Russian Pharma Market Today Main trends & forecasts

PhD (pharma) David Melik-Gusseynov,

Head of advisory board in public health committee «Business Russia» (Delovaya Rossia)Cegedim (Russia), director

+7 903 7 555 4 66www.davidm-g.ru

Supported by Main sources

Global Pharma*

*IMS Health

Global Pharma Market Value, 2004-2010 Contribution to Global Pharma Market Growth

Global pharma market growth slows further in 2009-2010

US will make no contribution to growth in 2009, “Pharmergin” markets contribute around 50%.

3|

Big Pharma

North Amercia (USA) is the largest Pharma Market in the world. But market growth rates are

decreasing year by year (CAGR +1-3%) by the reason of generics growing consumption

North Amercia (USA) is the largest Pharma Market in the world. But market growth rates are

decreasing year by year (CAGR +1-3%) by the reason of generics growing consumption

NNorth Americaorth AmericaNNorth Americaorth America

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Big Pharma

Stable growth rates (CAGR 15-20%) in Brazila and Mexico by the reason of population growing and new State

drugs’provision programmes (Reimbursment).

Stable growth rates (CAGR 15-20%) in Brazila and Mexico by the reason of population growing and new State

drugs’provision programmes (Reimbursment).

SSouth Americaouth AmericaSSouth Americaouth America

5|

Big Pharma

In Europe is expected sluggish growth rates (CAGR 3-5%) by main

market participants (France, Germany, UK, Italy and Spain).

Aging of population will motivate the market growth rate but situation will

not change cardinalEast Europ is in better situation by the reason of natural consumption

growing

In Europe is expected sluggish growth rates (CAGR 3-5%) by main

market participants (France, Germany, UK, Italy and Spain).

Aging of population will motivate the market growth rate but situation will

not change cardinalEast Europ is in better situation by the reason of natural consumption

growing

Europe Europe Europe Europe

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Big Pharma

Japan market is the second one in the world and its growth rates are expected to be near 5% annually. New onco portfolio of some local pharma companies, state programs for desease preventing,

two years restriction on price increasing – will favor the market development . State generic programs are not popular among

consumers.

Japan market is the second one in the world and its growth rates are expected to be near 5% annually. New onco portfolio of some local pharma companies, state programs for desease preventing,

two years restriction on price increasing – will favor the market development . State generic programs are not popular among

consumers.

JapanJapanJapanJapan

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Big Pharma

China, India and South Korea will increase their share in global

pharma market.Huge population and fantastic

growth rates will help these markets to be leaders in the world

consumption in 5 years.

China, India and South Korea will increase their share in global

pharma market.Huge population and fantastic

growth rates will help these markets to be leaders in the world

consumption in 5 years.

Asia Asia Asia Asia

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notBig Pharma

??Наша РашаOur Russia

Russian Pahrma Market Drivers

before 2009 2009г after 2010

Demand swithes on more expensive drugs

- -

New Sate «Reimbursment»Programms

-

New Sate «Reimbursment»Programms

New drugs launches - -

Prices increse Prices increase-

Well-being of the people -

Well-being of the people

*ЛО – лекарственные обеспечение

Main Russian Pharma Market Questions

Social sphere depends on energy import (gaz, oil, etc)

Lack of State social (healthcare) budget

Low purchaise activity

Healthcare reforms

High market volatility

Not higly developed market infrustructer

Healthcare State dotetions (subsidy). Absence of long-term capital investment in industry aimed at getting profit

Price restrictions (vital & essential drugs)

Protectionism of local manufacturers

Macroeconomics Macroeconomics

Regulation Regulation

Market Market

Russian Pharma

2009 Total Value: $15,7 bn*

*Pharmexpert

Russian Pharma Value Supply, mln $Ex-manufacturer prices

Russian Pharma Market grows fast CAGR +15%

Foreign Manufactures Dominate

State bodies try to control market more strictly as a very important social segment, which influences on politic stability

CIS Drugs Consumption Per Capita 2008-2009

127

76 77

54

37 3225 24

9

123

81

63

4635

24 2716

8

Ru

ssia

Bel

aru

s

Kaz

akh

stan

Ukr

ain

e

Geo

rgia

Mo

ldo

va

Aza

rbai

jan

Arm

enia

Uzb

ekis

tan

per capita consumption $, 2008

per capita consumption $, 2009

Pharmexpert, CISSTAT

$450 $250 $700JAPAN POLAND USA

Russian and World Pharma Infrastructure

Russia UK USA

drugstores 65 000 18 500 55 000

whalsellers 1120 10 40

manufacturers 1200 890 1800

Pharmexpert, IMS Health

Consentration for TOP 10 CompaniesMS % of TOP 10 Companies

Russia Europe USA

drugstores 19,3 70 92,4

whalsellers 78,5 98 85,6

manufacturers 34,2 42,5 46,3

Pharmexpert, IMS Health

Distributor sales dynamics

25,0

11,013,0

23,024,0

17,0

5,1

21,8

27,0

30,1 30,8 32,0

28,0

7,0

-7,4

9,6

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409

gross sales growth (%, RUB) to similar period of preceding year

direct sales growth (%, RUB) to similar period of preceding year

Pharmexpert, IMS Health

Pharma market stocks:all stages of distribution chain

1st m 2nd m 3rd m 4th m 5th m

Manufacturer stage: import/manufacturing, customs etc.

