The Russian by pengxuebo

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									                     The Russian
                     pharmaceutical market

                                  2008 results
                                                 2008




GO_2009_ENG.indb 1                                      02.05.2009 8:28:48
                     Contents
                     Introduction .......................................................................................................................................... 5
                     I.     Macroeconomics: Russia & Federal subjects ..................................................................................... 7
                     II.    Expert insight: Russian Pharma development trends in 2009 ............................................................ 13
                            Pharma “weather forecast”
                     III. Drug import to Russia .................................................................................................................. 17
                            Import substitution: time horizon reconsidered
                     IV.    Rating of Russian pharmaceutical manufacturers ............................................................................. 25
                            The state helps those who help themselves
                     V.     Cumulative rating of Russian pharmaceutical distributors.................................................................. 31
                            New opportunities in uncertain times
                     VI.    Rating of Russian drugstore chains................................................................................................. 39
                            Pharma retailers: development paused
                     VII. Russian out-of-pocket pharma market ............................................................................................ 47
                            Back to the future
                     VIII. Russian hospital drug sector .......................................................................................................... 53
                            Hospital procurement set for innovation
                     IX.    Essential Drug Provision/Seven Diseases programs in Russia ............................................................ 61
                            Reimbursement: life vest in crisis
                     X.     Pharma markets of CIS countries .................................................................................................. 71
                            Local priorities ebb and flow
                     XI.    Annual rating of most influential subjects of Russian pharma market .................................................. 79
                            Power factors: sum of constants and variables
                     XII. Rating of investment attractiveness of Russian Federal subjects.......................................................... 87
                     XIII. Pharma pricing specifics ............................................................................................................... 93
                            Tuning drug prices




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            Our partners:




                            Dear ladies and gentlemen,

                            Hopefully those of you who are leafing through this Annual report are sure of their
                            future.
                            The first and second halves of 2008 differed as much as day and night. The climax of the
                            year was the triumph of Russia’s football team at EURO’08. The situation has been
                            aggravating since.
                            At the same time, it was already in early 2008 that financial sector players forespoke that
                            the faraway and therefore seemingly unrealistic hypothec crisis in the USA would soon
                            affect the pharma market. It would be interesting to find out how many pharmaceutical
                            companies changed their strategies to include the effect of the crisis already in the
                            beginning of 2008, if any.
                            The pharma market as well as most FMCG markets has escaped the first blow of the crisis
                            that has upset a few large banks, nearly paralyzed the automotive industry, cut customer
                            credit programs and left the Russian economy without billion worth foreign investments
                            as a whole.
                            It was only by the end of 2008 when the currency devaluation “rally” was in full swing
                            that pharma market players became faced with such level of risks they have not met for
                            more than ten years. Galloping currency exchange rates, warehousing stock evaluation,
                            forecasting for a year ahead became real problems in late 2008 — early 2009.
                            In 2008, many processes ended and consequently many phenomena emerged; time is like
                            adjacent vessels where the place of something that has left is immediately occupied by
                            something new that came from future. For minimum a year we will have to forget about
                            the previous market growth rate as the boldest forecasts hesitate in the +5—7% range in
                            USD. We will have to learn living in a sinking market. The unreflective expansion of
                            drugstore chains is sinking into obscurity. There were just a few deals in this sphere in
                            2008, and the seller market was ousted by a much tougher buyer market. There will be no
                            readily available long and cheap loans, which presents a serious problem both for
                            distributors and retailers. The former used loans for supporting their working capital
                            while the latter preferred funding their regional expansion with loaned money.
                            Consequently, IPO as a way of fundraising remained in the past. This is another argument
                            in favor of M&A as the right thing to do in a crisis.
                            There were also issues that can be generally described as “have been expected but have
                            failed to come through”. In this category, the Pharma 2020 strategic program was the
                            absolute leader in terms of discussion and coverage; however, it has not been approved by
                            any authority so far. Without questioning its noble objectives, this program has been
                            unprecedented in terms of investment required. The main issue is whether it will be at
                            least the government’s “second priority” when there are other industries in need of
                            urgent funding.
                            If no decisions are made soon on increasing the funding in the state drug provision
                            segment, the contradictions and problems will be growing as a snowball. This time the
                            problems will be quite objective as it will be necessary to compromise between the
                            reluctance of businesses to sustain losses because of currency rate differences and the
                            willingness of the state to retain the drug availability for specific population groups at the
                            level of the last few years. It is worth mentioning that in 2009, the regional authorities will
                            become even more active attempting to shift the bulk of the financial burden associated
                            with the drug reimbursement program onto federal budgets within the framework of the
                            Essential Drug Program (ONLS). Regional budgets will be unable to fund their social
                            programs.




GO_2009_ENG.indb 5                                                                                                        02.05.2009 8:28:50
                     “You’d better not have made forecasts at all!” exclaimed a broken stock market player
                     addressing investment banks that had been forecasting a sustainable growth of resource-
                     oriented industries and consequently of their stocks. It is a joke, however a mean one. We
                     realize quite well our inclination to forecasting pharma market developments; however,
                     not willing to become unsuccessful prognosticators we use a few scenarios tuned to a
                     variety of major macroeconomic trends.
                                                                    Good luck and promising projects to you all!




GO_2009_ENG.indb 6                                                                                         02.05.2009 8:28:51
         I. MACROECONOMICS:
         RUSSIA & FEDERAL
         SUBJECTS


                     This section carries basic Macroeconomic indices of the Russian pharma
                     market calculated based on the data of the Russian Statistics Service
                     (Rosstat) and Central Bank of Russian Federation (CB of RF).

                     Pharmexpert proprietary data are used to describe different pharma market
                     sectors as a whole both in Russia and Federal subjects. Presented are data on
                     basic pharma market sectors; average drug consumption per capita etc.




GO_2009_ENG.indb 7                                                                               02.05.2009 8:28:51
                           Macroeconomics: Russia & Federal subjects                    8




              Table 1. Macroeconomic indices of Russian pharma market, 2008

               Index                             Jan     Feb       Mar     Apr     May      Jun     Jul     Aug   Sep   Oct     Nov     Dec     Total

