Drug Imports Up 45% in Volume Terms as Sanofi-Aventis Remains Top Big-Pharma Operator in Russia

Drug imports to Russia continue to expand at double-digit levels, with a 45% year-on-year (y/y) rise to some US$6.03 billion in imported pharmaceuticals. While the pace of growth in imports has subsided somewhat from the 51% y/y increase felt in 2005, the rise in foreign-made drugs sold in Russia is visible not only in volume, but also in value terms. This is largely attributable to a steadily growing market presence of more expensive treatments, which are gradually replacing cheaper products. Medicines costing over US$1,000 per pack accounted for 6.7% of total drug imports in 2006, compared to 3.1% in 2005. Conversely, the proportion of imported drugs costing just US$5 or less declined from 46.8% to 37.4% over the same period.

The rise in drug prices can easily be seen through a breakdown of imports into prescription and over-the-counter (OTC) drugs. In volume terms, prescription drugs accounted for 49% of medicines imported into Russia in 2006; this is noticeably lower than in 2005, when some 53% of all drug imports were prescription-only. However, while the number of imported prescription medicines is shrinking, their value has visibly increased. Prescription drugs accounted for 74.3% of pharmaceutical imports in 2006, a rise from the 71.3% value share they held in 2005.

According to a new report published by Pharmexpert, the pervasive presence of relatively highly priced drugs at the expense of cheaper varieties is due in part to growing demand from the state-subsidised National Health Project, in particular the DLO drug reimbursement scheme for low-income Russians. A growing number of top-line, innovative therapies are being made available through the DLO, particularly for patients with late-stage or chronic illness. As such, it comes as little surprise to learn that cytostatics (mainly chemotherapy products) overtook diabetes drugs to become the most commonly imported therapeutic category of drugs in 2006, with a staggering 98% y/y increase in supply to stand at 7.77% of all pharmaceuticals imported in 2006. Swiss pharma company Novartis's chronic myeloid leukaemia treatment, Glivec (imatinib mesylate), was the leading imported drug in volume terms, but despite a 43% y/y rise in supply, the product still accounted for just 1.61% of the Russian imports market. Johnson & Johnson (U.S.) saw soaring demand for its multiple myeloma drug, Velcade (bortezomib), during 2006, with supplies to Russia up by 6,579% y/y to capture a 1.23% share of the imports market.

In spite of this, French pharma heavyweight Sanofi-Aventis managed to pip both Novartis and J&J's Janssen-Cilag to the post, remaining Russia's leading foreign purveyor of drugs, with a 6.51% share of the market. However, both Novartis and Janssen-Cilag experienced a much faster pace of growth during 2006, boosted by their top-selling oncology products. Servier (France) and Berlin-Chemie/Menarini (Italy) round out the top five, with respective import market shares of 4.33% and 4.04%. Hungarian drug-maker Richter Gedeon, which had previously benefited from rapidly growing Russian sales through its participation in the DLO scheme, fell three places in the list to stand at seventh, with a 3.14% share of the market. While Richter drugs saw a 24% rise in supply during 2006, the company was nonetheless hit by the health authorities' decision to drop several drugs from the DLO list last year (see Russia: 12 October 2006: Richter Hit as Russia Drops Key Drugs from Reimbursement List). Among the companies that supplied fewer drugs than usual in 2006 were Novo Nordisk (Denmark) and Eli Lilly (U.S.), both of which are key suppliers of diabetes products to the Russian market. While a higher than usual supply of insulin analogues in 2005 may have led to a reduction in necessary imports during 2006, it has also been suggested that the firms may have withheld from supplying drugs to the DLO for a period last year due to mounting debts owed to companies participating in the programme (see Russia: 27 February 2007: Drug Companies Demand Meeting with Russian Government over DLO Payment Delays).

Outlook and Implications

The rise in prices of drugs distributed via the DLO presents a paradox for Russia's public health authorities. On one hand, it is an encouraging sign that trade in innovative drugs is picking up, allowing for improved access to modern treatments. On the other hand, the DLO has already proven itself incapable of handling the rapidly soaring expenses associated with reimbursing these drugs, leading to the widespread drug shortages and massive debts owed to drug companies seen since last year. While Russia is desperately trying to boost the productivity of its domestic pharmaceutical industry in order to provide lower-cost alternatives to patients eligible for treatment on the DLO, this is a process that will take several years and a significant amount of investment to complete, and in the meantime, foreign-made pharmaceuticals will continue to pour into the country, pushing up prices still further. The health authorities have already imposed price-cuts on certain imported products, and are encouraging multinational drug companies to begin producing their medicines within Russia itself in order to cut costs for all involved. However, following the DLO debt fiasco of 2006 and further uncertainty ahead in the public healthcare sphere (see Russia: 12 April 2007: Minister Decries Political Backstabbing as Russia's Health and Social Development Ministry Braces for Split), the country is in something of a catch-22 situation as far as foreign drug-makers are concerned, as most are proving reluctant to meet the significant regulatory and bureaucratic hurdles involved in direct investment in the Russian pharmaceutical market.