Monday, 17 May 2010

Russia - How will the Russian pharmaceutical market be affected by recent price freezes?

Recent price freezes are expected to result in lower availability of cheaper drugs.

The government has forbidden drug companies from raising the prices of drugs which are included on the MoH’s list of vitally essential medicines in 2010. As new prices must take into account the average prices for the previous six months, this could result in falling prices. Wholesalers may revise prices once a year but the increases must not exceed inflation and price hikes related to the rising costs of production, substances and rent will not be permitted.

Russian pharmaceutical companies have warned of the possible consequences of new legislation. They claim that the pricing policy will make the production of some medicines loss-making and ultimately lead to certain medicines disappearing from the shelves. Producers will consequently focus on expensive drugs which bring the biggest profit and abandon cheaper drugs which are unprofitable to produce and distribute. The prices of other items may be increased in order to cover any losses resulting from the price freezes. Critical drugs will not vanish from the market, but fewer cheaper drugs are expected to be available in the drugstores.

Smaller companies are expected to suffer, as they tend not to make profitable drugs and distributors may lose interest in products with smaller margins. It is therefore possible that smaller producers and distributors may be swept out of the market. Some manufacturers have considered scaling down production or moving part of it to other CIS countries. However, the market is expected to become more civilised and benefit from consolidation. The largest distributor, Protek, is to improve its distribution and logistics models in order to help it through the changing environment.

Further reading - An in-depth review of the Russian pharmaceutical market is available from Espicom: The Pharmaceutical Market: Russia (published May 2010)

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