Boston, MA -- (SBWIRE) -- 04/15/2014 -- A deteriorating macroeconomic picture and weakening rouble will moderate real pharmaceutical industry growth, as the consumer spending that currently underpins the pharmaceutical market loses momentum. Over the longer term, the country's ageing population and significant disease burden will act to underpin pharmaceutical expenditure growth. However, we are increasingly concerned about the sustainability of Russia's healthcare expenditure given its reliance on government oil and gas revenues, and underlying economic growth in light of the demographic trends that are playing out in the country. As the provision of healthcare is shifted onto the state, we expect further tightening of procurement rules over the medium term.

Headline Expenditure Projections

- Pharmaceuticals: RUB765.81bn (US$24.30bn) in 2013 to RUB859.37bn (US$25.43bn) in 2014; +12.2% in local currency terms and 4.6% in US dollar terms.
- Healthcare: RUB4,111bn (US$130.18bn) in 2013 to RUB4,437bn (US$131.28bn) in 2014; +7.9% in local currency terms and +0.8% in US dollar terms.

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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 highest for Industry Rewards, its overall score is moderated by its lower Risk score, highlighting the challenging operating environment in the country at present.

Key Trends And Developments

- Currency selloffs across emerging markets threaten to impact the 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.
- The Russian state has delayed the full implementation of GMP rules for local factories to 2015 and 2016 in some cases.
- 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 now considerable downside risk to growth over the short term, as the rouble's depreciation erodes purchasing power. This will impact DLO drug expenditure and mainly patented medicines.

BMI Economic View: We forecast the Russian economy to grow by the modest 1.9% in 2014 and 2.2% in 2015, as the main driver of growth over the past decade - household consumption - continues to weaken. At the same time, the demand-side measures taken by the government to boost investment will do little to address the supply-side factors weighing on investment, further reinforcing our expectations for subdued growth for the foreseeable future.

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