The OTC pharmaceutical market in Russia
Summary
- A low birth rate coupled with high death rate has resulted in a decline of population in Russia to 140 million in 2009.
- The OTC pharmaceutical market in Russia was valued at over $5.6bn in 2009, witnessing a Y-o-Y growth of approximately 8.5%. With around 25% market share the digestive remedies category led the market in Russia.
- The Federal Service on Surveillance in Healthcare and Social Development (Roszdravnadzor) is responsible for regulating the registration, licensing, pricing, advertising and marketing of both prescription and OTC medicines. However, presently there are no defined regulations on OTC products in Russia.
- As the distribution of OTC products is limited to pharmacies, it has resulted in an increase in alternate sales channels such as internet and direct sales of OTC products, particularly vitamin and mineral supplements.
- The key drivers of the OTC market in Russia include growing purchasing power resulting from the burgeoning economy and a changing lifestyle which has empowered consumers to spend on their health and appearance, thus accelerating the growth of the OTC market in Russia.
Russia
Overview
In
2009, the population of Russia was recorded to be 140 million, a decline of
0.5% from 2008. Unlike other emerging nations, Russia has witnessed a decline
in its population since 1995, and if this continues at the same rate the
population is expected to fall to 116 million by the end of 2050. A low birth
rate, a high death rate, low life expectancy and reduced immigration are the
key contributors to the declining Russian population. Life expectancy in Russia
is around 59 years for men and 73 years for women. The adult population is
experiencing an accelerated death rate primarily due to high alcohol and smoke
consumption, high blood pressure and increased cholesterol levels. The rising
average age of women at childbirth and a declining fertility rate also
contribute to the declining Russian population.
The
Russian government has started to take corrective measures to raise the birth
rate, improve national health and regulate immigration. Indeed, the government
has launched various programs to control the demographic crisis such as
increased expenditure on healthcare reforms, incentive payments for subsequent
births in the family, extended maternity leaves and improved facilities for
daycare. These initiatives have begun to bear fruit: in 2009, Russia recorded
the highest birth rate in the last 15 years.
Over
72% of the Russian population live in urban areas. While disposable income
declined due to the global financial crisis, it is expected to recover in the
coming years due to the current economic recovery.
With
an aim to enhance the accessibility and quality of healthcare, the government
is poised to implement the following measures:
- Mechanisms to increase the transparency and financial independence of healthcare institutions;
- Medical insurance as the main channel for healthcare funding;
- Improvements in price regulation mechanisms to ensure affordability of important medicines;
- Promotion of a healthy lifestyle through increased emphasis on physical fitness and sports.
In
1990, the transformation of Russia from a centrally planned system to a free
market system had left the economy in turmoil. However, due to the
implementation of effective economic reforms and fiscal policies, the economy
started to show signs of recovery in 1998. The country’s economy continued to
grow until 2008, when the global financial crisis hit Russia (as indeed it did
almost every other nation). Presently, the Russian economy has started to show
signs of recovery and, according to estimates from the International Monetary
Fund (IMF), Russia's GDP growth in 2010 is expected to be around 4%.
Russia's OTC pharmaceutical market
The
OTC pharmaceutical market in Russia reached $5.6bn in value in 2009, witnessing
a growth of 8.5% over 2008 at a compound annual growth rate (CAGR) of 7.4% over
2004–09. Intensified domestic demand for OTC products, growing purchasing
power, a burgeoning economy and changing lifestyles empowered consumers to
spend on their health and appearance, thus accelerating the growth of the OTC
market in Russia. In 2009, the digestive remedies category led the market in
sales terms with around a 25% share of Russia's OTC pharmaceutical market,
followed by the cough, cold and allergy category with 18% and the traditional
medicine category with 16%. Growth in the analgesics category was the highest
in 2009, having grown around 11% over 2008, although the cough, cold and
allergy category is expected to report the highest growth over the coming
years.
