Russia: A Market with
Significant Opportunities for
the Pharmaceutical Industry

By Marina Bezouglova, GfK Russia, and
Dinko Svetopetric, GfK Healthcare London

In recent years there has probably been no boardroom of an international pharmaceutical company in which Russia has not been discussed. With a population of around 143 million (the 7th largest in the world), and enjoying rapid economic growth for almost a decade, Russia is potentially a huge market. The economy is expected to remain among the fastest growing worldwide. This has fueled rising personal income and purchasing power. With current trends it is expected that Russia will become the largest economy in Europe by 2020.

Small Market, Rapid Growth

Although sales of pharmaceutical products increased threefold between 2000 and 2005, health spending is still generally low compared with the developed world. In 2005, the consumption of drugs was only $46 per person. Of course, one should not forget the vast differences between Russian regions. The average of drug consumption in Moscow, being by far the most affluent region, was two-and-a-half times higher than the national average.

In January 2005, new rules governing drug reimbursement came into force. The government initially allocated $1.7 billion for the beneficiary drug provision program in 2005 and $3 billion in 2006. In 2005, the retail market of drugs in Russia showed one of the highest rates of growth in the world, 38 percent, with a turnover of $6.6 billion (including beneficiary drug provision). According to the latest figures, the Russian pharmaceutical market expanded by 21.3 percent year-on-year at net manufacturer prices in the first half of 2006. According to the forecast, by 2010 the Russian pharmaceutical market will increase by 70 percent to $17 billion.

The number of drugstores has also grown significantly in recent years, reaching one drugstore per 3,200 people on a national level in 2005, while in Moscow the density has reached one drugstore per 2,900 people. With such growth in the number of drugstores, Russia is nearing the European average. Distribution of drugs is another area that shows growth. In 2005 the turnover of CV Protek, one of the major Russian distributors, reached $1.7 billion (beneficiary drug provision included).

Challenging Market With Specific Market Conditions

Mortality rates from chronic diseases are substantially higher in Russia than other transitional countries (1,000 deaths per 100,000 people, est. 2005). Strong demand is evident in all therapy areas, particularly in high blood pressure treatment, cardiac conditions, cancer, AIDS and diabetes. Lifestyle factors (only 6 percent of Russian men exercise), smoking (an estimated 67 percent of Russian men and 33 percent of women smoke) and alcohol abuse all lead to a higher incidence of cancer and heart disease. Infectious diseases are also on the rise, especially tuberculosis, hepatitis C and AIDS. The demand for diabetes drugs is also increasing.

Due to a low level of government reimbursement, Russia has the highest proportion of self-medication drugs in Europe. A third of all drugs are bought without prescription, much higher than in Western Europe (Germany 14 percent, UK 16 percent) or Central European countries (Slovakia 12 percent, Hungary 14 percent). With $2 billion in sales of self-medication drugs, the Russian market is already bigger than the French, Italian or Spanish self-medication markets.

The Internet and popularity of international travel have made Russian consumers more aware of what is available elsewhere. In a recent GfK survey, only 18 percent of Russian consumers claim that all important drugs are available in their country, compared with 45 percent of Austrians and 36 percent of Hungarians.*

The country has a sizeable domestic generic industry, but there are no large domestic companies in the sector. Russian manufacturers are small and undercapitalized, often manufacturing with outdated equipment. As a result, drug quality is not consistent and many locally produced drugs are obsolete outside Russia. Foreign manufacturers are starting to enter the market mostly through acquisitions of domestic companies. However, the market is still very fragmented – the top 10 companies have only one third of the market. The market leader is Novartis (including its generic Lek-Sandoz division) with a 6.1 percent share, followed by Sanofi-Aventis, Servier/Egis and Berlin Chemie/Menarini Pharma.

Way To The Future

The total size of the pharmaceutical market of the Russian Federation in 2005 reached $9 billion (VAT included) in retail prices. Around 70 percent of the market is supplied by imports. Under an optimistic scenario, the volume of Russia's pharmaceutical market would reach $17.2 billion (VAT included) in retail prices by 2010, provided that the beneficiary drug provision program by the state maintains the same pace.

In all respects Russia is a challenging market; notorious red tape, a weak legal system and distribution challenges all make business difficult for any international company. However, the cocktail of growing demand in all therapy areas and a fragmented market with weak local manufacturers are just too tempting to be put aside.


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Sources: RMBC, DSM, PwC, IMS
* GfK CEE Basic HealthCare Facts 2005/06