Russian pharma: from distribution to biotech

Wrap

The recent swell of enthusiasm for Russian pharma on the back of a single (somewhat ill-fated) government attempt to help the poor get medicines may have required a reality check: the actual market size is in fact quite small and production weak. Our trusted source stresses the government's own pharma spend, low by international standards, as the key brake on the entire sector's development. Cause for encouragement is the reworked DLO, which, with its 2007 budget boosted from Rb34.9bn to Rb68.2bn (US$2.5bn), seems to indicate the serious commitment the Russian government is at last prepared (and financially able) to make to pharmaceutical procurement. Is the DLO the "first swallow of the spring"? Russia's convergence to international norms predicts this outcome, but companies are probably wise to wait and watch for now.

Our trusted source flags two intriguing possibilities. The first is that Russia retains a comparative advantage left over from Soviet-era biotechnology. Some insight into the drug-pipeline potential of this area is available through the International Science and Technology Center (ISTC), established by international agreement in 1992 as a nonproliferation programme, and now a coordinator of "the exceptional pool of scientific talent available in Russian and CIS institutes" working on originally-military projects like anti-anthrax or anti-tumour drugs (for more information, click here ).

The second point is the IPOs which are likely to come. Distributors Protek and SIA International are plausible IPO candidates in the next 18 months, with the latter possibly also in the sights of majority owners of PharmStandard, whose May 2007 IPO had a very positive outcome.

Another possible candidate for an IPO is Russia's second-largest domestic producer, Otechestvennye Lekarstva, whose executive director is an alumnus of Nizhpharm (the producer singled out for praise by our trusted source) and which runs an annual competition to attract institutional researchers with ideas to translate into sellable pharmaceutical products. This effort to draw upon home-grown R&D highlights the present backwardness of the sector – but also its genuine potential.