Russian Retail Drug Sales Jump 22% Y/Y in January-July, on Back of Higher Spending Power

Sales of medicines in pharmacies across Russia continued to grow at double-digit strength into the second half of 2008, recording a 22% year-on-year (y/y) rise to a total value of 126.4 billion roubles (US$4.5 billion) during January to July, inclusive. The figures come from local market watch group DSM, which also says that the market grew even more strongly in U.S. dollar terms, up by 33% y/y to US$5.3 billion. An increase in personal wealth and consequently in spending power has been cited as the main factor behind the growth, although rising drug prices have undoubtedly also played a role.

Russia's pharmaceutical market is divided into three main sections, the largest of which is the retail sector. The hospital segment and the Supplementary Medicines Cover (DLO) reimbursement scheme for social benefit groups round out the remainder of the total market. The retail sector is notable for being funded largely out of pocket, with only a small proportion of patients seeing their prescriptions funded through public or private health insurance programmes.

Medicines sold most frequently in pharmacies during the first seven months of the year included generic and brand-name drugs, mostly produced by Russian or Eastern European manufacturers.

Meanwhile, Russia's own Pharmstandard remained the leading producer by overall retail drug sales during the first six months of 2008, easily surpassing its nearest rivals in terms of sales value and volume. Innovative drug makers such as Sanofi-Aventis (France), Novartis (Switzerland) and Servier (France) performed well during the period, but once again, generics players dominated much of the retail turnover.

Outlook and Implications

DSM is predicting full-year retail pharma market growth of 25% y/y, which is in line with other local observers' estimates of a protracted rise in consumption. Despite the dominant presence of lower-cost generic medicines on the retail market, the overall trend in retail drug prices is one of growth, which will also contribute to higher spending.

According to Rossiyskaya Gazeta, citing data from the Federal State Statistics Service, retail drug prices have grown by an average of 14.2% in December compared with the beginning of 2008, compared with a rise of just 5% y/y for the entirety of 2007. The main factors behind these price rises are soaring inflation, the effect of higher-priced medicines imported from overseas, a lack of pricing regulation for retail drugs, and growing operational costs for pharmaceutical companies.