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Reducing costs and introducing new medicines: top development trends in the Russian pharmaceutical industry 2016Deloitte CIS Research CentreMoscow, 2016
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01
03 Current situation in the Russian pharmaceutical industry 11Russian pharmaceutical industry: current situation 12
Expectations for Russian pharmaceutical industry growth in 2016 13
Russian pharmaceutical companies: current situation 14
Russian pharmaceutical companies: forecast 15
Expectations of changes in key financial indicators for pharmaceutical companies in Russia 16
Russian pharmaceutical market in figures Current situation and forecast 06
Introduction 05
Content
Key market indicators analysis 07Russian pharmaceutical market’s position in the world 10
03
01
02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Content
04
05
06
07
Directions of development in the Russian pharmaceutical market 17
Top issues affecting the Russian pharmaceutical industry 18Russian pharmaceutical business development strategies 19
Trading policy in the Russian pharmaceutical market 21Russian pharmaceutical market’s foreign trade structure 22Economics of expectations: the share of imported medicines in Russia 23
Efficiency of government regulations in the pharmaceutical industry 24
Government measures aimed at reducing the share of imported medicines 25
Top government regulation areas to be improved 26
Our respondents 27
Contacts 30
Cost optimisation options 20
04
01
02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Deloitte would like to thank you for your participation in the May 2016 survey, which was part of the research project entitled “Development trends and practical aspects of the Russian pharmaceutical industry 2016.” Your expert opinion helped us perform a comprehensive review of the Russian pharmaceutical industry and analyse the sentiment and expectations of the market participants with respect to the Russian pharmaceutical market’s growth as well as their own.
This survey has been conducted annually since 2013 and forms the basis for a comprehensive study on the Russian pharmaceutical industry. We would be very grateful if you would consider participating in our next survey as well.
Oleg BerezinPartner,Head of the LS&HC Group, Deloitte CISLife Sciences and Health Сare
Over 70 respondents representing 50 Russian and foreign manufacturers of original medicines and generics in Russia and abroad, and pharmaceutical distributors participated in the 2016 survey.
We are pleased to present the full version of the research report. In addition, key conclusions from this report will be published by leading Russian media outlets.
We hope you find the results of this survey interesting and relevant.
If you have any questions regarding this survey, please do not hesitate to contact us.
Key issues:
• Statistical survey of key Russian pharmaceutical industry indicators;
• Russian pharmaceutical industry: current situation and forecast;
• Russian pharmaceutical companies: current situation and forecast;
• List of main issues facing the Russian pharmaceutical industry;
• Russian pharmaceutical business development strategies;
• Cost optimisation options;
• Trading policy in the Russian pharmaceutical market;
• Government measures aimed at reducing the share of imported medicines; and
• Key government regulation areas to be improved.
Yours sincerely,Oleg Berezin
Introduction
05
Introduction01
02
03
Directions of development in the Russian pharmaceutical market04
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Russian pharmaceutical market in figuresCurrent situation and forecast
02
06
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Key market indicators analysis
Russian pharmaceutical market’s position in the world
The average annual growth rate of the Russian pharmaceutical market represented about 14 percentage points (pp) until 2014. In 2015, the RUB value of the market grew by 8.2 percent.
Key market indicators analysis
• Reduced share of low-cost medicines with a price per unit below RUB 150;
• Major growth in prices for low-cost medicines;
• Decrease in profitability of supplying vital medicines.
Russian pharmaceutical market in figures
2016*20152014201320122011201020092008
24%
594
17%
8,2% 8%
Market volume: trends and forecast, RUB billion
6%
12% 12%
14%
10%
735824
919
1 045
1 156
1 250
1 352
RUB billion Growth rate, %
Source: DSM Group
695
Forecast
2016*20152014201320122011201020092008
24
28%
–8%
11%
16% 6%11%
–9%
22
2428
30
33
30
21 21
Sources: DSM Group, Central Bank of Russia, Ministry of Economic Development, Deloitte estimates
Market volume: trends and forecast, USD billion
USD billion Growth rate, %
–32%
0%
Forecast
*2016 forecast for the overall market
07
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Key market indicators analysis
Russian pharmaceutical market’s position in the world
• The pharmaceutical market volume shrank by 4.4 percent;
• The commercial segment shrank by 5.6 percent in terms of units sold;
• The hospital segment grew by 0.3 percent in terms of units sold;
• Extensive drug coverage programmes have seen an 8.7 percent decline in units.
