Domestic producers look for more of pharmaceutical rebound

The pharmaceutical market in Russia managed to grow by more than 25% in 2009 despite the economic downturn. But domestic producers are still losing out to their foreign rivals.

2009 was a time of unexpected deals and new opportunities for the Russian pharmaceutical industry. Number two player, Sanofi-Aventis of France showed its commitment to the market, buying its first plant in central Russia.

While Swiss giant Roche handed over an anti-HIV drug – for production and marketing by local drugs company ChemRar. Both deals are evidence of commitment to the production of world class drugs in Russia, according to the head of ChemRar’s Innovations Department, Oleg Korzinov.

"What’s unique about the deal is that medicines, which demonstrated high effectiveness in pre-clinical trials in Western counties, were handed to a Russian company for further development. The division of rights will also give the Russian company income from future foreign sales."

Joint ventures could be easier for Russian drugs makers – than trying to modernize production while developing new medicines on their own. The pharmaceutical market in Russia is growing at a rate of about 20-30% a year, even when most industries are reporting losses, quarter after quarter. The crisis year of 2009 saw sales volumes exceeded $17 billion and manufacturers’ income jump by 30% in the first half.

However, at the production level, Russian manufacturers are still losing ground to foreign rivals. Currently in Russia 55% of medicines are imported, 20% are packed in Russia and only a quarter are produced domestically.

The government wants to boost the domestic market share to 50% and substitute imported medicines with local products. One way is to use a recipe first developed for the car industry. Foreign medicine makers are welcomed to start producing in Russia. This helps them avoid high import taxes and gain the same protection as national companies, according to David Melik-Gusseinov, Marketing Research Director.

"Almost all companies from so called “Big Pharma” warmly welcomed the initiative. Some of them are in talks to buy Russian companies; others plan to build their factories here.”

However, few have committed – most are still thinking. In April Novartis and AEC Partners discussed a plant in St. Petersburg region. But despite an offer of tax breaks, both companies have still not made the move. Whether Russian companies buy-in technology, form alliances, or go it alone, access to foreign investment will be a key to success.