                                                                          Macroeconomic indices
               Commodity and services index      107.8 110.3 108.2 110.7 107.9 104.8 105.2 105.3 106.9 102.6 96.0                       93.3    104.5
               for basic economic activities*,
               %, month-on-month vs. 2007
               Transportation turnover, %,       103.5 107.2 104.8 105.2 100.8 103.0 102.1 101.2 101.0 101.1 91.4                       88.6    100.7
               month-on-month vs. 2007
               Fixed capital investment, %,      121.6 126.0 123.1 125.1 118.7 111.4 110.7 110.1 114.3 105.3 99.1                       92.5    109.8
               month-on-month vs. 2007
               Retail trade turnover, %,         116.3 118.0 115.8 114.3 114.7 114.1 114.9 114.1 114.3 112.4 108.0 104.8 113.0
               month-on-month vs. 2007
               Consumer price index, %,          112.6 112.7 113.3 114.3 115.1 115.1 114.7 115.0 115.0 114.2 113.8 113.3 114.1
               month-on-month vs. 2007
               Drug consumer price index, %,     106.0 106.7 107.4 107.7 108.5 109.6 110.5 111.4 112.6 113.7 114.9 116.4 110.5**
               month-on-month vs. 2007
               Medical services consumer         114.3 114.9 114.6 115.8 116.5 116.2 116.2 116.5 116.4 116.4 116.3 116.3 115.9**
               price index, %, month-on-
               month vs. 2007
               Basic inflation rate, % vs.       101.1 102.1 103.2 104.5 105.7 106.7 107.6 108.6 110.1 111.5 112.7 113.6 108.2
               December 2007
               Real cash income, %, month-       110.1 109.0 104.8 108.9 104.7 104.5 105.7 107.4 105.1 103.5 93.9                       88.4    102.7
               on-month vs. 2007
               Total unemployment (ILO meth- 6.6         7.1       6.5     6.0     5.4      5.6     5.7     5.8   6.2   6.6     7.0     7.7
               odology), % vs. economically
               active population
               Commodity import***, %            134.1 149.6 137.8 151.5 139.8 136.9 149.3 136.1 146.6 121.9 96.0                       96.4    130.6
               month-on-month vs. 2007
               RUB:USD exchange rate as of       24.48 24.12 23.52 23.65 23.74 23.46 23.45 24.58 25.25 26.54 27.61 29.38 29.38
               the end of month
               RUB:EUR exchange rate as of       36.17 36.41 37.07 36.89 36.78 36.91 36.53 36.23 36.37 35.04 35.72 41.44 41.44
               the end of month
                                                                                                                                Sources: Rosstat, CB of RF


                                                                           Supply characteristics
               Pharma market supply, whole-      2,700                     3,000                    3,240               3,420                   12,360
               sale prices, mn USD
               Imports, wholesale prices, mn     2,090                     2,470                    2,640               2,730                   9,930
               EUR
               Local manufacture without         610                       530                      600                 690                     2,430
               exports, wholesale prices, mn
               EUR
                                                               Market sector characteristics (without tenders)
               Drug sales (without tenders),     4,150                     3,870                    4,280               3,900                   16,200
               consumer prices, mn EUR
               Imported drug sales (without      3,260                     3,040                    3,470               3,030                   12,800
               tenders), consumer prices, mn
               EUR
               Local drug sales (without ten-    870                       830                      820                 880                     3,400
               ders), consumer prices, mn
               EUR
               Out-of-pocket market, retail      2,910                     2,820                    2,820               3,050                   11,600
               prices, mn EUR
               Hospital market, wholesale        360                       470                      450                 420                     1,700
               prices, mn EUR
               Reimbursement market, reim-       420     250       185     255     80       265     490     320   200   205     100     130     2,900
               bursement prices, mn EUR




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                                                                                        9           Macroeconomics: Russia & Federal subjects




          Table 1. Cont' d

          Index                                 Jan      Feb       Mar      Apr      May      Jun       Jul       Aug      Sep       Oct      Nov      Dec     Total

          Average price per pack, whole-        2.97                        2.94                        3.55                         2.88                      3.09
          sale prices, EUR (incl. DLO/
          Seven Diseases)
          Average price per pack, retail        3.56                        3.55                        4.20                         3.53                      3.71
          prices, EUR (incl. DLO/Seven
          Diseases)
         * Calculated based on the data on change of physical volume of agricultural production, mining, processing industries, power, gas, and water generation and
           distribution, construction, transportation, retails and wholesale trade.
         ** Pharmexpert expert evaluation.
         *** According to payment balance methodology (as of March 12, 2009).



         Table 2. Macroeconomic indices of Russian pharma market by Federal subjects, 2008

          Federal subject        Center of Federal     Population of      Pharma market,    Total drug        Out-of-      Drug consump-      Reimbursement Hospital
                                 subject               Federal subject,   total, mn USD     consumption       pocket       tion per capita/   market, mn USD market (mn
                                                       thsd (as of 1      (consumer         per capita        market (mn   out-of-pocket      (supply prices), USD), 2008
                                                       January, 2009)     prices), 2008     (USD), 2008       USD), 2008   (USD), 2008        2008

          Russian                —                     142008.84          16200.00          114.08            11600.00 81.69                  2900.00         1700.00
          Federation
          Central Federal        —                     37150.74           5581.02           150.23            3944.00      106.16             957.02          680.00
          District
          Moscow                 Moscow                10,470.32          3,088.66          294.99            2,185.76     208.76             387.23          515.67
          Moscow region          -                     6,672.77           909.80            136.35            686.39       102.86             189.20          34.22
          Voronezh region        Voronezh              2,280.41           265.69            116.51            201.42       88.33              34.72           29.54
          Lipetsk region         Lipetsk               1,168.81           105.33            90.11             77.34        66.17              20.56           7.42
          Belgorod region        Belgorod              1,519.14           110.38            72.66             71.84        47.29              32.16           6.38
          Tver region            Tver                  1,379.54           94.71             68.65             61.49        44.57              24.80           8.42
          Vladimir region        Vladimir              1,449.48           106.18            73.25             69.02        47.62              30.51           6.65
          Bryansk region         Bryansk               1,308.48           83.08             63.49             44.12        33.71              30.98           7.99
          Yaroslavl region       Yaroslavl             1,315.01           105.28            80.06             74.72        56.82              22.21           8.35
          Tula region            Tula                  1,566.30           89.19             56.94             46.11        29.44              33.29           9.79
          Ryazan region          Ryazan                1,164.53           107.24            92.09             73.33        62.97              27.09           6.82
          Kaluga region          Kaluga                1,005.65           92.89             92.37             67.28        66.90              20.16           5.45
          Tambov region          Tambov                1,106.04           88.86             80.34             66.30        59.94              16.57           6.00
          Ivanovo region         Ivanovo               1,079.61           67.84             62.84             40.21        37.25              21.83           5.80
          Kursk region           Kursk                 1,162.48           62.22             53.53             39.35        33.85              17.09           5.79
          Oryol region           Oryol                 821.93             68.62             83.48             48.79        59.36              15.13           4.70
          Smolensk region        Smolensk              983.23             65.66             66.78             42.71        43.44              17.04           5.91
          Kostroma region        Kostroma              697.04             69.36             99.51             47.81        68.59              16.45           5.11
          Northwestern           —                     13,501.04          2,223.73          164.71            1,508.00     111.70             375.73          340.00
          Federal District
          St. Petersburg         St. Petersburg        4,568.05           1069.32           234.09            837.01       183.23             174.92          57.38
          Leningrad region       -                     1,633.35           202.31            123.86            124.19       76.03              35.74           42.37
          Archangel region       Archangel             1,271.88           175.71            138.15            112.65       88.57              20.43           42.64
          Vologda region         Vologda               1,222.89           140.51            114.90            71.33        58.33              28.18           40.99
          Murmansk region        Murmansk              850.93             129.98            152.75            75.47        88.69              26.72           27.78
          Pskov region           Pskov                 705.29             85.54             121.29            48.62        68.94              11.63           25.29
          Kaliningrad region Kaliningrad               937.40             121.46            129.57            71.88        76.68              24.71           24.87
          Republic of            Petrozavodsk          690.65             90.19             130.59            51.54        74.62              16.31           22.35
          Karelia
          Komi Republic          Syktyvkar             968.16             124.63            128.73            63.99        66.10              28.46           32.17
          Novgorod region        Great Novgorod        652.44             84.09             128.88            51.31        78.64              8.63            24.15