2015 2016*20152014 20142013 20132012 20122011 20112010 2010
Russian pharmaceutical market in figures \ Key market indicators analysis
• The commercial sector’s growth in RUB: 9.4 percent (the lowest level in five years);
• The share of imported medicines in the commercial sector remained almost unchanged at 74 percent in monetary terms (76 percent in 2014);
• The public sector (hospital purchases and extensive drug coverage programmes) grew by 6.4 percent;
• The RUB value of extensive drug coverage programme volumes grew by 11.4 percent;
• According to DSM Group’s retail audit, in March 2016 the commercial segment of pharmaceutical products amounted to RUB 47.6 billion (including VAT). Compared to February, the pharmaceutical market capacity increased by 2.8 percent;
• The pharmaceutical market’s commercial segment shrank by 10.2 percent (in RUB terms) during the first three months of 2016 year-on-year.
Current market conditions in monetary terms in 2015, RUB billion Market volume in 2015 (in units)
Commercial segment of FPP**
Commercial segment of parapharmaceutical products Commercial segment of FPP**
State segment of FPP Hospital purchases and extensive drug coverage
Share of state procurement Share of hospital purchases and extensive drug coverage
Source: DSM Group Source: DSM Group
406 468 537676
195183
169149
130118
315296
267
234225
211
741609
29%
20%
27%
20%
25%
20%
26%
19%
26%
20%
25%21%21%
4 437 4 480 4 458 4 429 4 236 4 000 4 930
1 086 1 105 1 122 1 0311 079 1 082
Forecast
*2016 forecast for the overall market** *Finished Pharmaceutical Products
08
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Key market indicators analysis
Russian pharmaceutical market’s position in the world
Inflation from 2010 to 2015 (in percent)
• Inflation is the root cause of the pharmaceutical market’s growth in monetary terms in 2016;
• Prices for medicines in March 2016 grew by 0.1 percent in RUB terms, while the USD price index in March grew by 6.8 percent;
• From January to June 2016, the rise in medicine prices increased by 5.5 percent in RUB terms and by 8.6 percent in USD terms;
• From January to June 2016, inflation on medicine prices was 5.5 percent in RUB terms and 8.6 percent in USD terms;
• As compared to February, the average price per unit in March 2016 rose by 0.7 percent and comprised RUB 147.3;
• According to the Russian Federal State Statistics Service, the average medicine prices for January-December 2015 grew by 23.8 percent year-on-year; inflation had slowed down to 19.6 percent by December.
• Experts expect consumers to seek cheaper medicines because of income decline, which could be critical for manufacturers of brand generics, forcing some of them to stop the production of unprofitable medicines.
20152014201320122011201020092008
Inflation, % Inflation on medicines, %
Source: DSM Group Source: DSM Group
1413.3
16.2
8.6 8.8
0.7
8.8
6.1 6.6 6.5
3.7
11.4
12.7 12.9
10.3
6
However, according to the Russian Federal Statistics Service, in 2015, medicine prices grew by 22.8 percent.
14.2%
2.8%
15.8%
6.6%
2014
Medicines not included in the VED list*
Medicines included in the VED list*
2015
Russian pharmaceutical market in figures \ Key market indicators analysis
*Vital and Essential Drugs
09
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Key market indicators analysis
Russian pharmaceutical market’s position in the world
Russian pharmaceutical market’s position in the world
• According to the Economist Intelligence Unit (EIU), Russia is not in the top ten list of countries in terms of pharmaceutical products sales (in USD);
• The EIU forecasts that Russia will rank 16th in 2020.
Forecast for 2016
• DSM Group In 2016, the Russian pharmaceutical market is expected to grow by 8 percent. Medicine consumption is expected to decrease by 2-3 percent in terms of units sold.
• State procurement is expected to be at around RUB 334 billion (which accounts for 24 percent of the overall market and 29 percent of the market less parapharmaceuticals, holding constant the forecasted market growth of 8 percent).
• IMS Health Expected annual growth of 5-7 percent (in RUB terms) throughout the year; consumption in units sold is expected to decline due to low purchasing power.
• RNC Pharma The market is expected to grow by 9 percent (in RUB terms), but decline by 4 percent in terms of units sold.
