Results for 2000 confirmed that the Russian pharmaceuticals market is generating growing interest among foreign companies. Most major players expect the market to rise to its pre-crisis level and say the potential for future development is good.

One of the traits of the Russian medicine market, which remained intact despite the crisis and other difficulties, is its seasonality. This peculiarity becomes clear if you examine the sector's quarterly figures.

Only in 1997, the most successful year for the drug companies – when market capacity was $2.95 billion – did capacities rise quarter on quarter. Then, in 1998, the market began to fall even before the crisis was under way.

In 1999, this tendency was curtailed only because companies were trying to recover from the crisis – the state of the market demanded increase. And there was no further to fall.

In 2000, the cyclical factor appeared again – the second quarter showed minimum volumes. The point of maximum volume for the Russian pharmaceutical market remains the fourth quarter, which has the most demand for medicines.

The fourth quarter of 2000 showed the heaviest volume between 1997-2000. Although in the first quarter of this year the positive trend was interrupted (market volumes sank 13 percent compared to the fourth quarter of 2000), experts view this as a dip that is traditional for the beginning of the year. At the same time, in comparison with the same period of 2000, the market volume grew 26 percent.

Last year, market volume was $2 billion (calculated on the basis of Goskomstat data on volumes of Russian pharmaceutical production and State Customs Committee information on import and export of pharmaceutical goods). This represented a growth of 41 percent on 1999.

Many in the pharmaceutical industry would like to think market growth develops in the classical way – use and demand increase, and with them so does the market. This is to be expected, given the circumstances, but it is only one of several factors.

You have to remember that the increase in indicators is mainly linked to the growth in expenses on the market, which makes companies hike prices on medicines.

Moreover, there is a boom of new drugstores opening in Russia, which is happening mainly thanks to development of drugstore networks in major cities. This process exerts an indirect influence on the increase in demand for medicines.

The market volume in statistical amounts is a basic indicator. It takes into account neither the temporary distribution of goods that enter the market in a particular quarter, nor the peculiarities of price formation by Russian pharmaceutical producers – for example, discounts in Russian businesses reach 50 percent off the shown price.

To understand the market volumes in each segment of a chain, one has to consider all these factors.

Market volume value last year was $1.65 billion. Both Russian and foreign companies sold this amount on the market and this is effectively their total annual revenue. Last year Russians spent $2.7 billion on medicines.

A definite trend toward a decrease in the share of Russian preparations in the general cost volume can be seen on the pharmaceutical market. At the same time, in terms of physical volume, domestic medicines maintain clear leadership.

In terms of general cost, the share of domestic drugs did not go lower than 41 percent in late 1999 and early 2000, but the year 2000 as a whole it posted only 35 percent.

Efforts by Russian drug producers to oust imported medicines from the market through mastering the production of similar substances have not brought about any noticeable results.

Besides, it is much more profitable for distributors, although they report increases in the share of domestic products, to sell the expensive imported drugs.

It is visible that the Russian pharmaceutical market is quite small compared with those of the leading world markets. Of course, in terms of physical volume, the ratio will be somewhat better for Russia just because Russian analogues of imported medicines are considerably cheaper. However, the latter prices have shown a tendency toward increase recently.

Experts forecast a reduction in the tempo of growth of the Russian pharmaceutical market in the near future. According to them, the year-on-year growth will stay under 10 percent. Moreover, in unison, they make a reservation to the effect that any growth will take place only if there are no economic crises or political disturbances.

MRC Farmexpert