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                              Macroeconomics: Russia & Federal subjects                 10




              Table 2. Cont' d (1)

               Federal subject       Center of Federal   Population of      Pharma market,   Total drug    Out-of-      Drug consump-      Reimbursement Hospital
                                     subject             Federal subject,   total, mn USD    consumption   pocket       tion per capita/   market, mn USD market (mn
                                                         thsd (as of 1      (consumer        per capita    market (mn   out-of-pocket      (supply prices), USD), 2008
                                                         January, 2009)     prices), 2008    (USD), 2008   USD), 2008   (USD), 2008        2008
               Southern Federal      —                   22,835.22          1,475.21         64.60         1,044.00     45.72              278.21          153.00
               District
               Krasnodar ter-        Krasnodar           5,121.80           396.89           77.49         288.23       56.28              73.71           34.95
               ritory
               Rostov region         Rostov              4,254.42           360.68           84.78         259.81       61.07              72.75           28.13
               Volgograd region      Volgograd           2,608.76           162.27           62.20         116.84       44.79              23.08           22.34
               Stavropol territory   Stavropol           2,705.07           144.03           53.24         96.86        35.81              29.69           17.47
               Republic of           Makhachkala         2,687.82           89.28            33.22         49.54        18.43              26.47           13.27
               Daghestan
               Astrakhan region      Astrakhan           1,000.87           73.12            73.05         55.39        55.34              9.44            8.28
               Kabardino-Balkar      Nalchik             891.34             47.80            53.63         36.41        40.85              5.05            6.34
               Republic
               Ingush Republic       Nazran              499.50             21.99            44.01         15.58        31.20              4.91            1.49
               Republic of           Vladikavkaz         702.46             48.73            69.37         35.36        50.34              8.17            5.20
               Northern
               Ossetia — Alania
               Chechen Republic Grozny                   1209.04            33.40            27.62         19.89        16.45              7.09            6.41
               Karachai-         Cherkessk               427.42             35.55            83.18         26.37        61.70              6.08            3.10
               Cherkess Republic
               Republic of           Maikop              441.18             34.34            77.84         24.98        56.62              5.68            3.68
               Adygeya
               Kalmyk Republic       Elista              285.54             27.15            95.08         18.71        65.53              6.09            2.34
               Volga Federal         —                   3,0241.58          3,123.68         103.29        2,320.00     76.72              565.68          238.00
               District
               Republic of           Kazan               3,762.81           408.04           108.44        296.37       78.76              77.57           34.09
               Tatarstan
               Republic of           Ufa                 4,052.73           423.22           104.43        324.62       80.10              71.18           27.41
               Bashkortostan
               Samara region         Samara              3,172.79           391.01           123.24        303.08       95.52              68.05           19.88
               Perm territory        Perm                2,718.23           264.80           97.42         171.14       62.96              73.92           19.74
               Nizhniy Novgorod      Nizhniy Novgorod 3,359.82              397.90           118.43        299.46       89.13              69.01           29.43
               region
               Orenburg region       Orenburg            2,119.00           204.88           96.69         151.73       71.60              36.11           17.05
               Saratov region        Saratov             2,583.81           200.85           77.73         158.21       61.23              24.06           18.58
               Udmurt Republic       Izhevsk             1,532.74           117.77           76.83         85.17        55.57              18.63           13.97
               Penza region          Penza               1,388.02           154.01           110.95        117.17       84.41              26.76           10.08
               Ulyanovsk region      Ulyanovsk           1,312.21           145.58           110.94        111.19       84.73              25.14           9.25
               Kirov region          Kirov               1,413.26           142.38           100.74        87.35        61.80              38.82           16.21
               Chuvash Republic      Cheboksary          1,282.57           101.16           78.87         77.19        60.18              14.57           9.41
               Republic of           Saransk             840.39             92.26            109.78        71.27        84.81              14.04           6.94
               Mordovia
               Republic of Mariy     Yoshkar-Ola         703.22             79.82            113.51        66.05        93.93              7.81            5.96
               El
               Urals Federal         —                   1,2240.38          1,224.43         100.03        928.00       75.81              177.43          119.00
               District
               Sverdlovsk region     Ekaterinburg        4,395.62           441.15           100.36        322.60       73.39              77.02           41.54
               Tyumen region         Tyumen              3,373.37           391.64           116.10        320.93       95.14              41.07           29.64
               Chelyabinsk           Chelyabinsk         3,510.99           315.66           89.91         232.97       66.35              44.30           38.40
               region
               Kurgan region         Kurgan              960.41             75.97            79.10         51.50        53.63              15.04           9.43
               Siberian Federal      —                   19,553.46          1,795.43         91.82         1,276.00     65.26              417.43          102.00
               District
               Novosibirsk region Novosibirsk            2,635.64           337.17           127.93        231.18       87.71              77.67           28.32




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                                                                                    11        Macroeconomics: Russia & Federal subjects




          Table 2. Cont' d (2)

          Federal subject        Center of Federal   Population of      Pharma market,   Total drug    Out-of-      Drug consump-      Reimbursement Hospital
                                 subject             Federal subject,   total, mn USD    consumption   pocket       tion per capita/   market, mn USD market (mn
                                                     thsd (as of 1      (consumer        per capita    market (mn   out-of-pocket      (supply prices), USD), 2008
                                                     January, 2009)     prices), 2008    (USD), 2008   USD), 2008   (USD), 2008        2008
          Krasnoyarsk ter-       Krasnoyarsk         2,890.35           248.87           86.10         185.89       64.31              55.94           7.04
          ritory
          Irkutsk region         Irkutsk             2,507.68           283.36           113.00        192.34       76.70              77.54           13.49
          Kemerovo region        Kemerovo            2,823.54           214.60           76.00         175.23       62.06              33.00           6.37
          Omsk region            Omsk                2,018.00           212.66           105.38        161.17       79.87              35.35           16.14
          Altai territory        Barnaul             2,508.48           222.00           88.50         151.38       60.35              64.12           6.50
          Transbaikal ter-       Chita               1,118.93           90.60            80.97         72.08        64.42              15.06           3.45
          ritory
          Tomsk region           Tomsk               1,034.99           115.91           111.99        86.73        83.80              26.31           2.87
          Buryat Republic        Ulan-Ude            959.89             49.69            51.77         31.84        33.17              15.45           2.40
          Republic of            Abakan              537.23             62.55            116.43        53.43        99.45              7.91            1.21
          Khakassia
          Tyva Republic          Kyzyl               311.62             36.84            118.22        30.33        97.33              5.36            1.15
          Altai Republic         Gorno-Altaisk       207.12             32.13            155.14        27.87        134.55             3.73            0.53
          Far Eastern            —                   6,486.42           776.51           119.71        580.00       89.42              128.51          68.00
          Federal District
          Primorie territory     Vladivostok         1,995.83           188.13           94.26         152.98       76.65              25.19           9.96
          Khabarovsk ter-        Khabarovsk          1,403.71           209.78           149.45        138.16       98.42              38.30           33.32
          ritory
          Republic of Sakha Yakutsk                  951.44             108.43           113.97        83.69        87.96              17.26           7.49
          (Yakutia)
          Amur region            Blagoveshchensk 869.62                 89.12            102.48        63.65        73.19              19.16           6.32
          Sakhalin region        Yuzhno-             518.54             64.66            124.69        54.32        104.76             6.34            4.00
                                 Sakhalinsk
          Magadan region         Magadan             165.82             31.65            190.86        26.82        161.72             3.31            1.52
          Chukotka autono-       Anadyr              50.26              13.89            276.26        12.44        247.53             0.77            0.67
          mous okrug
          Kamchatka ter-         Petropavlovsk-      345.67             47.55            137.57        30.65        88.68              13.93           2.97
          ritory                 Kamchatskiy
          Evreyskaya             Birobijan           185.54             23.31            125.62        17.29        93.19              4.26            1.76
          autononous
          region

