By Sylvia Miriyam Findlay, Research Analyst, Pharmaceutical and Biotechnology, EMEA Healthcare

The major pharmaceutical markets like North America, Europe and Japan are facing a very sluggish growth. This has forced the pharmaceutical market participants to shift their focus towards the regions that offer solid ground for research and development (R&D). Innovation is currently heading towards countries like India, China, Russia, Central & Eastern European countries.

Marked as a communist country, Russia faced various challenges including poor infrastructures, high tax rates, poor wages and low standard of living. The economic slowdown impeded industrialisation in the country. Though it possessed the economic strength to emerge as one of the strong markets in the world, Russia has been faced with substantial challenges to overcome.

The challenges
The Russian pharmaceutical market is overwhelmed by formidable challenges. The poor state of the healthcare system encourages the use of generics. Thus generic pharma market occupies around 80.0per cent of the market. With no proper reimbursement system, the patients have to loosen their purse strings to avail any primary healthcare service. In addition the local drug manufacturers contribute to 70.0 per cent of the pharmaceutical products sold in the market. The lack of proper manufacturing facilities or standards to govern the quality of the drugs being manufactured, the Russian market is flooded with spurious generics and fake drugs. Trading in the Russian soil is impeded by unfriendly import licensing policies and political interferences.

Moreover, the lack of sufficient infrastructure, poor implementation of the intellectual property rights and the unfavourable atmosphere for foreign investments including the widespread corruption act as roadblocks to pharmaceutical companies entering the market.

The opportunities
Amidst all the aforesaid challenges, the Russian pharmaceutical market projects a promising future. The Russian pharmaceutical market has been valued at $3.75 billion in 2005. The pharmaceutical market has witnessed steady growth for the past five years. The market is likely to grow in double digits during the next five years. The markets for branded drugs and over the counter (OTC) drugs are on the rise.

Chart shows the pharmaceutical market revenues from 2000 to 2005

The government has proposed various changes in the healthcare system like improving primary care, efficient implementation of insurance and increase the healthcare funding to almost $2.0 billion for 2005. Though these initiatives are yet to take a tangible form, they are likely to provide a facelift to the healthcare system in future.

The increase in smoking, alcohol abuse and lack of exercise has propagated the incidence of diabetes, hypertension and cardiac related diseases. Infectious diseases like HIV/AIDS are on the rise. The Russian soil is transforming to be a conducive environment for clinical trails. Russia offers an easy reach to a wide variety of patient population. In addition the physicians are more willing to work as investigators for the program. Thus the pharmaceutical companies are likely to reduce the cost of clinical trials to more than 45%- 50% when compared to other western countries. The market attractiveness for clinical trials is luring many pharmaceutical companies to launch their R&D centres in Russia.

Conclusion
Russia possesses great potential for the pharmaceutical industry. However, certain challenges are to overcome to reach the untapped potential. The major pharmaceutical companies currently working on the Russian soil like Sanofi-Aventis, Pfizer, GlaxoSmithkline and Roche are vying to utilise the hidden potential. In addition others companies like Sandoz, Servier and Menarini are also planning to expand their market position. The market offers great opportunities for growth and the future is likely to see significant mergers and acquisitions.

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