We are in the early days of a short, but intense consulting project involving the Russian pharmaceutical market.
It’s a very interesting market, with some notable differences when compared to the US and European market.
Self-Medication
This is a market where patients self-medicate…a lot. Historically, OTC and Rx sales have been 50/50. When you consider that OTC products tend to be a lot cheaper than Rx, this split is astounding.
Historically, this has been driven partly by a distrust of domestically-produced pharmaceuticals. But this is rapidly changing (discussed below). Today that split is roughly 40/60 in dollar terms (which still seems high), with generics capturing ~60% of the Rx market.
As more expensive prescription drugs have entered the market, OTC marketers have responded by raising prices to capture more revenue from patients who cannot/will not pay for Rx options which are not covered. As expected, OTC volumes have decreased.
But the net effect remains…this is a country which feels very comfortable with self-medication, and is willing to pay out-of-pocket for it.
The Important Role of Government
In the past, imported pharmaceuticals accounted for 70-80% of the Russian pharmaceutical market.
But this is also changing very rapidly.
The Pharma2020 strategy, originally launched by President Putin in 2009, is focused on building and developing a national pharmaceutical industry with significant domestic production of pharmaceuticals.
In 2012, less than 100 drugs were manufactured in Russia. By early 2013, domestic production exceeded 400 drugs. Since the plan was implemented, 25 pharmaceutical manufacturing facilities have been constructed in Russia, with a government-financed price tag approaching 20 billion rubles.
Nearly 80% of the drugs on the Essential Drug List (EDL) are now manufactured domestically, and that is projected to grow to 90% by 2020.
As a result, low-cost, high-quality, locally-produced generics, branded generics, and even biosimilars are capturing market share.
Interestingly, there seems to be some resistance to local products, with many patients preferring the real or perceived higher quality generics and branded generics produced abroad.
Europe-style pricing guidelines are also being developed. Further, as the Eurasian Economic Union continues to evolve, we may see even further government mandated pricing limits as EAEU price harmonization evolves at the expense of EU reference pricing.
Branded Market
We were surprised at the significant preference by patients for branded products, even in the presence of multiple, lower-cost generics, for both Rx and OTC products.
This has been the cause because patients viewed imported pharmaceuticals as having higher quality, and were willing to pay extra for that quality.
However, this is changing, largely due to the Pharma2020 program. Mobile access to information has also shifted some segments away from branded generics, as has compulsory prescribing by INN.
It is unclear to us if pharmacists continue to try to push patients towards the purchase of higher margin branded products.
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We are far from experts on the Russian pharmaceutical market. Fortunately, our project involves internal operational matters. Hence, the market characteristics serve as helpful background information. However, what is very clear to us is that a great deal of change has taken place in this market over the past 10-20 years.
There appears to be much more room for growth, especially for newer, more innovative products make their way through the reimbursement lists and onto the market. Cardiovascular Disease accounts for 60% of all deaths in Russia, suggesting that there is room for improvement in the overall health of the population (at the expense of pharmaceuticals).
However, government reimbursement could create challenges for innovators, as they also face in Europe. And, a stable-to-declining patient population may hamper some of this projected growth.