                                                                                                                                       Calculations: Pharmexpert




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GO_2009_ENG.indb 12   02.05.2009 8:28:52
          II. PHARMA
          “WEATHER FORECAST”
          EXPERT INSIGHT: RUSSIAN PHARMA
          DEVELOPMENT TRENDS IN 2009




                       Our traditional analytical paper delivered in the beginning of each year has
                       been under disruption as it turned out to be next to impossible to make a
                       deeply professional analysis based on previous development trends.

                       Notwithstanding all difficulties, we have come up with our vision of the
                       short-term development prospects using a variety of marketing tools. The
                       most important thing is that there is such prospect, which, in our under-
                       standing, is positive dynamics in the demand and supply as well as fulfill-
                       ment by the state of its obligations. We will further proceed covering indi-
                       vidual market segments.




GO_2009_ENG.indb 13                                                                               02.05.2009 8:28:52
         Expert insight: Russian Pharma development trends in 2009                  14




              Investment                                                                 mum selling prices; on the other hand, maximum wholesale
                                                                                         and retail markups will be minimized. The state may attempt
              For a long time, the segment of innovative drugs and new                   at developing maximum markups for groups of regions based
              launches has been the pharma market growth driver. For the                 on federal subjects or time zones. Secondly, drug distribution
              time being, most likely for the next one to two years, the Type            for state programs is likely to be stricter controlled.
              1 (innovation) investment flow to manufacturer portfolios will             Warehousing stocks will be ruled out. Regional level activities
              either be “frozen” or will weaken. Manufacturers will get down             will be given closer attention that may result in changes of key
              to optimizing their product ranges. We believe that lower pur-             decision-makers.
              chases of drug analogues by distributors and retailers will force
              many of the market players to close production of low-demand               We believe that state budgets of social programs, including the
              or unprofitable assortment positions. We also believe that such            reimbursement program, will not be cut; they are even likely to
              optimization will largely embrace the low price segment,                   increase. However, the purchasing power of these budgets, if
              which means that it is local products that will get the heaviest           translated into the number of drug packs, will become lower
              blow. The state would undoubtedly like to come up with spe-                than planned. Add to this “ruling out” warehousing stocks —
              cific solutions in order to curb any adverse developments.                 and we shall have all ground to forecast sinking drug procure-
              However these solutions mostly work in a stable market.                    ment by the state in H209 and 2010.

              Type 2 investment (M&A), in our opinion, will become domi-
              nant in the investor mind. We expect “the golden M&A year”                 Pharmaceutical manufacturers
              pretty soon, viz. starting from H209. The Russian business has
              apparently been overvalued. The sellers evaluate goodwill for              Many manufacturers may be taken off-balance by the above
              some deals at the level of the assets on sale as a whole.                  situation. Their budgets and especially earnings from drug sup-
              Currently, there are processes underway that provide for under-            ply for state programs were calculated based on growing or, at
              standing the real value of wholesale and retail companies. If a            worst, stagnating supplies in value terms quarter-on-quarter.
              year ago a drugstore put on sale was valued at a 6-8-month                 We suppose that the companies that have already realized these
              turnover, currently its evaluation was decreased to a 5-month              problems start working on solutions in advance, i.e. fortify their
              turnover. But even depreciation of the offer does not provide              out-of-pocket sales, diversify in order to cover hospital pro-
              for intensive growth of pharma investors. All business partici-            curement segment, etc.
              pants are engaged in a large-scale restructuring of their assets.
              Therefore prices will be gradually trending down.                          Local manufacturers will have a disadvantage as compared to
                                                                                         foreign as the former’s thin financial cushion coupled with a
              We may make a bold hypothesis about the forthcoming market                 limited access to credits will not be conducive to their self-
              entry by new investors aimed at fast market penetration and                assurance as market players. Besides, the low level of customer
              winning market shares commensurable with those of the lead-                loyalty as well as the criminal exposures of the recent past will
              ers. Such investors are most likely to come from industries                not provide for a quality breakthrough of the local players.
              other than Pharma. Assets are being taken out of the industries            Neither preferences within the framework of state programs
              where the situation is the worst, and these assets are being               nor the Pharma 2020 strategy will provide for a qualitative
              channeled to more stable sectors.                                          effect expected from local manufacturers through the end of
                                                                                         2010.
              Type 3 (green field or facility construction) investment is likely
              to slow down. Notwithstanding official declarations on con-                Speaking about the Pharma 2020 strategy developed by the
              struction of local pharmaceutical manufacturing facilities and             working group of the Ministry of Industry and Trade: neither
              guarantees of “green light” to investment, businesses take a               part of it has been implemented so far. This is an investment-
              cautious approach to such offers. Firstly, it will take a few years        based program that will take several years to be implemented.
              of painstaking efforts to build and launch a manufacturing or              Both because of the economic crisis and its own weak points
              logistic project in Russia. An average payback period of such              this strategy has not been officially approved or funded. The
              investment is 3—5 years. Secondly, the state would like to get             launch of this strategy as well as any other investment project
              cheap drugs as a result of implementing such projects. But, as             will most likely be postponed till “better times”.
              we know, there is a trend to diminishing demand in the low
              price segment.                                                             The same is true for the GMP implementation timeframe.
                                                                                         Frankly, the Russian Pharma is not ready for good practices
                                                                                         yet. There may be two explanations: firstly, need for invest-
              The state                                                                  ment; secondly, specific mentality. We believe that the latter is
                                                                                         more important than the former.
              An interference with the market operation will continue. The
              main decisions (regarding drug markup regulation, registra-                The latest declarations at the government level lead us to
              tion of maximum selling prices etc.) are most likely to be                 believe that foreign companies will most likely be strongly rec-
              made effective closer to H209. Such decisions will not always              ommended to open their manufacturing facilities in Russia.
              have a positive effect on business. Therefore it is important to           While this report was in print, a few multinationals have offi-
              take into account potential behavior options of the state that             cially voiced their intent to launch their facilities in Russia.
              is one of the main stakeholders when developing short-term
              corporate strategies. In our vision, in the short term, the state          Foreign companies that are not about to penetrate the Russian
              will firstly focus on drug prices. On the one hand, manufac-               market for M&A or green field projects will be leaning on mar-
              turers of essential and vital drugs will have to register maxi-            keting as the basis of their strategies. Under the crisis, the out-




