The Russian pharmaceutical market

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 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


2. RPhM’s structure and trends.



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


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


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


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



2. RPhM’s structure.



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%


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



Marketsegment

Average retail price in different segments of pharmaceutical market: retail, hospital, Reimbursement 2004, 2005, 2006


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)


2. RPhM’s structure.



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!

The Russian pharmaceutical market

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