Sales of pharmaceutical products (Rx and OTC drugs), USD million
Source: EIU
600,000500,000400,000300,000200,000100,0000
20152020
TOP 10
14th
USA
Japan
China
France
Germany
United Kingdom
Italy
Canada
Brazil
Spain
India
Mexico
South Korea
Russia
Australia
Turkey
Poland
Venezuela
Netherlands
Indonesia
Russian pharmaceutical market in figures
10
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Key market indicators analysis
Russian pharmaceutical market’s position in the world
Current situation in the Russian pharmaceutical industry
03
11
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Current situation in the Russian pharmaceutical industry
Russian pharmaceutical industry: current situation
TrendDespite the dominance of positive perceptions on the Russian pharmaceutical market (by 20 percent) during the first half of 2016, pharmaceutical companies are still divided in their views: 60 percent of the respondents have a positive view of the situation, while the remaining 40 percent take the opposite view.
Specific patterns
• Negative sentiment is common among non-localised foreign companies (54 percent). Manufacturers of original medicines (including those with production abroad) also tend to be more pessimistic than the overall result (by 6 pp);
• The reverse trend and prevailing positive estimates are common for Russian companies (85 percent) and generics manufacturers (including non-Russian manufacturers).
Negative
Rather negative
Rather positive
Positive
* beneficiary owners are Russian residents** or Russian subsidiaries of foreign companies
60%
54%
71%
62%
85%
46%
62%
15%
40%
46%
29%
38%
54%
38%
4%
36%
48%
12%
NegativePositive
Production of generics, including abroad
Production of medical devices
Russian companies*
Overall
Production of original medicines, including abroad
Non-localised foreign companies**
Localised foreign companies**
12
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Current situation in the Russian pharmaceutical industry
TrendHalf of pharma representatives believe that the market situation will change in 2016. The market expectations of these changes are split: 58 percent of the respondents have good expectations, while 48 percent expect the opposite.
Unlike the pessimists (36 percent), the optimists (50 percent) more often tend to say that the situation in 2016 will generally remain the same. Therefore, “no change” expectations are more characterised by a positive sentiment rather than a negative one.
Almost half of the respondents do not expect the pharmaceutical industry to change significantly.
Looking forward, 30 percent of respondents expect the situation to improve, while 22 percent are more pessimistic about the market situation.
Specific patterns
• Manufacturers of generics tend to have more favourable expectations about the Russian pharmaceutical industry in 2016 (50 percent), unlike original medicines producers (18 percent).
• Notably, Russian companies are more likely to expect no significant changes: the share of such companies is 14 pp below the average level. None of the Russian representatives forecast a slowdown in the pharmaceutical industry, while the share of non-localised foreign companies expecting a deterioration in the market conditions is somewhat higher (33 percent).
Situation to deteriorate
Situation not to change much
Situation to improve
A. Overall
B. Optimistic about current situation
C. Pessimistic about current situation
A.
B.
C.37%
29%30%
38%
50%48%
25%21%22%
30%
18%
50%
37%
38%
25%
31%
22%
29%
7%
25%
33%
23%
62%
48%
53%
43%
38%
42%
46%
Situation to deteriorate
Situation not to change much
Situation to improve
Expectations for Russian pharmaceutical industry growth in 2016
* beneficiary owners are Russian residents** or Russian subsidiaries of foreign companies
Production of generics, including abroad
Production of medical devices
Russian companies*
Overall
Production of original medicines, including abroad
Non-localised foreign companies**
Localised foreign companies**
13
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Current situation in the Russian pharmaceutical industry
TrendThe overall situation in the Russian pharmaceutical market can be clearly defined as a positive one: the majority of survey participants rated the current condition of their own companies as positive (84 percent).
Only 16 percent of the respondents say that their companies are in a rather bad shape.
Specific patterns
• Negative estimates of current market positions are mainly common among manufacturers of medicines and Russian subsidiaries of non-localised foreign companies (25 percent and 21 percent respectively).
• The reverse trend (with a bigger share of positive responses regarding current business conditions) is common for manufacturers of generics (93 percent) and Russian companies (92 percent).
Russian pharmaceutical companies: current situation
Rather negative
Rather positive
Positive
84%
82%
93%
75%
92%
79%
85%
16%
60%
24%
16%
18%
7%
25%
21%
8%
15%
NegativePositive
* beneficiary owners are Russian residents** or Russian subsidiaries of foreign companies
Production of generics, including abroad
Production of medical devices
Russian companies*
Overall
Production of original medicines, including abroad
Non-localised foreign companies**
Localised foreign companies**
14
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Current situation in the Russian pharmaceutical industry
Russian pharmaceutical companies: forecast
Situation will definitely improve
Situation will likely improve
Situation will not change much
Situation will likely deteriorate
Situation will definitely deteriorate
TrendConsidering the prevailing optimistic view of the business situation, the number of those not expecting significant changes is rather high: this view was expressed by more than half of the respondents (52 percent).