GO_2009_ENG.indb 14                                                                                                                                   02.05.2009 8:28:52
                                                                               15       Expert insight: Russian Pharma development trends in 2009




          of-pocket market will to a growing extent be driven by direct             provide for fiddling with prices are likely to determine “blurred”
          advertising. According to various information agencies, the               promotion strategies for manufacturers when working with
          value of pharma advertisement in all media carriers grew on               drugstore chains. It is possible that the drugstore product range
          average by 15% from September 2008 through February 2009.                 will become further differentiated: conventionally, Type A
          While the home appliances, food and alcoholic beverage mar-               drugstores will be selling Type A products, and Type B drug-
          kets have narrowed dramatically, Pharma continues building                stores will specialize in Type B products. Obviously, the mini-
          up its information activities.                                            mum obligatory product range will be selling everywhere,
                                                                                    controlling bodies having a closer focus on it. Non-chain
          PR will be increasingly in demand by the companies striving to            retailers will become of more interest for distributors as cur-
          develop Rx product ranges. Being limited to medical repre-                rently an increasing share of customers are purchasing from
          sentatives or GR activities will be insufficient for having their         non-chain drugstores. This trend it likely to persist through the
          drugs listed for specific state programs or on sale at drugstores.        end of the crisis.
          Communication and PR agencies or better Pharma-targeted
          public and not-for-profit associations will become most effi-             Under the circumstances, many drugstore chains are trying out
          cient tools for reaching the above objectives. At the same time,          new trading formats, i.e. start operating as discounters. Large
          one should not forget that not all decisions are being made at            chains cannot afford to make such changes quickly, which puts
          the manufacturer level in Russia. Distributors and drugstore              smaller players at advantage.
          chains are in a more difficult position, which may be more
          advantageous at the same time.
                                                                                    Figures, trends, and prospects
          Distributors and drugstore                                                Despite all problems, positive sales dynamics is expected
          chains                                                                    through the end of 2009, drug prices being the key growth
                                                                                    driver. We can recommend that pharmaceutical companies
                                                                                    concentrate on their market shares and stop thinking about the
          Distributors that have for a long time been losing their impor-           sales growth. It is only the market share that will provide for an
          tance as market players due to the crisis will once again become          adequate evaluation of businesses in 2009.
          the market pillars. The TOP10 concentration will grow again,
          which means that the situation will become aggravated for                 Table 1. Russian pharma market development forecast for 2009
          medium-size and small wholesale businesses. Some smaller
          players are likely to disappear from the market. Regional dis-            Market growth         RUB                 +33%
          tributors will be in the risk zone. Manufacturers will strive to                                USD                 +2 — -3%
          diversify their risks by way of working through a number of key                                 packs               -5 — -7%
          distributors.
                                                                                    Critical period                           May—June
          The situation will be quite the opposite in the retail sector.
          Deconcentration of the retail networks as well as diminishing             You can order a detailed market forecast till 2012 at
          demand for nutrients and parapharmaceuticals that used to                 Pharmexpert: marketing@pharmexpert.ru.




GO_2009_ENG.indb 15                                                                                                                                  02.05.2009 8:28:52
          III. IMPORT SUBSTITUTION:
          TIME HORIZON
          RECONSIDERED
          DRUG IMPORT TO RUSSIA



                       Pharma market players will remember 2008 as a record-setting year.
                       Although drug imports to Russia have failed to hit the fantastic 10(!) bn
                       USD level so far, this can be a SMART goal for a foreseeable future.

                       As of 2008, drug imports reached 9.92 bn USD, or 2.32 bn packs (Fig. 1
                       & 2). The import operations became by one third stronger in value terms;
                       at the same time, there was stagnation in real terms (growth at -2%).

                       Dramatic fluctuations of exchange rates of the main currencies have
                       directly affected the import structure. Whereas in 2007, when the US dollar
                       was pretty stable, 56.2% of all payments for the drugs supplied were made
                       in USD (Fig. 3), in 2008, as the world financial crisis was deepening, the
                       shares of payments in euros and rubles were growing (for EUR, share
                       growth from 36.7% in 2007 to 48.5% in 2008; for RUB, from 6.8 to 12.6%
                       respectively).




GO_2009_ENG.indb 17                                                                              02.05.2009 8:28:52
                                                  Drug import to Russia                                       18




                                                                                                                                          9921                                                                  9921                200

                                                                                                                            7468                                                                     7196
                                                                                                                                                                                                                                    150
                                                                                                    6055
                                                                                                                                                                                         4558




                                                       Imports, mn USD




                                                                                                                                                                                                                                     Growth, %
                                                                                            4261                                                                                                                                    100
                                                                                                                                                                           2089
                                                                                  2762       54                                                                                                         2637             2726
                                                                                                                                                                                          2470
                                                                                                        42                                                                2089
                                                                                                                                           33                                                                                       50
                                                                                                                            23


                                                                                                                                                                                                                                    0
                                                                                 2004       2005    2006                2007              2008                            Q108            Q208          Q308             Q408

                                                                                        Imports, mn USD
                                                                                        Imports (accrued value), mn USD
                                                                                        Growth (USD; %), 2008/2007
              Fig. 1. Drug imports to Russia in
                                                                                                                                                                   Source: Pharmexpert — Drug import to Russia
              value terms, 2008


                                                                                                                                                                                                                2316
                                                                                                                       2357               2316

                                                                                                                                                                                                    1685
                                                                                           1888
                                                                                                    1713
                                                                                 1478                                                                                                    1088
                                                     Imports, mn packs




                                                                                                                                                                                                                                    Growth, %
                                                                                                                                                                          524
                                                                                                                            38
                                                                                            28

                                                                                                      9                                    2
                                                                                                                                                                          524             563             598             631 50

                                                                                 2004      2005    2006               2007                2008                            Q108           Q208          Q308              Q408

                                                                                        Imports, mn packs
                                                                                        Imports (accrued value), mn packs
                                                                                        Growth (USD; %), 2008/2007
              Fig. 2. Drug imports to Russia in
                                                                                                                                                                   Source: Pharmexpert — Drug import to Russia
              real terms, 2008


                                                                             %
                                                            60                                                                                                                                                                                      60

                                                            50                                                                                                                                                                                      50

                                                            40                                                                                                                                                                                      40

                                                            30                                                                                                                                                                                      30

                                                            20                                                                                                                                                                                      20

                                                            10                                                                                                                                                                                      10

                                                                         0                                                                                                                                                                          0
                                                                                                     Jan 08


                                                                                                                   Feb 08


                                                                                                                                 Mar 08


                                                                                                                                            Apr 08


                                                                                                                                                     May 08


                                                                                                                                                                 Jun 08


                                                                                                                                                                                Jul 08


                                                                                                                                                                                           Aug 08


                                                                                                                                                                                                      Sep 08


                                                                                                                                                                                                                Oct 08


                                                                                                                                                                                                                           Nov 08


                                                                                                                                                                                                                                    Dec 08




                                                                             2007 2008




                                                                                             Imports share (%), EUR                                           Imports share (%), RUB
                                                                                             Imports share (%), USD                                           Imports share (%), other currencies
              Fig. 3. Currency shares (%) in                                                 Exchange rate USD:RUB                                            Exchange rate EUR:RUB
              payment structure for imported                                                                                                                       Source: Pharmexpert — Drug import to Russia
              drugs, 2007—2008




GO_2009_ENG.indb 18                                                                                                                                                                                                                              02.05.2009 8:28:52
                                                                                     19          Drug import to Russia




