Bullish On Russian Pharmaceutical Market Despite Risks
BMI View : Demographic trends, rising incomes and greater state spending on healthcare will drive growth within the Russian pharmaceutical sector. However, we also see risks to investment and considerable barriers for foreign companies. On balance, we remain bullish on the growth prospects for Russian pharmaceutical spending, but highlight local companies as having better opportunities to realise this growth than multinationals.
Russia offers the largest commercial market within the Central and Eastern European (CEE) region for the pharmaceuticals and healthcare sector. We see the country as being the primary growth driver for the region, with both public and private spending contributing to expanding commercial opportunities. Russia's demographic and economic outlook also bodes well for the sector's development. Nonetheless, we stress that there are key risks to this bullish view.
Key Growth Drivers For Pharmaceutical Spending
Large, ageing population and expanding life expectancy; Russia's pharmaceuticals and healthcare spending reflects its large population and the demographic build-up of the country. Russia has a considerable pensionable population, who rely on social expenditure from the state and their own pensions to purchase medicines and visit doctors. Given that almost 80% of lifetime healthcare consumption occurs past the age of retirement and the fact that this particular demographic is expected to grow considerably (from 13% of the total population to 18% by 2030), we see sustained demand for pharmaceuticals and healthcare services over the long term.
Considerable disease burden; a combination of factors namely, an ageing population, sedentary lifestyles, Western dietary habits, prevalent tobacco use and alcohol consumption have contributed to high incidence rates of cancers, diabetes, cardiovascular diseases and other non-communicable diseases. These types of diseases require frequent (often lifelong) consumption of pharmaceuticals and drawn-out demand for healthcare services. This trend will also ensure sustained growth in pharmaceutical and healthcare spending.
Rollout of national medicines reimbursement programmes; although care at state hospitals is free to most Russians, pharmaceuticals are currently paid through out-of-pocket spending. The Russian state, recognising that purchasing life-saving pharmaceuticals is out of reach for many consumers, has mandated the rollout of federally-funded reimbursement for patients. A national programme is set to enter into effect by 2015/16, and therefore the state's involvement in the market is expected to increase significantly. This presents a large opportunity for innovative drugmakers to market their high value products to a volume purchaser.
Rising consumer incomes; the size of Russia's middle class is expanding rapidly. The proportion of households earning above $10,000 will rise to 50% by 2015. This will feed into consumer pharmaceutical sales growth, in both the over-the-counter and prescription drug subsectors.
|Population Of Pensioners Set To Rise|
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