Of the respondents, 38 percent expect improvements in their business, while 10 percent expect a worsening outlook for their company.
Specific patterns
• Positive expectations for business development in 2016 prevail among manufacturers of generics (64 percent) and Russian companies (61 percent). None of the representatives from these groups expect the situation to worsen.
• Localised foreign companies and manufacturers of original medicines are slightly less optimistic in their forecasts. The share of those expecting a negative outlook for business development is above the average level by 13 pp and 8 pp respectively.
38% 10%
18%21%
23%23%
8%33%
61%
50%
52%
61%
54%
59%
39%
50%
36%64%34%
4%2%
52%
8%
Situation to deteriorate
Situation not to change much
Situation to improve
No changes
Growth
Reduction
* beneficiary owners are Russian residents** or Russian subsidiaries of foreign companies
Production of generics, including abroad
Production of medical devices
Russian companies*
Overall
Production of original medicines, including abroad
Non-localised foreign companies**
Localised foreign companies**
15
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Current situation in the Russian pharmaceutical industry
Expectations of changes in key financial indicators for pharmaceutical companies in Russia
What changes do you expect in your company’s key performance indicators over the next 12 months?
TrendThe majority of Russian pharmaceutical company representatives (77 percent) expect revenue to grow (in RUB) in 2016. The average expected increase in revenue is 15 percent.
At the same time, 49 percent of respondents expect growth in operating costs; the average expected increase is 10 percent. One third of respondents (33 percent) expect no dramatic changes in operating costs (in RUB).
Around half of companies (53 percent) are planning to review their employment policies in terms of staffing. While 55 percent of those expect headcount to grow by 5 percent on average, the remaining 45 percent expect the headcount to decline by 7.5 percent.
HR policies are also expected to change with respect to wage/salary levels. Of the representatives from the Russian pharmaceutical sector, 63 percent expect an increase in the average wage/salary of 7.5 percent in 2016, while 35 percent expect no changes.
No changes
Growth
Reduction
Revenue (in rubles)Operating costs (in rubles)HeadcountAverage wages
Expected change
7.5% 15% Growth Decline
17.5% 10% 7.5% 5% 10% 7.5%
6%
17%
18%
33%
24%
47%
63%
29%
49%
77%
2%
35%
16
Russian pharmaceutical industry: current situation
Expectations for Russian pharmaceutical industry growth
Russian pharmaceutical companies: current situation
Russian pharmaceutical companies: forecast
Expectations of financial metrics for pharmaceutical companies in Russia
Introduction01
Russian pharmaceutical market in figures02
Current situation in the Russian pharmaceutical industry03
Directions of development in the Russian pharmaceutical market04
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
04
During the survey, we asked industry representatives to outline three topical issues for the Russian pharmaceutical market. As a result, we received a list of critical challenges that pharmaceutical and healthcare companies in Russia currently face.
17
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
TrendAs in last year’s survey, the current state of the Russian economy is the main issue concerning the representatives of the pharmaceutical industry (60 percent). Shortcomings in legal regulation also remain a source of concern (50 percent). Currency risk and the devaluation of the rouble are third on the list of major issues (27 percent). It is also worth noting that concern over corruption has grown this year (to 20 percent).
The lack of state funding has become less of an issue (at 10 percent), as compared to last year, when it was rated as one of the top-three major issues facing the representatives of pharmaceutical companies operating in Russia.
Specific patterns
• Current economic situation in Russia (60 percent) This issue is of particular importance to representatives of the industry whose main source of revenues are state purchases under essential/extensive drug coverage programmes (95 percent).
• Shortcomings of legal regulation (50 percent) This issue is highly relevant to companies participating in the Seven Rare Diseases programme and other federal procurement programme(s) procurement programmes (84 percent).
• Rouble devaluation (foreign exchange risk) (27 percent) This issue is of more importance to companies with annual revenues in the range of RUB 1 billion to RUB 10 billion (41 percent).
In addition to the abovementioned issues, the following are a matter of concern for industry players, albeit to a lesser extent:
• Insufficient solvency of individuals (20 percent) This issue is more important to Russian companies (31 percent).
