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The Russian pharmaceutical market
EGA ANNUAL CONFERENCE - ISTANBUL JUNE 2007
Marina VeldanovaManaging Director Polpharma Russia
Agenda:1. Russian pharmaceutical market vs. another ones.
2. RPhM’s structure and trends.
3. RPhM’s key drivers.
4. Investment case: Polpharma+Akrihin.
60,064,954,438,312,8Price for oil under the Brent mark, $/barrel
14,112,3
(10,7)9,06,74,8Pharmaceutical market
capacity, bln,$
???BBB+BBBBB+ССС-Credit rating S&P
8,09,010,911,784,4Inflation, %
104,298,491,986,758,5Share from GDP 1990г., %
5,86,76,47,2-5,3GDP growth rate, %
1173980762589306GDP,trl.$
2007П2006200520041998
The source: MERY, Gskomstat, DSM Group
The Russian economics:1 (one) trillion of USD in 2007
The Russian retail market is №10 according to its capacity and№1 according to its growth rate
The volume of the retail market of FPPs in Russia and other countries ( 2006)
8,4 5,88,18,411,411,613,714,915,725,656,7
27,7
197,8
3% 2%8%
24%
28%
17%
7%14%
5%5%3%
-6%
7%
0,0
50,0
100,0
150,0
200,0
250,0
USA
Japa
n
Ger
man
y
Fran
ce
Gra
te B
ritai
n
Italy
Cana
da
Spai
n
Chin
a**
Russ
ia*
Braz
il
Mex
ico
Aust
ralia
/New
Zeal
and
mar
ket v
alue
, mln
.$
-10%-5%0%5%10%15%20%25%30%
grow
th ra
te, %
market value, bln, dollarsgrowth rate, %
market volumema
*the Russian pharmaceutical market volume according to DSM Group data**China 2005
The source: IMS Health, DSM Group «Monthly retail audit of RF Pharmaceutical market».
GERMANY
FRANCE
ITALY
GREAT BRITAIN
SPAIN
RUSSIA'06
TURKEY
UKRAINE
POLAND
KAZAKHSTAN
BELARUS
Growth rates and shares of the world leading markets, 2005-2006
MA
RK
ET G
RO
WTH
OVE
R10
%M
AR
KET
GR
OW
THU
ND
ER10
%
MARKET SHARE LESS THAN 5% MARKET SHARE MORE THAN 5%
The source: Pharmexpert, IMS Health
Russian generic pharmaceutical market is the second on size (after Germany) and
the second on the growth rate (after Italy) in Europe
0
500
1000
1500
2000
2500
3000
3500
4000
4500
German
yRuss
iaTurke
yPolan
dOtherFran
ce UKHungary
SpainCze
chrep
Netherl
ands
Romania
Italy
Portugal
Switzerl
and
Croati
aBelg
iumBulgari
aDen
markSwed
enSlova
kiaAustr
iaSlove
niaNorw
ayFinlan
dIre
land
€m
Per capita drugs consumption (in consumer prices, USD)in the market excluding the reimbursement program in 1995-2006
The source: Pharmexpert, 2007
3327242119
302116
38 4448
57
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Per capita drug consumption (excludingReimbursement program), USD
363
410
256 249265
90
131
38
128
5174
53
Ger
man
y
Fran
ce
Italy
Gre
at B
ritai
n
Spai
n
Rus
sia
Turk
ey
Pola
nd
Ukr
aine
Cze
chR
epub
lic
Kaz
akhs
tan
Bel
arus
Per capita drugs consumption in comparison with other countries*(consumer prices, USD)
* Sorted by market size
The source: Pharmexpert, 2007
The indicators of CIS Countries pharmaceutical market state in 2006
3,218,72889Armenia
3,63,827107Moldova
4,523,340111Georgia
8,414,924201Azrbaijan
9,811,946452Belorussia
26,122,420520Uzbekistan
15,22051780Kazakhstan
46,719,4381 800Ukraine
142,827,47510 700Russia
Population size at the beginning of 2006, mln. of people
Pharmaceutical market growth in 2006 in comparisonwith 2005, %
Drugs consumptionper head of
population, USD
Market valuein customer’s
prices, mln. USD
CIS country
The source: International statistics Committee of CIS countries,Accounts:Pharmexpert
Agenda:1. Russian pharmaceutical market vs. another ones.
