern and competitive pharmaceutical market, teething issues have already become apparent.
How the Federal Antimonopoly Service of the Russian Federation the (FAS) and the Russian government reacts to these challenges are anyone’s guess.
Pharma 2020 didn’t account for the collapse of the Ruble and the wave of sanctions that followed the annexation of Crimea. It will be a while before the Russian economy stabilises, which is dependent on the Kremlin’s ability to repair relations with the West and improve foreign investment.
Market growth, as strong as it has appeared at times, is never too far from a disaster in Russia.
Without amending foreign affairs, Russia’s ability to support a fully fledged domestic pharmaceutical industry is tenuous. However, this is an issue for the policy makers, here in which the immediate Russian pharma industry will hang on.
Pharma 2020? How about, Pharma 2030?