U.S.-Russian Business Blog

Wednesday, 19 of February of 2020

Russia Pharmaceuticals and Healthcare in Q4 2008

Despite a bruising a few months for the Russian economy as a whole, BMI broadly maintains an optimistic growth outlook for the Russian pharmaceutical market for the period 2008 to 2012. We have lowered our US dollar growth rate estimates based on updated exchange-rate forecasts. With the precipitous fall in oil and gas prices in recent months and foreign-investment outflows, both the ruble short- and longer-term position has weakened. Nonetheless, we see strong average annual US dollar growth of 10.6% for the period and 10.3% for the ruble. Market growth is forecast at 22.0% for 2008, in line with 2007 levels, with the market cooling from 2009.

We expect 2012 market value to reach US$23.6bn. It would be going too far to describe the pharmaceutical industry as immune to the current instability, in particular the lack of access to capital for expansion and worries about a weakening currency are substantial worries. Anecdotal evidence suggests that the damage to date from the broader crisis has been limited. Domestic producer Valenta (formerly Otechestvennye Lekarstva) has reportedly had problems refinancing existing debt. It has halted investment projects and has moved to sell its Krasfarma production subsidiary in Krasnodar Region.

Leading wholesaler Protek has announced and then shelved its latest initial public offering (IPO) plans in the face of tumbling stock markets. Unlike the banking or retail sectors, however, there have been no high-profile company defaults . yet. Arguably, the local sector is mired in a longer-term crisis.

Local research group Pharmexpert estimates that around 50% of the country.s 525 registered producers are unprofitable.

In July, Prime Minister Vladimir Putin described the sector as only capable of producing “last century’s drugs”. Hence the industry is closely watching the development of the Conception for the Development of the Russian Pharmaceutical Industry to 2020, a draft of which was submitted to the government in August 2008. Unsurprisingly the plan calls for the development of both modern generics and innovative drugs by the domestic industry in order to lead five-fold growth in the sector as whole by 2020. Like Brazil, Russia sees import substitution of vaccines “a traditional strength of the Soviet-era industry” and insulin as a vital first step. With the exception of a long-rumoured plant project by Nycomed, the bulk of new investments in recent months have come from domestic players, including new players intent on raising capital from domestic and foreign markets.

One example is Gerofarm, which is building a contract-research focused factory in Moscow Region using both Danish and UK expertise for a EUR15mn. Meanwhile, some attractive production assets are reportedly in play. A powerful shareholder in local market leader Pharmstandart is reportedly pursuing Verofarm, controlled by Pharmacy Chain 36.6 and a modern player in oncology generics.

The belated collapse of a 2007 deal by Gedeon Richter for Polpharma and its Russian subsidiary Akrikhin could see bids for the latter firm. The prices paid will be indicative, a study by PriceWaterhouseCoopers suggests that asset prices for mid-sized Russian companies may be off by between 10 and 20% from their peak.


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