• Corruption (20 percent) This issue is slightly more important to companies participating in procurements for hospitals and regional/municipals procurement under essential/extensive drug coverage programmes (33 percent and 45 percent respectively). Respondents who have a negative outlook for their companies tend to be concerned about corruption more than other participants (46 percent).
Top issues affecting the Russian pharmaceutical industry
Current economic situation
Shortcomings in legal regulation
Ruble devaluation (exchanre rate risk)
Insufficient solvency of individuals
Corruption
Lack of state funding for healthcare programs and support for Russian manufacturersInsufficient production facilities
Lack of qualified specialists
Increased costs for production and sales
Geopolitical risks
Large share of counterfeit products
Lack of external funding sources
Lack of logistics optimization
Growth of market competition
60%
10%
5%
50%
27%
8%
5%
20%
8%
4%
20%
7%
2%
2%
Please, select and rank the top-three issues that pharmaceutical and healthcare companies in Russia currently face.
18
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
TrendAs in previous years, the majority of companies (59 percent) plan to introduce new medicines to the Russian market.
Over the past three years, most companies were planning strategic changes of one form or another; however, in 2016, almost a third of companies (31 percent) would like to keep their old business policies without making any significant changes.
The share of companies planning construction of new production facilities in Russia decreased by 12 pp.
In addition, pharmaceutical companies more rarely plan M&A strategies (by 5 pp).
Specific patterns
• Introducing new medicines to the Russian market (59 percent) This strategy is more attractive to manufacturers of original medicines (82 percent) and localised foreign companies (83 percent).
• No significant change (31 percent)Manufacturers of medical devices (63 percent) as well as participants in regional/municipal procurement under essential/extensive drug coverage programmes (75 percent), non-localised foreign companies
(54 percent) and small companies with less than 100 employees are the most likely to be excluding significant changes from their plans.
• Construction of new production facilities in Russia (24 percent) Companies participating in procurement for hospitals (40 percent), Russian companies (46 percent) and localised foreign companies (50 percent), as well as large companies with revenues over RUB 30 billion (50 percent) and with over 1,000 employees (55 percent) are the most likely to be planning the construction of new production facilities.
• Joint ventures with Russian or foreign manufacturers (24 percent) It is mainly commercial sector companies (34 percent), medium-sized companies with revenues from RUB 10 billion to RUB 30 billion (42 percent), companies with a headcount from 100 to 1,000 employees (35 percent) and companies that have a negative outlook on their current and future market positions (63 and 40 percent respectively) that pursue this strategy.
• Business acquisitions ot mergers (10 percent) It is mainly large businesses that are planning M&A transactions (25 percent of companies with revenues over RUB 30 billion and 18 percent of companies with a headcount of over 1,000 employees).
Russian pharmaceutical business development strategies
We asked our respondents about their plans for development over the next few years, and then compared their responses to those from earlier surveys.
* In 2015 and 2016, this was a multiple choice question
Introducing new medicines to the Russian market
No significant changes
Construction of new production facilities in Russia
Joint ventures with Russian or foreign manufacturers
Business acquisitions ot mergers
Divesting and/or selling a non-core (non-priority) business unit
59%57%34%47%
4%7%8%
31%15%11%8%
24%36%15%29%
24%28%19%13%
10%16%13%3%
2013 2014 2015* 2016*
What are your business development plans for the next two years?
19
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
TrendThe top three cost saving approaches:
• Streamlined business processes (75 percent) Manufacturers of medical devices prefer this approach more often than the overall result (by 10 pp).
• Streamlined payroll costs (52 percent)This approach is more prevalent among manufacturers of generics (by 5 pp).
• Streamlined promotional and marketing costs (46 percent) Manufacturers of generics select this approach more often (by 11 pp).
Cost optimisation options
Streamlined business processes
Streamlined payroll costs
Streamlined promotional and marketing costs
Control over distributors
Streamlined IT costs
Other
75%
2%
52%
46%
23%
13%
20
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
Russian Presidential Decree No. 598 of 7 May 2012 “On the improvement of state healthcare policy” is aimed at increasing the production volume of domestic medicines on the Vital and Essential Drugs (VED), list to 90 percent by 2018.
According to the Department of Pharmaceutical and Medical Industry Development of the Russian Ministry of Industry and Trade, the share of Russian medicines included in the
VED list currently (H1 2016) comprises 71.5 percent of the Russian pharmaceutical market.
