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Russian Pharmaceuticals market

Russian pharmaceutical market – overview




Last year, the Russian pharmaceutical market expanded at an unprecedentedly high rate of 35%, much higher than the US, West European and Central and East European pharma markets. This growth was chiefly boosted through the Beneficiary Drug Provision Programme, launched last year. Also important was the fast development of pharmacy chains and the continued high rate of medicine counterfeiting.

Overall market performance In 2005 the Russian pharmaceuticals market was worth approx. $9bn in consumer prices and $7.2bn in wholesaler prices, according to the DSM Group, a company monitoring the Russian pharma market. The market recorded high 35% year-on-year growth in consumer prices, representing a staggering jump in comparison with the neighbouring Poland whose pharma market expanded by a little over 7% last year.

At the end of Q1 2006, the Russian pharma market reached $1.48bn, up 18% year-on-year. According to DSM forecasts, the Russian pharma market may be worth $10bn by the end of this year, growing by 10% in comparison with 2005.

According to Aidar Ishmukhametov, the chairman of the board of directors of Remedium, a group of firms analysing the Russian pharma market, post-Soviet markets can be characterised by low medicinal costs, low packaging costs, rapidly developing pharmaceutical
chains and a large assortment of medicines still well-known from the Soviet period. According to Remedium, the Russian pharma market expanded by 43% to $6.5bn in 2005.

However, one of the most serious problems in Russia is the continued counterfeiting of medicines, mostly antibiotics, which are being sold also through private pharmacies. Sales of false medicines remain high. Although, it is said that there are less counterfeit preparations
on the market, i.e. around 20% less last year than in 2004, their value in 2005 was estimated at $300m.

Market growth drivers

One of the most important factors driving Russian drug market growth has been the governmental Beneficiary Drug Provision Programme (DLO), introduced last year in compensation for the cancellation of certain social welfare benefits. Under the programme, over 14m Russians (mostly retirees) are provided with medicines subsidised by the federal budget. Last year, sales of pharmaceuticals available under the DLO contributed as much as 20% of the abovementioned total market growth of 35%. According to the Russian Ministry of Health and Social Development, last year the DLO segment’s value amounted to approx. $1.37bn in consumer prices and $1.27bn in wholesale prices, equalling approx. 15% of market value. In total, 154m beneficiary prescriptions were written in 2005.

It is worth noting that the average price per pack of DLO drugs was over six times higher than the average price of a drug unit sold in the retail segment, according to the DSM Group ($6.3 vs. $1). This has made the programme drugs very attractive to companies on the Russian pharma market, despite delays in payment from the State and the fact that
the State pays for them at below their commercial value. According to the DSM Group, all pharma distributors participating in the DLO significantly increased sales. There were over 90 companies entitled to dispense medicines under the DLO.




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