                                                                             In value terms                                       In real terms

                                                                                    0.2
                                                                                    0.2                           0.2                1.1              0.5
                                                                    9.0             8.3             12.0          4.9                5.6              9.0
                                                                                                                  11.0
                                                                   14.6            18.0                                                              17.0
                                                                                                    19.4
                                                                   24.8
                                                                                                    30.3
                                                                   18.4                                                             93,3
                                                                                                                  83,9
                                                                                   73.3                                                              73.5
                                                                                                    18.5
                                                                   33.2
                                                                                                    19.8

                                                             Total drug imports    ОТС               Rx      Total drug imports      ОТС               Rx



                                                                   <5 USD         5—10 USD          10—100 USD           100—1000 USD             >1000 USD
          Fig. 4. Price segmentation (USD,                                                                           Source: Pharmexpert — Drug import to Russia
          packs) in total drug imports, 20081

          Drugs at <5 USD per pack (mostly OTC) and 10—100 USD per                            Costliest Nosologies (VZN) subprogram in Russia in 2008
          pack (mainly Rx) dominate in the total imports structure with a                     within the framework of the drug reimbursement program.
          58% cumulative share (Fig. 4). The maximum growth rate of the
          total imports share (in value terms) was registered in the >1000                    There were drastic changes in the TOP25 corporation rating in
          USD per pack price segment, viz. from 6.42% in 2007 to 8.99%                        2008 vs. 2007; however, Sanofi-Aventis still heads the ranking
          in 2008. The main driver behind this trend was the launch of the                    with a 5.29% total imports share (Table 1).

          Table 1. TOP25 corporations by drug imports to Russia, 2008
          Rank                             Corporation                                                        Total imports share (USD), %    Import growth (USD), %

          2008              2007                                                                              2008           2007

          1                 1              Sanofi-Aventis                                                     5.29           5.83             22
          2                 4              Novartis                                                           4.69           3.79             67
          3                 3              Berlin-Chemie/Menarini                                             3.87           4.30             21
          4                 6              Sandoz                                                             3.83           3.51             47
          5                 2              Roche                                                              3.76           4.70             8
          6                 8              Janssen-Cilag                                                      3.39           2.98             53
          7                 10             Servier                                                            3.23           2.90             50
          8                 12             Bayer Healthcare                                                   3.22           2.79             55
          9                 15             GSK                                                                3.16           2.49             71
          10                5              Gedeon Richter                                                     2.99           3.63             11
          11                14             Boehringer Ingelheim                                               2.78           2.50             49
          12                7              Pfizer                                                             2.76           3.49             6
          13                11             Nycomed                                                            2.53           2.84             20
          14                18             Solvay Pharma                                                      2.25           2.12             43
          15                16             KRKA                                                               2.23           2.38             26
          16                17             Novo Nordisk                                                       2.21           2.24             33
          17                9              AstraZeneca                                                        2.19           2.93             1
          18                27             Octapharma AG                                                      2.16           0.91             220
          19                19             Teva Pharmaceutical Industries Ltd                                 1.99           1.65             62
          20                13             Schering-Plough                                                    1.99           2.71             -1
          21                25             Abbott Laboratories                                                1.48           1.04             92
          22                20             Egis                                                               1.37           1.63             13
          23                22             Pliva                                                              1.34           1.37             31
          24                21             Eli Lilly                                                          1.33           1.57             14
          25                23             Dr. Reddy’s                                                        1.19           1.21             32
          Total TOP25                                                                                         67.23          67.51
                                                                                                                      Source: Pharmexpert — Drug import to Russia

          1   Without Customs warehousing data.




GO_2009_ENG.indb 19                                                                                                                                                    02.05.2009 8:28:53
                                                           Drug import to Russia            20




              Octapharma may be considered the main “breakthrough of the                          The rating of TOP25 trademarks embraces drugs that are on
              year”, as imports of its drugs increased more than threefold                        sale in the out-of-pocket market and are supplied for the reim-
              since the beginning of 2008, mainly due to supplies of blood                        bursement program, their ratio being 14:11 (44%:56%)
              coagulation factors for the Hemophilia component of the VZN                         (Table 2). The weight of the TOP3 imported brands grew from
              subprogram.                                                                         3.76 to 4.57%: Velcade, Octanate, and Glivec were mainly sup-
                                                                                                  plied for the VZN subprogram. The concentration of the
              Schering-Plough lost 8 ranks following just a 1% decrease of                        TOP25 TM increased vs. 2007 by 3% to reach 18.94%.
              imports in value terms that was the biggest descend in the
              TOP25 corporation rating. TM Temodal, Pegintron,                                    The growth champions are Heptral (Abbott Laboratories;
              Remicade, and Aerius remained its priority drugs for Russia;                        +268% import growth; +95 ranks) and Copaxone (Teva; +237%
              together they account for a 59% share of the company’s                              and +38 ranks). 87% of Heptral total sales in Russia in 2008
              total drug imports to Russia. Due to the concentration of                           were made in the out-of-pocket market; 99% of Copaxone sup-
              efforts on importing the above trademarks, the appreciable                          plies were made for the VZN subprogram (Multiple sclerosis).
              cuts on imports of Claritin, Rebetol, and Diprospan have
              virtually not affected Schering-Plough foreign economic                             Mezym Forte was the only TM out of TOP25 with imports stag-
              operations as of 2008.                                                              nating (-1%) in value terms. It remains the most popular pan-
                                                                                                  creatic enzyme drug in Russia (51.6% of INN pancreatin total
              The Russian pharma market remains attractive for foreign                            sales); however, its closest rival Creon has been posting a more
              companies: in 2008, more than 2,000 trademarks were                                 active import dynamics at +58% in value terms and +60% in
              launched in this market (about 90 mn USD worth in total);                           real terms.
              out of them 92% were Rx drugs. Novartis and GSK were most
              active in terms of launches, with 7 and 5 new drugs launched                        Aranesp (Amgen) was the leader among the trademarks import-
              respectively. However as of 2008, the degree of success differed                    ed mainly for hospital procurement. It made its way to TOP400
              for the new projects of these two corporations; for Novartis,                       imported trademarks in value terms.
              imports of three new drugs out of seven exceeded 1 mn USD
              (for each TM); for GSK, the comparable results were demon-                          Ten most successful drugs launched in 2008 are presented in
              strated by four trademarks out of five.                                             Table 3.
              Table 2. TOP25 trademarks by imports to Russia, 2008

               Rank                           Trademark                       Main market sector in 20081        Total imports share (USD), %   Import growth (USD), %

               2008            2007                                                                              2008           2007

