Boston, MA -- (ReleaseWire) -- 01/09/2014 -- The sheer size of Russia's pharmaceutical market in comparison with its Central and Eastern European peers makes it one of the most attractive in the region. With the Russian government behind significant investments in healthcare and pharmaceuticals and the planned rollout of a drug reimbursement scheme expected in the medium term, expenditure on pharmaceuticals and healthcare is expected to grow at a rapid pace over the long term. However, in the short term, a deteriorating macroeconomic picture will serve to moderate growth as the consumer spending that currently underpins the pharmaceutical market is expected to cool. Over the longer term, the country's ageing population and significant disease burden will accelerate pharmaceutical expenditure. However, we are increasingly concerned about the sustainability of Russia's healthcare expenditure given its reliance on economic growth and the demographic trends that are playing out in the country.
Headline Expenditure Projections
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- Pharmaceuticals: RUB689.95bn (US$22.22bn) in 2012 to RUB765.81bn (US$24.30bn) in 2013; +11.0% in local currency terms and 9.4% in US dollar terms.
- Healthcare: RUB3,669.26bn (US$118.15bn) in 2012 to RUB4,111.45bn (US$130.47bn) in 2013; +12.1% in local currency terms and +10.4% in US dollar terms.
Risk/Reward Ratings: Russia has an RRR score of 59.2 out of 100, making it the third-most attractive pharmaceutical market in Emerging Europe. Although Russia scores the highest in our ratings for industry rewards, its overall score is moderated by its lower risk score. The score has been downgraded from last quarter, as sector growth has been revised downwards due to our expectations for short-term depreciatory pressure on the rouble.
Key Trends And Developments
- The government plans to continue mandatory implementation of GMP in all local manufacturing facilities, with local drugmakers expected to fare the worst.
- Our healthcare expenditure forecasts have been downgraded as Russia's economic growth has not been as strong as expected. Tax revenues expected from the growth have not increased significantly, and therefore we have moderated our expectations for healthcare spending growth.
- Currency selloffs across emerging markets threaten to impact revenues and earnings of subsidiaries of foreign companies operating in Russia. Although pharmaceutical sales remain strong, we note that there is downside risk to growth over the short term as private consumption cools.
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