Russian pharma: from distribution to biotech

Overview

Russia’s pharmaceutical sector is aberrant in several respects. Total pharmaceutical spending relative to GDP is well below the OECD average, as this has not been a government priority. As a result, private demand untypically accounts for the bulk of the drugs market. Despite being thus embedded into Russia's dynamic new retail sector, pharmaceuticals fail to ride the middle-class consumer boom, since much of the natural demand comes from older and poorer people with less purchasing power. So the importers who dominate the Russian market, given the weakness of domestic producers, do not treat this market as a top priority. The upshot – also unusual – is that distributors rule the roost and now include some attractive IPO candidates.

Scope for positive change lies in the lessons learned from the government's first serious attempt to boost pensioners' access to medicines (the "DLO" programme) and in the redeployment of Soviet-legacy strength in biotechnology to new drug discoveries.