According to the Zdorovie Fund, only 6 of the 42 medicines recently included in the VED list are manufactured in Russia. Five more are packaged in Russia and the remaining are manufactured abroad. No measures to begin the production of substitutes for these imports are planned in Russia in 2016.
Trading policy in the Russian pharmaceutical market
21
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
TrendOf the respondents, 34 percent stated that their companies import active pharmaceutical ingredients (APIs):
• Half of importers source APIs from Europe (50 percent).
• A quarter of importers source APIs from China (25 percent).
Only 6 percent said that they export APIs, which is not sufficient data to allow for an analysis of the export geography.
TrendOf the respondents, 74 percent said that they import finished pharmaceutical products (FPPs):
• 60 percent of FPP importers source FPPs in Europe.
• Almost every fifth company sources products in the US and Canada (19 percent).
Of the respondents, 24 percent are engaged in FPP exports.
• 44 percent of the companies export FPPs to EEU member states.
• 31 percent of the companies export FPPs to CIS countries other than the EEU member states.
Specific patterns
• API sourcing from Europe is more common among companies engaged in the production of original medicines (including non-Russian producers) (90 percent).
• Companies producing generics are more likely to source APIs from China (80 percent).
Specific patterns
• Overall, imported FPPs are not as popular among manufacturers of generics (58 percent).
• Manufacturers of original medicines import European and American FPPs more often (95 and 36 percent respectively).
• Generics manufacturers more often than others export FPPs (by 12 pp).
Russian pharmaceutical market’s foreign trade structure
API import Finished pharmaceutical products
Europe
China
Other
CIS, except EEU*
USA, Canada
India
Europe
U.S. and Canada
Other
India
China
CIS, except EEU*
EEU*
50% 19%60%
4% 44%2%
25%
8%
19%
13%6%
6%4%
4%
4% 31%2%
Import Export
*Eurasian Economic Union (EEU)
22
01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Directions of development in the Russian pharmaceutical market
TrendWe received conflicting forecasts of the share of pharmaceutical imports in USD and unit terms: 48 percent of respondents expect growth while the same number expect a decline. Moreover, the growth forecast is not evenly distributed (ranging anywhere from 1 to 10+ pp), while the decline forecast is more often in the range of 5 to 10 pp. It is worth noting that the majority of respondents (76 percent) expect a decline in the share of imports in terms of units sold; the majority of those (38 percent) expect a decline of 1 to 5 pp.
In last year’s survey, only 26 percent of respondents forecast an increase in the share of imported medicines (in monetary terms), while this year, 48 percent of representatives believe that the share of imported medicines will increase.
However, expectations of changes in the share of imported medicines in terms of units sold are quite stable: 18 percent of respondents (16 percent last year) forecast an increase while 76 percent of respondents (75 percent last year) expect a decrease.
A comparative analysis of the forecasts of changes in the share of imported medicines suggests that prices for imported medicines are expected to grow.
Specific patterns
• The majority of generics manufacturers (57 percent) predict a decrease in the share of imported medicines rather than an increase (36 percent). Meanwhile, manufacturers of medical devices tend to believe that the share of imported medical products is going to increase, rather than decrease (63 percent against 38 percent).
• However, manufacturers of generics (29 percent) and Russian companies (31 percent) are more likely to expect that the share of imported medicines in monetary terms will fall significantly.
• Companies engaged in procurement for hospitals more often than others expect a 5-10 percent increase in the share of imported medicines in terms of units sold (40 percent as compared to the average of 8 percent). Companies engaged in regional/municipal procurement under essential/extensive drug coverage programmes expect an increase in the share of imported medicines in terms of units sold by 10 percent or more (25 percent as compared to the average of 2 percent).
Economics of expectations: the share of imported medicines in Russia
In USD terms In units sold
14%
16%
18%
12%
24%
12%
4% 6%
16%
22%
38%
8%
8%2%
Increase by 10 pp and over
Increase by 5-10 pp
Increase by 1-5 pp
Decrease by 10 pp and over
Decrease by 5-10 pp
Decrease by 1-5 pp
Difficult to say
How will the share of imported medicines in the Russian market change over the next two years?