               1               1              Velcade                         Reimb./VZN                         1.56           1.37            53
               2               15             Octanate                        Reimb./VZN                         1.55           0.61            242
               3               3              Glivec                          Reimb./VZN                         1.47           1.17            69
               4               2              Viagra                          Out-of-pocket                      0.95           1.21            5
               5               42             Copaxone                        Reimb./VZN                         0.93           0.37            237
               6               12             Betaferon                       Reimb./VZN                         0.90           0.64            90
               7               4              Mabthera                        Reimb./VZN                         0.88           0.89            33
               8               32             Linex                           Out-of-pocket                      0.73           0.44            124
               9               6              Enap                            Out-of-pocket                      0.68           0.80            15
               10              60             Novoseven                       Reimb./VZN                         0.68           0.30            200
               11              30             Eprex                           Reimb./ONLS2                       0.66           0.46            93
               12              11             Essentiale                      Out-of-pocket                      0.61           0.66            25
               13              17             Amoxiclav                       Out-of-pocket                      0.61           0.56            46
               14              27             Movalis                         Out-of-pocket                      0.60           0.47            72
               15              109            Heptral                         Out-of-pocket                      0.59           0.22            268
               16              14             Lantus                          Reimb./ONLS                        0.59           0.63            24
               17              23             Dirotone                        Out-of-pocket                      0.57           0.50            54
               18              16             Cerebrolysin                    Out-of-pocket                      0.56           0.60            26
               19              10             Humulin                         Reimb./ONLS                        0.56           0.67            12
               20              13             Mildronate                      Out-of-pocket                      0.56           0.64            17
               21              24             Seretide                        Reimb./ONLS                        0.55           0.49            51
               22              7              Mezym forte                     Out-of-pocket                      0.55           0.75            -1
               23              55             Alflutop                        Out-of-pocket                      0.54           0.33            120
               24              20             No-spa                          Out-of-pocket                      0.53           0.53            35
               25              19             Concor                          Out-of-pocket                      0.53           0.55            30
               Total TOP25                                                                                       18.94          15.86
                                                                                                                         Source: Pharmexpert — Drug import to Russia
              1   The sector accounting for >70% of TM total sales in Russia in 2008.
              2   Essential and Vital Drugs subprogram of the reimbursement program.




GO_2009_ENG.indb 20                                                                                                                                                02.05.2009 8:28:53
                                                                               21      Drug import to Russia




          Table 3. TOP10 trademarks launched in 2008 by imports to Russia
          Rank among new       Trademark                      Corporation                                       ОТС / Rx       Total imports share (USD), %
          launches, 2008
          1                    Kivexa                         GSK                                               Rx             0.074
          2                    Doriprex                       Janssen-Cilag                                     Rx             0.072
          3                    Mycept                         Panacea Biotec Ltd                                Rx             0.072
          4                    Mac-pas                        Macleods Pharmaceuticals                          Rx             0.058
          5                    Sebivo                         Novartis                                          Rx             0.044
          6                    Tasigna                        Novartis                                          Rx             0.030
          7                    Imunorix                       Solvay Pharma                                     OTC            0.027
          8                    Noxafil                        Schering-Plough                                   Rx             0.027
          9                    Valdoxan                       Servier                                           Rx             0.025
          10                   Relenza                        GSK                                               Rx             0.024

                                                                                                             Source: Pharmexpert — Drug import to Russia

          Protek once again heads the importer rating (Table 4), SIA                ferent companies, viz. SIA International, Genesis, Protek,
          International lagging behind at just 0.27% in terms of the mar-           Apteka Holding, and Katren. In 2008, there was a drastic change
          ket share.                                                                of the importing policy: imports via the first two companies were
                                                                                    cut by 3.6 and 2.1 times respectively; about 45% of drug were
          Pfizer representative office is new for the importer rating. The          imported to Russia by Pfizer Rep Office. In near future, this
          year before Pfizer was importing its drugs to Russia via five dif-        company may prefer importing to Russia via its office only.

          Table 4. TOP25 importers by drug imports to Russia, 2008
          Rank                        Importer                                                       Total imports share (USD), %   Import growth (USD), %

          2008          2007                                                                         2008             2007

          1             2             Protek CV ZAO                                                  7.90             10.18         5
          2             1             SIA International Ltd ZAO                                      7.63             11.95         -14
          3             3             Aventis Pharma ZAO                                             4.78             4.96          30
          4             16            Lek ZAO                                                        3.45             1.83          153
          5             7             Rosta ZAO                                                      3.36             2.85          59
          6             14            Schering AO ZAO                                                3.31             1.97          127
          7             6             Servier ZAO                                                    3.24             2.89          51
          8             5             Katren NPK ZAO                                                 3.20             3.18          35
          9             11            Novartis Pharma ZAO                                            3.02             2.23          82
          10            9             R-Pharm ZAO                                                    2.78             2.58          45
          11            35            Pharmaceutical Import. Export                                  2.58             0.61          467
          12            4             Roche-Moscow ZAO                                               2.56             4.67          -26
          13            8             Nycomed Distribution Center TOO                                2.45             2.74          20
          14            17            GlaxoSmithKline Trading                                        2.31             1.79          74
          15            13            Solvay Pharma OOO                                              2.21             2.07          43
          16            10            Apteka Holding ZAO                                             2.15             2.26          28
          17            15            Novo Nordisk OOO                                               2.01             1.94          40
          18            36            AstraZeneca Pharmaceuticals                                    1.93             0.61          327
          19            20            Orfe ZAO                                                       1.88             1.54          65
          20            18            Johnson&Johnson Inc                                            1.86             1.68          49
          21            21            Galena Pharma OOO                                              1.74             1.36          72
          22            23            IHCC OOO                                                       1.57             1.24          71
          23            24            Aitems Warehouses ZAO                                          1.49             1.23          63
          24            19            Biotec TOO                                                     1.29             1.54          12
          25            330           Pfizer AO ZAO                                                  1.27             n/a           n/a
          Total TOP25                                                                                71.97            69.90
                                                                                                             Source: Pharmexpert — Drug import to Russia




GO_2009_ENG.indb 21                                                                                                                                           02.05.2009 8:28:53
                                                            Drug import to Russia       22




              AstraZeneca foreign economic policy has also changed like                      R05 “Cough and cold preparations” (+38%; Mucoviscidosis);
              that of Pfizer. In 2008, the former imported 88% of all drugs                  and L03 “Immunostimulating agents” (+38%; Multiple scle-
              via its office (to compare: 21% the year before). Thus, it has                 rosis).
              appreciably cut its collaboration with such importers as SIA
              International, Euroservice, Biotec, and Protek.                                Total drug imports for the VZN subprogram amounted to 1.05
                                                                                             bn USD (2.67 mn packs) (Fig. 5). The average price per pack
              A due consideration should be given to the company                             in this segment increased from 259 USD in 2007 to 394 USD
              Pharmaceutical Import. Export that increased its imports opera-                in 2008.
              tions by 5.6 times vs. 2007. It mainly imports drugs for the VZN
              subprogram focusing on cooperation with such manufacturers                     As for АТС groups not listed for VZN, the most dynamic
              as Octapharma AG, Genzyme Pharmaceuticals, and Biotest                         import growth was registered for Group A05 “Cholagogues
              Pharma GMBH. In 2007, these three companies accounted for                      and hepatic protectors” (due to heavier imports of Heptral,
              71% in total imports of the company Pharmaceutical Import.                     Essentiale, and Сarsil) and M01 “Anti-inflammatory and anti-
              Export; in 2008, their share grew to 94%.                                      rheumatic products” (thanks to import leaders Movalis,
                                                                                             Ketonal, and Ketanov). Group G03 “Sex hormones and prod-
              For Roche, there was a 26% decrease of imports in 2008,                        ucts with similar desired effects, systemic action only” saw
              mainly due to cuts on supplies of three innovative drugs, viz.                 significant cuts on imports of Postinor (by 1.8 times) as well as
              Pegasys, Xeloda, Cellcept. In 2008, this corporation focused                   Novinet and Lindinet (all three by Gedeon Richter).
              on supplying Mabthera, Xenical, Herceptin, Recormon,
              Avastin, and Pulmozyme (67% of Roche drug total imports to                     Forecast: Promises of government officials to keep providing
              Russia).                                                                       specific population groups with imported drugs despite the world
                                                                                             crisis give us grounds to suppose that drug imports will reach
              Drugs of TOP15 АТС groups1 (Table 5) accounted for more                        10 bn USD in 2009. Steps being made by Russia’s government
              than 50% of total drug imports in 2008. Four АТС groups                        in order to improve positions of the domestic pharma industry
              include drugs supplied for the VZN subprogram, viz. B02                        will not be able to decrease dependence of the population on
              “Antifibrinolytics, antidotes to anti-coagulants, inhibitors,                  imports in the short term as there is a large share of innovative
              blood coagulation, and haemostyptics” (import growth +161%;                    drugs having no analogues in the local market among the import-
              Hemophilia); L01 “Antineoplastics” (+40%; Myeloleucosis);                      ed medicines.