Foreign
players dominate Russia's OTC pharmaceutical market; indeed, these companies
account for over three quarters of the market in sales terms. The leading
players in the market include Johnson & Johnson (J&J), Krka, Zentiva,
Novartis, Sanofi-Aventis, Berlin-Chemie and GlaxoSmithKline. Until mid-2009,
pharmacies and drugstores were the only channels which sold OTC products (these
goods accounted for over 70% of their total sales in Russia). However, in
August 2009, the Russian government announced plans to authorize grocers and
supermarkets to sell OTC products. As a result, the market is expected to grow
going forward.
Russia
is a favorable market for multinational players operating in the OTC healthcare
market. Russian consumers associate price with quality and have a preference
for branded products (mainly because most local OTC pharmaceutical
manufacturers in Russia are not good manufacturing practice-compliant). For
this reason, they are willing to pay a premium and multinational companies have
capitalized on this in order to drive their growth.
In
Russia, unlike other countries in Europe, the regulations on prescription and
OTC medicines are not very strict. However, the Russian government is now
aiming to introducing various policies to regulate both the prescription and
OTC markets. In 2009, for instance, the government introduced regulation to ban
all direct-to-consumer advertising of prescription drugs.
Market segmentation
In
2009, the digestive remedies category led Russia's OTC pharmaceutical market
with around 25% of the market, followed by the cough, cold and allergy and
traditional medicines categories with shares of 18% and 16%, respectively. The
analgesics category showed the largest growth in 2009, having grown by 11% over
2008. However, in the coming years, the market share for vitamins and minerals
is expected to grow as consumers shift toward preventive healthcare management,
thus increasing the demand for dietary and nutritional supplements.
Regulatory framework
The
Federal Service on Surveillance in Healthcare and Social Development
(Roszdravnadzor) is the federal body responsible for the supervision and
monitoring of healthcare and social development activities. Roszdravnadzor is
responsible for regulating the registration, licensing, pricing, advertising and
marketing of both prescription and OTC medicines. The foundation of this
regulation is the Federal Law on Pharmaceuticals, introduced in 1998 and
amended on several occasions since. In 2010, a new pharmaceutical bill was
devised which is expected to replace the previous legislation from September
2010. To ensure the manufacturing quality of pharmaceutical products, the
government issued a mandate which decrees that all pharmaceuticals facilities
be GMP-compliant by September 2010. By 2014, the Russian government intends to
attain European standards of medicine production in the country.
Federal
Laws 86-FZ ('On Medicines'; 1998) and 108-FZ ('On Advertising'; 1995) govern
the advertising of medicines in Russia. However, a new Federal Law, 38-FZ ('On
Advertising) was brought into force in 2006. In 2009, the Russian government
imposed a ban on the direct-to-consumer advertising of prescription drugs
outside of conferences and other pharmaceutical related events.
Direct-to-consumer advertising of OTC medicines remains permitted. The Russian
government has a regulatory mechanism to govern the prices of reimbursable
medicines, but there is currently no pricing regulation for OTC medicines.
Growth drivers
Growing popularity of direct and online sales channels
The
distribution of OTC products is under strict scrutiny by the Russian
government. Most are sold through pharmacies, although both online and direct
sales are experiencing growth in Russia. Consumer confidence in shopping
through the online channel is rising and driving sales through this channel.
Growing disposable income
OTC
products account for over 30% of pharmaceutical expenditure in Russia. Despite
the economic crisis, consumer spending on healthcare has not declined in recent
years. This is primarily due to high levels of disposable income, preference
for preventive medication, and growing concern for appearance among Russian
consumers. Moreover, Russians are very brand-conscious and prefer to buy
expensive international brands which they associate with quality (rather than
products from local manufacturers which are not GMP-certified).
Growing smoking and obese population
According
to World Health Organization statistics, over 60% of Russians smoke and the
number of smokers, particularly young women, has been growing at an
increasingly fast pace. Indeed, over half a million Russians die due to
smoking-related causes every year. The Russian government is taking corrective
measures to reduce the prevalence of the smoking population, having made it
mandatory to cover over 30% of the front of a cigarette pack and around 50% of
the back in anti-smoking messages. The government has also introduced new
regulations to limit the production of tobacco to curb smoking habits.