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01
02
03
Directions of development in the Russian pharmaceutical market04
Top issues affecting the Russian pharmaceutical industry
Russian pharmaceutical business development strategies
Cost optimisation options
Trading policy in the Russian pharmaceutical market
Russian pharmaceutical market’s foreign trade structure
Economics of expectations: import strategy
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Efficiency of government regulations in the pharmaceutical industry
Efficiency of government regulations in the pharmaceutical industry
05
24
Measures aimed at reducing the share of imported medicines
Top government regulation areas to be improved
01
02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Efficiency of government regulations in the pharmaceutical industry
TrendGenerally, the top four government measures aimed at reducing the share of imported medicines on the Russian pharmaceutical market have remained quite stable.
As compared to 2015, respondents indicated that government support for Russian manufacturers through subsidies and privileges/preferences (including for state purchases) and increased investments in innovative Russian pharmaceutical projects is slightly less significant for them.
On the other hand, indexation of registered prices for locally produced VEDs, and no indexation for VEDs produced abroad has become more significant.
Specific patterns
• Encouraging foreign manufacturers to switch to full-cycle production by granting various privileges and preferences, including tax benefits instead of additional restrictions and bans (51 percent). This measure is of greater importance to manufacturers of original medicines (64 percent) and localised foreign companies (62 percent).
The import substitution targets are defined in the Development of Pharmaceutical and Medical Industry for 2013-2020 State Programme. During our study, we asked
representatives of the pharmaceutical industry which government measures, they believe, could have the biggest effect on the share of imported medicines in the Russian market.
Government measures aimed at reducing the share of imported medicines
• Further restrictions or bans of foreign (non-localised) manufacturers from state purchases programmes (47 percent).Participants of the Seven Rare Diseases programme and other state programmes (67 percent) as well as localised foreign companies (62 percent) and large companies with over RUB 30 billion revenues (67 percent) tend to support this measure.
• Indexation of registered prices for locally produced VEDs, and no indexation (or a slower rate of indexation) for VEDs produced abroad (35 percent). Manufacturers of original medicines (46 percent), companies engaged in hospital procurement programmes (60 percent) and localised foreign companies (46 percent) are more likely than others to support this policy, unlike Russian companies (17 percent).
• Government support for Russian manufacturers through subsidies and privileges/preferences (including state purchases) as well as investments in innovative Russian pharmaceutical projects (31 percent). Generics producers (46 percent) and Russian companies (42 percent) rely heavily on government support for Russian manufacturers.
Further restricting or banning foreign (non-localised) manufactures from government procurement programmes
Encouraging foreign manufacturers to switch to full-cycle production by granting various privileges and preferences, including tax preferences instead of additional restricting and banning
Indexation of registered prices for locally-produced VED, and no indexation (or a slower rate of indexation) for VED produced abroad
Government support for Russian manufacturers through granting subsidies and privileges/preferences (including for state purchases), and boosting investments in innovative Russian pharmaceutical projects
Introducing additional procedures (or maintaining existing rules, including those that require compulsory local clinical trials) for registering drugs that were manufactured and approved abroad.
Anti-corruption measures aimed at increasing competition
State granting of patent exceptions for generic production
51%56%
47%57%
35%29%
31%49%
24%24%
22%15%
10%
2015 2016
25
Measures aimed at reducing the share of imported medicines
Top government regulation areas to be improved
01
02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Efficiency of government regulations in the pharmaceutical industry
TrendGenerally, opinions regarding the most important areas of improvement for government regulation did not change much since 2015.
The survey results also revealed pharmaceutical industry representatives’ decreasing satisfaction with the legislation on the circulation of drugs and medical devices within the EEU (by 12 pp).
Respondents are also less dissatisfied with the state medicine registration process (by 8 pp).
Specific patterns
• Pricing regulation for medicines, including the procedure for updating the list of VEDs and their pricing regulation (69 percent). This issue is of more importance to companies engaged in hospital procurements (90 percent) and to companies with revenues from RUB 10 billion to RUB 30 billion (83 percent).
• Regulation of public procurement (for example, preferences or restrictions in state purchasing; purchasing by brand names) (47 percent). Manufacturers of medical devices (57 percent), companies with localised production (77 percent), large companies with revenues over RUB 30 billion and headcounts of over 1,000 employees (89 and 83 percent respectively) consider this a major issue.
As in last year’s survey, we interviewed our respondents to find out what areas of state regulation they believe to be in particular need of improvement.
Top government regulation areas to be improved
• State registration of medicines, including rules of certification for compliance with GMP standards (33 percent). This issue is of more importance to companies engaged in regional/municipal purchases within essential/extensive drug coverage programmes (67 percent).
