Russian Health Care and the Pharmaceutical Industry

November 2010

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Russian Health Care and the Pharmaceutical Industry In laying out five priority areas in his modernization project, President Dmitry Medvedev described pharmaceutical and health issues as paramount. “The modernization area of top importance for our people is developing medical technology, medical equipment, and the pharmaceuticals industry. We will provide people with quality and affordable medicines and also the latest technology for preventing and treating diseases.” In 2008 the government launched a development strategy for the Russian pharmaceutical industry up to 2020. Known as ‘Pharma 2020,’ the project is aimed broadly at increasing the competitiveness of the domestic market and calls for nearly a $6 billion investment. The benchmarks set by the government include:

• Increase domestic products market share to 50 percent from the current 23 percent • Increase number of innovative products to 60 percent • Increase export of pharmaceutical products by eight times compared with the 2008 figure • Safety provisions in compliance with the list of strategic medications and vaccines

The government is pursuing a number of ways to reach these goals, including:

Overseeing domestic drug producers adopt Good Manufacturing Practice standards by 2011 Setting up education programs to provide the industry with new specialists Stimulating high technology production of medicines in Russia

A parallel strategy is Health 2020, which aims to improve life expectancy and provide access to health/life insurance to 100 percent of the Russian population. The government also runs a separate program for prenatal and high-tech medical centers. PHARMACEUTICAL MARKET FACTS

• In 2007 nearly $1 billion (30 billion rubles) was allocated to develop 14 high-tech medical centers in Russia’s regions, including cardiology centers in Astrakhan, Khabarovsk, Krasnoyarsk and Kaliningrad; traumatology and orthopedic centers in Cheboksary and Krasnodar; and a neurosurgery center in Tyumen.

• One government objective is to increase domestic production of high technology. A joint venture between Meditsinskie Technologii and GE Health care unveiled the first domestically assembled CAT scanner in September 2010. The joint venture plans to produce 100 CT scanners a year, according to a press release.

• The Russian pharmaceutical market has experienced 10-12 percent annual growth since 2003 and

is the 11th largest in the world (IMS Health)

• The market is forecast to grow to $20 billion in 2010 (DSM Group) and more significant growth is expected next year

• As the government increases the reach of health care treatment throughout the country, average per capita consumption of medicine is expected to quadruple in next 10 years (DSM)

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LEGISLATION On September 1, 2010 a new law ‘On the Circulation of Medicines’ came into effect, establishing a precise and transparent process for registering medicines and cuts red tape. The law helps to tackle corruption in the circulation of pharmaceuticals and clarifies the provisions that regulate clinical trials. The government will also regulate prices on a list of ‘essential medicines.’ “We are also improving legislation: A new law on pharmaceuticals that is consistent with international requirements has come into force.”

Vladimir Putin, the prime minister, September 2010 “We will soon seriously amend the law on mandatory medical insurance, which guarantees the patients' right to choose a doctor, a medical establishment and an insurance company.”

Vladimir Putin, the prime minister, September 2010

VIEWS AND COMMENTS “One of the key reasons the pharma sector grew while other industries declined in 2009 is the fact that the Russian government did not cut expenditure on healthcare, in spite of the downturn in economy” – Pharmaceutical expert Rajesh Chhabara “After a period of deep uncertainty, Russia’s pharmaceutical market is surging with new investment projects” - Business Monitor International January 2010 report “If Russia delivers on its promise to make health care a priority mid-term, the prize for those pharmacos bold enough to foray into the country could be considerable” - EuroPharma Today “With its strong scientific background and long-term commitment to innovation, Russia is uniquely positioned to become a leader in bio-pharmaceutical development” - Christopher A. Singer, president of international affairs at PhRMA HEALTH CARE PROGRESS

• Spending on health care has grown fourfold since 2001

• Infant mortality has fallen by a third, birth rate and life expectancy have increased

• In 2009 Russia invested 1.2 trillion rubles (about $40 billion) in health care

• Average life expectancy in Russia is now almost 69 years (old up from 66 in 2005)

• Cardiology units and traumatology centers have been set up across the country

Why Russia should be of interest to pharma investors:

• The government is boosting funding for the Russian pharma market • Per capita income is greater than in most other emerging markets

• The market is maintaining double-digit growth

• Russian consumers have a strong preference for familiar drug brands

• The country has a large number of well-trained, talented scientists

• There is a continuous demand for health products in Russia

• A regulatory system that is being streamlined and becoming more open

An attractive location for clinical trials:

• 45-50 percent cheaper than in the West

• Large pool of patients • Centralized health care system and large hospitals

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• Russia will open 190 health centers for children and teenagers this year

• Russia has given $250 million to the Global Fund to Fight AIDS, Tuberculosis and Malaria

NEXT STEPS

“We are trying to address these problems more actively than before. Our next step will be to launch health care programs in the regions in 2011 in order to carry out the comprehensive modernization and re-equipping of medical establishments across Russia.”

– Vladimir Putin, the prime minister, September 2010

2006-2011

• Russia will contribute more than $430 million to the international health care system

2011

• Launch of program for regional health care development • First international conference on healthy lifestyles to be held in

Moscow, at Russia's initiative

Until 2013

• Russia will invest $13 billion (400 billion rubles) in health care over the next three years