Investing in Russias pharma

26 September 2013

Oksana Teplinskaya, The Voice of Russia

With Russia pegged as one of the world's fastest-growing markets, drug makers have been angling to build up their businesses here. For free access to the market, the Russian government now requires foreign companies to team up with local players – and to share technology with them. 

Is it paying off? Well, yes, drug makers large and not-so-large have made big deals with or invested in Russian firms.

Back in 2011, the Association of International Pharmaceutical Manufacturers pledged a minimum of $1 billion in investment in Russian manufacturing, packaging and R&D. Novartis, which has invested 500 million dollars in five years, Nycomed, Novo Nordisk and Sanofi have all been developing operations in Russia since 2010. Others, such as Roche, are partnering with local manufacturers under out-licensing agreements.

Many analysts including RMG’s Kseniya Arutyunova, have no doubt Russia is a lucrative market for foreign investors.

I think that it’s possible that foreign investors will start M&A hunt in Russia as the pharmaceutical market is very dynamic here in comparison with some developed markets, and it offers a lot of opportunities.

The global pharmaceutical market has been growing steadily in recent years. The mature economies proved very sluggish, but the up-and-coming economies are another matter. Drug sales in Russia reached $20 billion last year, which was an increase of 23% over 2011, according to Pharmexpert. Analysts say this is the highest growth for the last three years.The demand for medicines in up-and-coming markets – which will account for 33% of the world’s GDP by 2020 – will more than double by that time.

But what about Russia in particular? One of the major trends that is currently observed in the Russian pharmaceutical industry is the gradual shift to more expensive, quality drugs and away from their cheaper counterparts. Analysts predict that during the next two years the market will remain almost at the same level as in 2012.

Here’s a forecast by Mikhail Krasnoperov at Sberbank Investment Research.

Our standard market assumption is that the pharmaceutical market will continue to grow at 8% per annum in ruble terms this year and going forward. I think that the Russian market is currently attractive to global players.

Increasing demand for medicines and factors such as scientific, technological advances and socio-demographic changes have placed the global pharmaceutical industry on the cusp of a golden era, said PricewaterhouseCoopers’ analysts in one of their recent reports, and Russia is most likely to participate in this growth story.

Think of that, and invest in Russia…

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