• Unification of legislation of the circulation of drugs and medical devices within EEU (31%) Amendment to the legislation on the circulation of drugs and medical devices within the EEU is more significant to non-localised foreign companies (42 percent) and less significant to Russian companies (17 percent).
• Tax regulation including transfer pricing (27%) Manufacturers of original medicines (36 percent), companies engaged in regional/municipal purchases under essential/extensive drug coverage programmes (67 percent), non-localised foreign companies (38 percent) and companies with revenues from RUB 1 billion to RUB 10 billion (47 percent) consider tax regulation, including transfer pricing and deoffshorisation, to be of high importance to their business.
Regulation of public procurement (for example, application of preferences or restrictions in public purchasing; purchasing by brand names)
Pricing regulation for medicines including the procedure for updating the list of VED and their pricing regulation
State registration of medicines, including rules of certification for compliance with GMP standards
Unification of legislation of the circulation of drugs and pharmaceutical products within EEU
Tax regulation including transfer pricing and deoffshorisation
Regulation of drug promotion practices
Granting preferences to Russian manufacturers
Intellectual property rights protection
69%63%
47%41%
33%41%
31%19%
27%26%
22%26%
14%16%
10%10%
2015 2016
26
Measures aimed at reducing the share of imported medicines
Top government regulation areas to be improved
01
02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Our respondents
Our respondents06
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02
03
Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Our respondents
Russian company (benificiary owner is a Russian resident)
Foreign company or a Russian subsidiary of a non-localized foreign company
Foreign company or a Russian subsidiary of a localized foreign company (in-house production facilities or contractual production)
Management
Commercial
Finance
Other
Manufacturing and/or selling exclusively or predominantly of original medicines, including abroad
Manufacturing and/or selling exclusively or predominantly of generics, including abroad
Manufacturing and/or selling predominantly of medical devices
As in last year’s survey, almost half of our respondents are representatives of non-localised foreign companies (48 percent).
The remaining survey participants are Russian companies and localised foreign companies (26 percent each).
Company type Respondents’ job functions Company’s core operations
The majority of respondents are finance professionals (64 percent).
Almost a quarter of respondents are CEOs (24 percent), sales and commercial activity managers are in third place (10 percent).
The majority of respondents are manufacturers of original medicines (56 percent).
48%
10%
28%
26%24%
56%
26%
64%
16%2%
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Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Our respondents
Below RUB 1 billion
From RUB 1 billion to RUB 10 billion
From RUB 10 billion to RUB 30 billion
Over RUB 30 billion
Below 100 employees
From 100 to 1,000 employees
Over 1,000 employees
Commercial segment (drug stores)
Hospital purchases
Regional/municipar purchases within essential/extensive drug coverage programs
“Seven rare diseases” and other state programs
Drug stores are the main sales channel for most of the respondents (66 percent).
For one fifth of the respondents, hospital procurement is the main source or a significant part of revenues (20 percent).
Prevailing share in revenue structure Annual revenue Headcount
The survey covers large and small companies in terms of revenues. Around a third of the representatives are companies with revenues from RUB 1 billion to RUB 10 billion (32 percent).
Slightly over half of respondents are companies with a headcount of 100 to 1,000 employees (52 percent). The rest are representatives of large (over 1,000 employees) and small companies (less than 100 employees), comprising 24 percent each.
20%
66%
8%6%
32%
26%
24%
18%
52%
24%24%
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Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
Contacts
Egor MetelkinPartnerAuditCIP Industry Leader Deloitte CIS
+7 (495) 787 06 00 ext. [email protected]
Marina ElovskayaSenior ManagerBusiness Development DepartmentDeloitte CIS
Oleg BerezinPartnerTax & LegalLife Sciences & Health Care Industry Group LeaderDeloitte CIS
+7 (495) 787 06 00 ext. [email protected]
Lora ZemlyanskayaManagerResearch Centre LeaderDeloitte CIS
Valerie MikhaiSenior ManagerTax & LegalDeloitte CIS
+7 (495) 787 06 00 ext. [email protected]
Artyom BelyaevDesignerBusiness Development DepartmentDeloitte CIS
Elena RakhlenkoSenior Development Coordinator, CIPDeloitte CIS
+7 (495) 787 06 00 ext. [email protected]
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Directions of development in the Russian pharmaceutical market04
Introduction
Russian pharmaceutical market in figures
Current situation in the Russian pharmaceutical industry
Efficiency of government regulations05
Our respondents06
Contacts07
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