The tragedy of Russian pharmaceutical production: there is where, there is with whom, but with nothing…

The main problem of the players of the Russian pharmaceutical market is not competition with Western colleagues, but the inability to itIvan Danilov, Pharm-MedExpert

The market participants themselves call the drug trade the third most profitable business in the world after the drug and arms trade and claim that it is not afraid of any crisis. RBC-Magazine analyzes whether, in the current conditions, Russian pharmaceutical manufacturers have chances to increase their presence on the market?

The strong dependence of the Russian market on imports led to an increase in prices and, as a result, to a drop in sales in kind. In such a situation, the most logical scenario is an increase in domestic production. Meanwhile, it is impossible to raise domestic enterprises that are in deep out, experts say. And the most likely scenario is the strengthening of the presence of Western manufacturers in Russia. Despite the decline in demand, sales of pharmaceuticals in our country have been going up since the beginning of the year. However, only in monetary terms. Such a serious increase in prices as for medicines has not been observed since the onset of the crisis, perhaps, for any type of consumer goods. According to Nastasia Ivanova, CEO of the National Distribution Company, the main reasons for the emerging trend are the weakening of the ruble, the growth of bank loan rates (from 13 to 25-30% per annum), a high share of imports and the lack of state support for domestic producers. "The increase in prices is caused by the desire of market players to improve, and often save their position in conditions of financial difficulties," explains Alexey Bykanov, head of Business Development at Bayer HealthCare in Russia.

Experts believe that, despite rising prices, the pharmaceutical market will not show the same dynamics by the end of 2009: in world currencies, its volume will remain at last year's level or, perhaps, slightly decrease, and the dynamics of the market in physical terms may be negative. Since mainly imported medicines are becoming more expensive, it seems that golden times should come for domestic manufacturers. However, in fact this is not the case. The main problem of Russian pharmaceutical companies is not competition with Western colleagues, but inability to it. Now there are more than 600 different pharmaceutical companies operating in our country, the editor of the portal states Pharm-MedExpert.ru Ivan Danilov, but many of the drugs they produce are uncompetitive. Previously, domestic enterprises went on state orders, and today this direction is under threat.

The Government of the Russian Federation was developing a resolution according to which by 2010 Russian pharmaceutical industries would be required to comply with Western standards. But to accept such a project means to close almost all factories. "That the pharmaceutical industry of Russia should meet the international GMP standard [Good Manufactured Practice. – Approx. "RBC"], experts and officials have been talking for a long time, – says Nastasia Ivanova. "Meanwhile, manufacturers are not in a hurry to implement it: not everyone is able to spend 10-20 million dollars on the re–equipment of the plant or 50 million for the construction of a new one." Everyone was counting on public money. But the crisis put an end to the plans of the Ministry of Health and Social Development. And in the near future, it is unlikely that most domestic pharmaceutical plants will be able to attract cheap financial resources, but only the top 50 enterprises of the industry will need from 500 million to 1 billion dollars.

Since 2006, when the domestic pharmaceutical market showed a fantastic growth of 30%, it has become especially attractive for foreign investors. At that time, the main incentive for development was the program of additional drug provision, under which the state purchased medicines for privileged segments of the population. "Since then, of course, the market has not shown such phenomenal growth rates, but even despite their reduction to 10-15% per year, Russia remains attractive for foreign capital," comments Nastasia Ivanova. – Another thing is that in a crisis, Western investors are not in a hurry to come to us." However, it is unlikely that the lull will be long. Alexey Bykanov believes that stagnation in our country will last no more than two years.

Many foreign companies still highly appreciate the potential of the Russian market and expect its further growth, since the need for effective medicines is still very far from being satisfied. And while there have been no official statements from foreigners about the opening of new production facilities in our country, many market players have no doubt that this will happen in the near future. And since almost all the attractive assets have already been bought up, we will probably talk about the construction of factories. And while the state has not adopted such programs, local authorities have taken care of attracting foreign investors. In April, the administration of St. Petersburg announced that they were allocating five sites for the creation of pharmaceutical enterprises. Western companies willing to invest in construction will be provided with tax incentives. However, experts warn that the opening of new production facilities by foreign players will increase the dependence of the Russian market on imports. Whereas the crisis will significantly reduce the chances of domestic enterprises to restore their lost positions in the future.

Nevertheless, the total production volume of the 10 leaders of the pharmaceutical market is estimated at $ 117.0 million.According to Rosstat, the volume of production of domestic enterprises of the chemical and pharmaceutical industry in May 2009 was equal to $ 170.6 million.

This is 29% lower than the corresponding indicator last year, but 13% more than in April 2009, according to the AIPM – Remedium bulletin. The "top ten" of the largest domestic enterprises in terms of production by the end of May 2009 is presented in the table.

The total production volume of the ten leaders is estimated at $117.0 million, or 69% of the total production volume of chemical and pharmaceutical industry enterprises for the analyzed period.

Portal "Eternal youth" http://vechnayamolodost.ru22.07.2009