2. RPhM’s structure and trends.
3. RPhM’s key drivers.
4. Investment case: Polpharma+Akrihin.
41204840
5360
1500148013701340
6250
2220
1400
2003 2004 2005 2006Hospital Commercial retail Reimbursement program
Sales volume in the Russian pharmaceutical market, 2003-2006 in consumer prices(bln. USD), including VAT
5,5 bln USD+ 18%
6,35 bln USD+ 15,5 %
8,4 bln USD+ 32 %
10,7 bln USD+27,4 %
+7%
+20%
+78,5%
Reimbursement program’s volume = prescriptions accepted for payment in 2006
The source: Pharmexpert, 2007
Sales volume of the Russian pharmaceutical market,2001-2006 (bln. Units)
3,283,72 3,73 3,44 3,65 3,56
0,26 0,220,50
0,73 0,71
0,58
0,45 0,46
2001 2002 2003 2004 2005 2006Retail Reimbursement Hospital
The source: Pharmexpert’s estimations, 2007
3,77 4,45 4,44 4,02 4,36 4,24
2%
Out-of-pocket 62% 21%2% 9%
Commercial Retail
6%
HospitalFederal ReimbursementProgram
Market Value = 100%
Pharmaceutical market financing structure, 2006-2007
Out-of-pocket60% 23%9% 6%
Regional budget11%
Federal budget29%
2006
2007
The source: Pharmexpert, 2007
Market share of TOP10 corporations on the Russian pharmaceutical market in 2006
MS, %
Monitoring of drugs Retail Sales, Hospital purchases, Federal Reimbursement Program, Pharmexpert, 2007
58,82% 48,85%71,85%
89,03%75,50%
65,92% 62,75% 69,26% 75,12% 74,62%
31,33% 45,24%
25,24%8,08%
18,36%30,91%
22,46% 16,50% 14,80%
10,27%
9,82%5,91%
2,90% 2,89%6,14% 3,17%
14,79%14,24% 10,07%
15,10%
6,10% 5,15% 3,19% 3,08% 2,97% 2,87% 2,84% 2,62% 2,59% 2,25%
NOVARTIS SANOFIAVENTIS
JANSSENCILAG
PHARM-STANDART
BERLINCH/
MENARINI
SERVIER ROCHE GEDEONRICHTER
PFIZER NYCOMED
HospitalReimbursementRetail
The Russian pharmaceutical market 2006
The Russian market is a Generic market!
The source: Pharmexpert, 2006 wholesale prices+ VAT
Generics Innovative
Commercial (%) Hospital (%) Reimbursment (%)
92%
8%
83%
17%
40%60%
9% 8%
FederalReimbursment
Hospital Commercial Overall Market
49%35%
11% 8%
48%
36%
RX OTC
OTC & Rx MS (%) – Value Terms in different market segments in 2006
The source: Pharmexpert, 2007
2005
2006
89
76
72
68
78
11
24
28
22
82
32
18
FRP
Reatil
Hospital
Rx
OTC
Total market
Import Local
Import & Local MS (%, value) in different segments
Monitoring of drugs Retail Sales, Hospital purchases, Federal Reimbursement Program,Pharmexpert, 2007
Rating of ATC–groups by sales volume in 2006
121016DIAGNOSTIC AGENTS
161615PARASITOLOGY
151514HOSPITAL SOLUTIONS
131213SYSTEMIC HORMONAL PREPARATIONS (EXCLUDING
SEX HORMONES)
10912BLOOD AND BLOOD FORMING ORGANS
111411SENSORY ORGANS
141310VARIOUS
849ANTINEOPLASTIC AND IMMUNOMODULATING
AGENTS
9118DERMATOLOGICALS
677MUSCULO-SKELETAL SYSTEM
786GENITO-URINARY SYSTEM AND SEX HORMONES
555GENERAL ANTI-INFECTIVES SYSTEMIC
214CENTRAL NERVOUS SYSTEM
463RESPIRATORY SYSTEM
122CARDIOVOSCULAR SYSTEM
331ALIMENTARY TRACT AND METABOLISM
WORLDGERMANYRUSSIA
The source: Pharmexpert, 2007
Agenda:1. Russian pharmaceutical market vs. another ones.
2. RPhM’s structure.
3. RPhM’s key drivers.
4. Investment case: Polpharma+Akrihin.
External key drivers
•Population growth•Growing influence of insurance company
•Growing well-being of population•High price for power resources•Strengthening ruble•WTO joining
•Elections•Redistribution of interests in pharmaindustry
Social factorsEconomic factorsPolitical factors
Internal key drivers
• State funding• Vertical integration of players• M&A processes
22
Obligatory Medical
Insurance Fund
Reimb. drugssupplier
tenderRoszdrav-nadzor
Pricelist (TM list)
Manu-facturer
drugs
Pharmacy
drugs
Financing
payment
State contract
Regional Medical
Insurance Fund
payment
Ministry of Public Healthand Social
Development
INN List
Entering trademarks into list
+ pricing
Reimbursement program arrangement
30%
MS (%) of all Federal reimbursement programs in the Russian pharmaceutical market, 2004-2006 (consumer prices, VAT is incl.)
