Russia. Key Trends of the Russian pharmaceutical market in 2011
Those structural changes that were in part encouraged by law-making efforts include the resumed growth of drug prices which we observe in the out-of-pocket sector. Inflation processes have affected both medicines not covered by the Essential Drug List and the markup-regulated drugs. However in the latter case the changes were less manifest. In general, the out-of-pocket sector was a key driver of the Russian pharmaceutical market in the past year. At that the price growth, on the one hand, and refocusing of consumer demand on more expensive medicines, on the other hand, could be regarded as the main growth factors. Although both of these moves have been typical to pre-crisis development of the Russian pharmaceutical market, their current underlying mechanisms are essentially different. Specifically, the price growth was closely connected with increased fiscal charges on drugstores, which therefore had to face a significant fall of their profit levels. As a result, this fall has driven the sales of costlier drugs providing much higher maximum margins in cash terms. But such sales would however have been impossible at low purchasing capacity of the population – and here we should evidently attribute them to an actual growth of personal incomes. Therefore, based on the results of 2011, the out-of-pocket drug market will show the growth by approx. 16% and reach the level of 15.4 bn USD [1].
The market growth trend will persist in the first half of 2012, although at a lower rate – 10% or less. More optimistic expectations would be unreasonable at the moment, as personal incomes grow relatively slowly, and the epidemic environment remains quite stable. In the long run, the market is likely to call for some new growth drivers, one of them probably arising out of the implementation of drug insurance mechanisms. Tatiana Golikova, the RF Minister of Health, has announced the plans for their implementation in 2014—2015 at Gaidar Forum in January, 2012. Such mechanisms may stimulate not only the market growth in value terms but also help achieve the critical objectives of evidence-based pharmacotherapy.
Another example of considerable growth rates in 2011 is set by the hospital sector (4.57 bn USD), namely 14% year-on-year in value terms. The growth of this market sector is largely driven by the government commitment including, for the past year, significant expenses for the healthcare system modernization program that provides for much wider procurement of high-cost drugs to treat oncology, cardiac, pulmonary diseases etc. This two-year program was launched in 2011, and accordingly will continue to drive the changes in the hospital sector of the Russian pharmaceutical market in 2012. With continuing sustainability of the federal budget revenues, even a more drastic growth at about 16% year-on-year may be expected.
The macroeconomic stability is a common cornerstone for the development of all sectors of the Russian pharmaceutical market especially those based on the state funding. The increased expenses in the hospital sector are likely not only to provide for an improved quality of medical services but also cause structural changes in other market sectors including the out-of-pocket and reimbursable drug coverage operations. The latter two sectors are not always apparently interrelated but in specific therapeutic areas their relationships are rather strong. For example, just several years ago the share of hospital solutions in the out-of-pocket market was very large, although they are basically unsuitable for outpatient clinic use by their nature. This was partly explainable by insufficient funding of the hospital drug procurement. Consequently, physicians had to recommend their patients to buy the required drugs out of pocket in order to be treated at hospitals. By the way, the share of this product group in the retail market is still comparatively large although it has significantly reduced over the recent years. A similar cash flow from one segment to another can be also seen in the reimbursable drug coverage: there are at least several examples of expensive drug purchases under the high-cost nosology program (“Seven Nosologies”, or VZN) for treatment of myeloleukosis (monoclonal antibodies) with a subsequent use for juvenile arthritis cure.
However over the past year the reimbursable drug coverage sector (“RDC”) has shown the lowest growth rate (at about 5%); its size reached 2.84 bn USD. On the one hand, it could be attributed to the ongoing withdrawal of beneficiaries from the Polulation Drug Coverage program (“ONLS”), which remains a very significant cause of this sector size reduction despite all measures taken by the government. On the other hand, the RDC sector is under pressure of import substitution; this process is observed both within the ONLS subprogram where the share of local products increased by 2.7% in 2011 and within the VZN subprogram where local manufacturers play an increasingly important role. Specifically, in 2011 local manufacturers were quite successful putting competitive pressure on foreign producers in the segments of hemophilia, multiple sclerosis, and pituitary dwarfism. Although the share of original Russian products remains quite low both in ONLS and VZN segments – 14.7% and 7.5%, respectively. However in the short term, we may expect the appearance of local products in other nosological groups as well, which will inevitably affect both the market structure and the sector growth rates in general.
Certain challenging moves in the RDC sector may soon follow due to widening the range of the nosologies to be covered by drugs funded from the federal budget. Particularly in the late 2011, Russia’s Ministry of Health and Social Development finally made some steps to improve drug provision to patents with the so called orphan diseases. First of all, the Federal Law No. 323-FZ of 21 November 2011 “On Foundations of Citizens’ Health Protection in the Russian Federation” has defined the term “orphan disease”. Then, the list of 85 relevant diseases was made. The treatment of many of them involves high-cost drugs that are at best paid up by charity organizations or at worse purchased by the patients at their own expense; otherwise the patients are left without an advanced efficient drug aid at all. However, there is yet no certainty either about the procedures for funding such therapy or about the amount of funds needed to this end.