Distributor stage: logistics

Drugstore, hospital stage: drug provision/sales

1.2 m 2 m 1.5 m

1 m 1 m 1 m

2008

2009

The infrastructural revolution has already occurred!

2000 2009

Market value, bn USD (retail prices) 3 510 15 700

Number of manufacturers 650 1025

MS%, TOP 10 manufacturers 29,3 33,0

Number of distributors 1800 1120

MS%, TOP 10 distributors 65,2 78,8

Number of drugstore chains 200 600

MS%, TOP 10 drugstore chains <1% 14,2

Number of drugstores 47600 65000

Pharmexpert, DSM group

Distributor concentration

45,566,6 78,8 86,3 88,7

46,4

63,275,9

83,0 85,4

ТОР3 ТОР5 ТОР10 ТОР20 ТОР40

20082009

Pharmexpert

Chain concentration

6,0 9,514,2

20,6 24,89,412,0

17,4

23,7

27,9

ТОР3 ТОР5 ТОР10 ТОР20 ТОР40

2008

2009

Pharmexpert

What is new in 2010?

Common customs tariffs for all commodity types (since 2010). An exemption (probably temporary) was made for specific commodity groups, including drugs, viz. custom duties have remained unchanged

Commodity certification regulations will harmonized

A common customs border will be in place since July 2011

This is the first stage of developing the Common economic area

Since 2010, Russia, Belarus, and Kazakhstanjoined the Common Customs Union :

Декларации - 2010The Common economic area will become operative in 2012

What will that mean for pharma market players?

Unification of the drug circulation legislation

Common drug registration system

Free drug circulation within the borders of the three countries

Development of intra-union distribution network and retail trade

Drug price control system will be in place

Expansion of sales markets for local manufacturers

State regulation of drug prices

«It goes about pharma companies and numerous intermediaries in the distribution chain striving to make super profits using imperfections of the legislation and other opportunities. The existing drug price registration system is in fact a formality. Therefore I think that it is both necessary and possible to impose a tougher regulation on part of the state. Manufacturers will have to prove that they have grounds for revising the Essential and Vital drug prices, and federal authorities will get efficient tools for checking the accuracy of their calсulations».

Vladimir Putin,Russia’s Prime Minister

*price segmentation in units.Prices fixed as of 2002.

Washing-out of cheap drugs from pharmacy product range*

11,7% 9,7% 7,9%

29,6%15,5%

20,4% 19,0%17,3% 17,4%

16,2%13,0%

13,5%30,5%

31,9% 33,3%36,9% 37,4% 40,5%

41,1%

14% 12% 18% 21% 23% 26% 28% 34%

24,1% 21,9% 18,8% 17,0% 14,5%

19,1% 19,8%10,4% 9,5% 7,9% 7,6% 5,7% 4,4%

2002 2003 2004 2005 2006 2007 2008 2009< 30 RUB 30-50 RUB 50-100 RUB 100-300 RUB > 300 RUB

ConclusionWashing-out of cheap drugs is irreversible. Regulation of Essential&Vital drug segment will speed up the process.

Pharmexpert

Potential Russian Promo Regulation

Pharma company activity

Status in new law

How to overcome

Calls to docs during their working time

Doctor could be visited in his free time (after-hours) on workplace + possibility to visit administration during working time

Presents / gifts It is possible to present something to doc officially (by contract)

Conferencies / meetings It is possible to organize conference for docs with a co-sponsor (financed by several companies)

Samples It is allowed to spread samples officially by determined quatas

DTCIt is allowed to promo OTC drugs using DTC channels

Post clinical trials It is allowed to make PCT officially in plenipotentiary clinics

Pharmaceutical Company Settlements

for violation of marketing laws

$ 1,42 billionfor improper drug

promotion

$ 2,3 billon

for violating laws relating to potential off-label

marketing and promotion of Trileptal

$ 185 mln.

2010 2010

for mislabeling Botox

$ 600 mln.

2010

2009

for illegal marketing of schizophrenia drug

Seroquel

$ 520 mln.

for improper billing and irregular pricing

practices

$ 650 mln.

2008 2009

Global Pharma Promo Activity

+ 35.3 %

- 17.2 %

+ 6.4 %

- 0.1 %

+ 10.4 %

- 3.5 %

- 14.5 %

+ 15.2 %

% change

2009 / 2008

$90.7 $91.7 $93.2

+1,1% +1,6%

GLOBAL TRENDS Spending in $ bn

Russia’s President outlined key parametersfor pharma market development

The drug market has been developing dynamically due to the state programs and funds that have flowed to this sphere. It has been growing by 10–12 percent on average year-on-year. According to expert calculations, drug sales in this country will amount to about 1.5 trln rubles in 10 years, which is quite impressive. In fact, we must reach the average European drug consumption level that will, in the long run, be translated in longer life expectancy and higher living standards. Medical equipment sales must also be growing at a high rate. The main thing is to act in the interests of Russia’s citizens and local manufacturers.

Dmitry Medvedev speaking at the meeting of the Committee for Modernization and Technological Development of Russia’s Economy, city of Pokrov (Vladimir region), 31 Aug 2009

Experts’ estimationsbln USD, consumer prices, Rx+OTC, incl VAT

23 00019 25015 700

+22,5% +19,5%

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