MS (%) of all Federal Reimbursement programs
2004 2005
MS increase
26,6% 2006
MS increase
5%
38% 40%
The source: Pharmexpert, 2007
24
Public Health system governmental financing, 2001-2010, per capita, RUR (USD)
7050
8150
9250
10350
6236,9
4570,4
3358,12735
2331,91761,4
2001 2002 2003 2004 2005 2006 2007* 2008* 2009* 2010*
*prognoses
$ 73 $ 88$ 115
$ 161$ 229
$ 270$ 311
$ 353$ 400
In 2006 per capita Public Health financing =6 237 RUR (229 USD)Increase 2006/2005 = 36,5%
6237
1761
Financing increase2006/2001 = 254%
1,29
-
1,32
Average price per unit,USD, 2004
2,081,67Hospital
10,285,00Reimbursement
1,871,53Retail
Average price per unit,USD, 2006
Average price per unit,USD, 2005
Marketsegment
Average retail price in different segments of pharmaceutical market: retail, hospital, Reimbursement 2004, 2005, 2006
The source: Pharmexpert, 2007
The source: DSM Group
Gap in funding in DLO according to the results of the year 2006
16,0 bln.RUR.
65 bln.RUR.
33,7 bln.Rubles.
2006
PaymentConsumption Debt
Payment (plan)
15,3 bln. RUR.
1$ = 26 Rbl
RIGLA + Soyuz Pharma
PHARM MIR
RADUGA
BIOTECH
ERMAK
MOYA LUBIMAYA APTEKA
STARY LEKAR
PERVAYA POMOCH’
PROTEK
SIA
ROSTA
BIOTECH
KATREN
MORON
GENESIS
SHREYA
ALLIANCE-HLTH*
SOTEX
PHARM CENTER, MAKIZ
MARBIOPHARM, BIOSINTEZ etc
SHREYA LIFE SCIENCES
VERTEX
Vertical integration in Russian pharmaceutical market
Pharmacy chain Distributors Manufacturing
* Before 2006 – Apteka Holding
Last years history on the Russian PhMarket– the history of intensive investments into the manufacturing
1. Building the plants (Servier, KRKA, Gedeon Richter)
2. Acquisitions by domestic companies (Makiz, Pharmstandart)
3. Acquisitions by foreign companies(Stada, Actavis,Polpharma)
Agenda:1. Russian pharmaceutical market vs. another ones.
2. RPhM’s structure.
3. RPhM’s key drivers.
4. Investment case: Polpharma+Akrihin.
Investment case 2007:
Polpharma has acquired strategic stake of Akrikhin- the famous 70-years history plant situated near
to Moscow in spring 2007.
Polpharma
• Established in 1935• Privatized in 2000• Leading company in Poland• Selling products in 50 countries• More than 50 years presents in Russia• 5 years presents in Russia by Russian legal entity• Russia – 60% of the export market
Akrihin: 70-years history
1936 Production of anti-malaria drug “Akrikhin” started, enterprise established
API period
• 100 APIs production• API export to 54 countries• 15 FDF
1992 First Russian GMP production in cooperation with Bristol-Myers Squibb
Marketing perio
d
FDF period
• Generic FDF• New FDF (liquid & soft)• Quality management • New production site (WHO inspected - GMP compliance) • Marketing and Sales force• Cooperation projects
2005 HTC owner
Acq. by Polpharma
2007
Akrikhin investment highlights
1
2
3
4
over 135 products in different areas
200 Med Reps is well perceived among Russian producers by doctors
Akrikhin has established reputation of a safe and reliable
licensing/cooperation partner
N2 in terms on influence
N9 among Russian producer in 2006 (in value)
Build strong company brand inRussia
Build a strong promotion team
Improve Polpharma’s co-operation with international companies in
Russia
Build competitive products portfolio on the highly growing Russian market
Rank CorporationUSD, thousand
for 20061 NOVARTIS 478 8242 SANOFI-AVENTIS 404 3233 JANSSEN-CILAG 250 2014 ФАРМСТАНДАРТ 242 0625 BERLIN-CH/MENARINI 233 3126 SERVIER 225 3767 ROCHE 222 6638 GEDEON RICHTER 205 9349 PFIZER 203 28510 NYCOMED 176 85811 KRKA 168 26012 GSK 161 11213 SCHERING AG 156 60714 ASTRAZENECA 145 72115 SOLVAY PHARMA 143 51916 TEVA 141 72217 STADA ARZNEIMITTEL AG 134 41818 BOEHRINGER INGELHEIM 115 77019 SCHERING-PLOUGH 110 24620 NOVO NORDISK 99 35421 ELI LILLY 98 11122 EGIS 89 84823 ASTELLAS PHARMA INC 88 11424 PLIVA 84 82325 BMS 80 636
Positions on the Russian market
0
20
40
60
80
100
120
Polpharma Akryhin Combinedsales
Combined sales of Polpharma and Akrihin
Acquisition of Akrihin will allows Polpharma to achieve a position among the Top-20
+
App$63m
app$95m
App$32m
USD
m
Volume of the Russian pharmaceutical market in 1995-2006. Forecast up to 2010 ( In consumer prices, including VAT)
The source: Pharmexpert
Forecast
12,4
14,3
2,43,05
4,5
2,78 3,1 3,51 3,984,85
5,56,35
8,4
10,7
16,5
19
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Future. Russia - stability or new period
Thank you for your
attention!