Shot in the arm for Russia's ailing drug industry, Focus Reports
Release Date: 2011-03-16
Foreign manufacturers are racing to secure positions in Russia’s burgeoning pharmaceuticals market while the Kremlin gets tough on imported medicinesThe Russian government has unveiled a new plan to modernise Russia’s pharmaceutical industry and give local firms a greater presence in international markets, injecting £2.4bn of state funds into the sector.
In late 2010, Prime Minister Vladimir Putin set the target of domestically producing 90pc of Russia’s vital medicines and 50pc of its medical equipment by 2020, while increasing exports eight times. Foreign pharmaceutical companies and medical equipment manufacturers in Russia would face sales restrictions if they were not prepared to share their expertise, he warned.
“We will have restrictions for them on our market if there are no imports of manufacturing facilities and technologies,” Mr Putin said, adding that the trade barriers would be gradually implemented.
Dmitry Genkin, CEO of Russia’s Pharmsynthez, which raised £10.9m in an initial public offering (IPO) last November, said Russia had struggled with the Soviet legacy of building most of Eastern Europe’s pharmaceutical industry while neglecting its own needs: “It left a huge gap between fundamental sciences and applied science like medicine when the Soviet Union collapsed.”
Russian firms have long awaited government support, but current spending levels in the country fall far short of the money spent to support research and development in Europe and America, Mr Genkin noted. “The money being spent by the Russian government is still peanuts compared to spending by the European Commission or the US National Institutes of Health,” he said.
Nevertheless, Russia’s pharmaceutical market is growing twice as fast as US and European markets and has already become a key battleground for pharmaceutical companies whose sales have stalled in Western markets as patents expire. The Russian brokerage Uralsib said: “The pharmaceutical market, boosted by consumer and government spending, is set to outperform Russian GDP while the fragmented regional pharmacy segment offers big consolidation potential to leading chains.”
To cash in on the market’s growth potential, Western drug giants are determined that they will not be caught out by import barriers and are already setting up domestic manufacturing bases in Russia.
Just before Christmas, the Swiss giant Novartis said it would invest £310m in Russia over the next five years, building a production plant in St Petersburg to focus on local manufacturing and research and development partnerships with local firms. Switzerland’s Nycomed and Denmark’s Novo Nordisk have also announced plans to start producing in Russia, while Britain’s GlaxoSmithKline struck a vaccine deal in November with Moscow-based Binnopharm.
And the French giant Sanofi-Aventis in January appointed a new emerging markets management team to boost its market share in Russia, which is considered one of its key markets.
Meanwhile, Russian companies are also looking at markets overseas. Pharmsynthez said it will use part of its IPO funds to purchase pharmaceutical producers in Europe, as well as in the US and Israel. The drug manufacturer is looking for small, growing and profitable companies which own production facilities, Mr Genkin says.
With the push to promote domestic pharmaceuticals, the Kremlin has opened up a new front in the war to diversify the Russian economy.
Analysts are excited by the government’s initiative as it gives them a new sector in which to invest. In the last week of January, Uralsib launched research into the pharmaceutical sector with a report entitled Just what the doctor ordered .
“Russian pharma producers offer an excellent domestic story and access to defensive market niches and strong cash flows,” the Uralsib analyst Tigran Hovhannisyan wrote. “The relative underperformance of Russia’s pharmaceutical market by comparison to other Bric markets is compensated for by the market leaders’ higher margins and consolidation potential.”
The numbers
£2.4bn - State funds to be pumped into drug sector
90pc - Vital medicines to be produced domestically by 2020
11pc - Estimated growth of Russian pharmaceutical market in 2011
| Type: | NORMAL |
| Company: | Focus Reports |
| Country: | 瑞士 |
| Url: | http://www.telegraph.co.uk/sponsored/russianow/business/8345706/Shot-in-the-arm-for-Russias-ailing-drug-industry.html |