In general, the growth of Russian pharmaceutical market in 2012 may be expected at 10-12%. This is certainly lower than in 2011 as well as some other previous periods, but it should not be disregarded that the market has confidently passed the landmark of 20 bn USD and continues to remain one of the world’s fastest growing markets. Other good news is that it may still benefit from availability of plentiful resources for its further development both in terms of growth and performance.
[1] Hereunder, we provide preliminary estimates of the market size and development rates in 2011. The final data will be available in March 2012.
Another example of considerable growth rates in 2011 is set by the hospital sector (4.57 bn USD), namely 14% year-on-year in value terms. The growth of this market sector is largely driven by the government commitment including, for the past year, significant expenses for the healthcare system modernization program that provides for much wider procurement of high-cost drugs to treat oncology, cardiac, pulmonary diseases etc. This two-year program was launched in 2011, and accordingly will continue to drive the changes in the hospital sector of the Russian pharmaceutical market in 2012. With continuing sustainability of the federal budget revenues, even a more drastic growth at about 16% year-on-year may be expected.
The macroeconomic stability is a common cornerstone for the development of all sectors of the Russian pharmaceutical market especially those based on the state funding. The increased expenses in the hospital sector are likely not only to provide for an improved quality of medical services but also cause structural changes in other market sectors including the out-of-pocket and reimbursable drug coverage operations. The latter two sectors are not always apparently interrelated but in specific therapeutic areas their relationships are rather strong. For example, just several years ago the share of hospital solutions in the out-of-pocket market was very large, although they are basically unsuitable for outpatient clinic use by their nature. This was partly explainable by insufficient funding of the hospital drug procurement. Consequently, physicians had to recommend their patients to buy the required drugs out of pocket in order to be treated at hospitals. By the way, the share of this product group in the retail market is still comparatively large although it has significantly reduced over the recent years. A similar cash flow from one segment to another can be also seen in the reimbursable drug coverage: there are at least several examples of expensive drug purchases under the high-cost nosology program (“Seven Nosologies”, or VZN) for treatment of myeloleukosis (monoclonal antibodies) with a subsequent use for juvenile arthritis cure.
However over the past year the reimbursable drug coverage sector (“RDC”) has shown the lowest growth rate (at about 5%); its size reached 2.84 bn USD. On the one hand, it could be attributed to the ongoing withdrawal of beneficiaries from the Polulation Drug Coverage program (“ONLS”), which remains a very significant cause of this sector size reduction despite all measures taken by the government. On the other hand, the RDC sector is under pressure of import substitution; this process is observed both within the ONLS subprogram where the share of local products increased by 2.7% in 2011 and within the VZN subprogram where local manufacturers play an increasingly important role. Specifically, in 2011 local manufacturers were quite successful putting competitive pressure on foreign producers in the segments of hemophilia, multiple sclerosis, and pituitary dwarfism. Although the share of original Russian products remains quite low both in ONLS and VZN segments – 14.7% and 7.5%, respectively. However in the short term, we may expect the appearance of local products in other nosological groups as well, which will inevitably affect both the market structure and the sector growth rates in general.
Certain challenging moves in the RDC sector may soon follow due to widening the range of the nosologies to be covered by drugs funded from the federal budget. Particularly in the late 2011, Russia’s Ministry of Health and Social Development finally made some steps to improve drug provision to patents with the so called orphan diseases. First of all, the Federal Law No. 323-FZ of 21 November 2011 “On Foundations of Citizens’ Health Protection in the Russian Federation” has defined the term “orphan disease”. Then, the list of 85 relevant diseases was made. The treatment of many of them involves high-cost drugs that are at best paid up by charity organizations or at worse purchased by the patients at their own expense; otherwise the patients are left without an advanced efficient drug aid at all. However, there is yet no certainty either about the procedures for funding such therapy or about the amount of funds needed to this end.
In general, the growth of Russian pharmaceutical market in 2012 may be expected at 10-12%. This is certainly lower than in 2011 as well as some other previous periods, but it should not be disregarded that the market has confidently passed the landmark of 20 bn USD and continues to remain one of the world’s fastest growing markets. Other good news is that it may still benefit from availability of plentiful resources for its further development both in terms of growth and performance.
[1] Hereunder, we provide preliminary estimates of the market size and development rates in 2011. The final data will be available in March 2012.
Source: http://goo.gl/ziyms
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