              Table 5. TOP15 ATC groups by imports to Russia, 2008
               Rank                      ATC group                                                                   Total imports share (USD), %   Import growth
                                                                                                                                                    (USD), %
               2008          2007                                                                                    2008           2007

               1             1           L01 — Antineoplastics                                                       7.20           6.95            40
               2             2           J01 — Systemic antibacterial                                                5.46           5.98            23
               3             3           A10 — Drugs used in diabetes                                                4.26           5.07            13
               4             4           L03 — Immunostimulating agents                                              4.20           4.12            38
               5             13          B02 — Antifibrinolytics, antidotes to anti-coagulants, inhibitors, blood    4.12           2.13            161
                                         coagulation, and haemostyptics
               6             6           C09 — Agents acting on the renin-angiotensin system                         3.54           3.39            41
               7             5           R05 — Cough and cold preparations                                           3.47           3.39            38
               8             7           G04 — Urologicals                                                           2.75           2.95            26
               9             10          M01 — Anti-inflammatory and anti-rheumatic products                         2.73           2.47            48
               10            9           R03 — Anti-asthma and COPD products                                         2.63           2.62            35
               11            8           G03 — Sex hormones and products with similar desired effects, systemic 2.59                2.68            30
                                         action only
               12            15          A05 — Cholagogues and hepatic protectors                                    2.38           2.09            54
               13            11          N06 — Psychoanaleptics excluding anti-obesity preparations                  2.38           2.31            39
               14            16          J05 — Antivirals for systemic use                                           2.05           1.97            40
               15            17          C01 — Cardiac therapy                                                       1.85           1.85            34
                                         Total TOP15                                                                 51.61          49.97
                                                                                                                    Source: Pharmexpert — Drug import to Russia




              1   2nd level ATC groups (EphMRA classification).




GO_2009_ENG.indb 22                                                                                                                                           02.05.2009 8:28:53
                                                                                    23           Drug import to Russia




                      Myeloleucosis      Haemophilia           Multiple        Transplantology    Gaucher disease   Hypophyseal    Mucoviscidosis
                                                               sclerosis                                              dwarfism

                           361.0
                                             333.0


                                                                204.0


                                                                                   62.0
                                                                                                      45.0            26.0              22.0


                           L01                 B02               L03                L04                A16             H04              R05
                       Growth 52%             184%              162%               124%                92%              3%              36%




                           INN                                    INN                                  INN             INN              INN
                        imanitib                         interferon beta 1b                        imiglucerase     somatropin       dornase alfa
                      bortezomib                         glatiramer acetate
                       rituximab                          interferon beta 1a       INN
                                              INN
                      fludarabine                                              cyclosporine
                                     coagulation factor VIII
                                                                           mycophenolate mofetil
                                    eptacog alfa [activated]
                                                                                tacrolimus
                                     coagulation factor IX
                                                                            mycophenolic acid
                                         octocog alfa


                                       Total amount of drug suplies (by INN) included info the reimbursement program, mn USD


                                                                                                                    Source: Pharmexpert — Drug import to Russia
          Fig. 5. Imports of INNs listed for VZN subprogram, 2008




GO_2009_ENG.indb 23                                                                                                                                           02.05.2009 8:28:53
GO_2009_ENG.indb 24   02.05.2009 8:28:54
          IV. THE STATE HELPS THOSE
          WHO HELP THEMSELVES
          RATING OF RUSSIAN PHARMACEUTICAL
          MANUFACTURERS



                      In 2008, the pharmaceutical output in Russia is evaluated at 2.9 bn USD, up
                      by 21% from the previous year’s value (71.6 bn RUB, +18% vs. 2007).
                      The manufacturing sector was developing dynamically in Q1—308 with a
                      31% month-on-month sales growth on average vs. 2007. The further growth
                      forecasts had been optimistic until the world economic crisis broke out; its
                      effect was manifested in the manufacture slowdown to -3% by the end of
                      2008. The new conditions have not only appreciably affected the Russian
                      manufacturers, but have also made interactions between the distribution
                      chain participants more complicated. Thus the necessity of developing and
                      adopting of additional measures to support the local pharma manufacture by
                      the state has come to the fore.




GO_2009_ENG.indb 25                                                                              02.05.2009 8:28:54
                      Rating of Russian pharmaceutical manufacturers                26




              COMPILATION
              METHODS
              Ratings of Russian manufacturers are made with the account of two groups of indices, viz. financial and economic as well as strategic
              development (Table 1). Each of these groups has a specific weight affecting a manufacturer’s cumulative rank. The final rating is
              calculated as a result of consecutively summing up the relative shares of each index (as compared with the maximum index value for
              the relevant category) according to its weight.


              Table 1. Weights of indices used to calculate manufacturer ranks, %

               Group of indices                                                                                                  Weight

               Financial and economic                                                                                            50
               Production output (in value and real terms)                                                                       50
               Strategic development                                                                                             50
               Marketing (marketing research, development of marketing programs), total expenses                                 10
               Investment policy (investment structure: product range, manufacturing assets, infrastructure), total expenses     10
               GMP certificate (share of total output complying to GMP)                                                          10
               Output dynamics vs. comparable period of previous year                                                            5
               Sales dynamics (officinal drugs and API): quarter-on-quarter; vs. comparable period of previous year              5
               Product range (number of names of finished drugs and API manufactured)                                            5
               Number of medical representatives                                                                                 5



              A company’s rank is calculated as follows:

                       1. Indices for each manufacturer are ranked relative to maximum values;
                       2. Relative indices are calculated as product of ranked indices and weights;
                       3. A company’s cumulative index is calculated as a sum of relative indices;
                       4. The companies are ranked based on their cumulative indices.




              Summing up                                                                 The new manufacturing lines and facilities put in operation
                                                                                         in 2008 can be illustrated by the vaccine prefilled syringe line
              The past year was fairly successful for the Russian Pharma                 in Ufa (Immunopreparat branch of Microgen); prefilled
              development. Manufacturers had an access to privileged cred-               syringe line in Sergiev Posad district of Moscow region
              its that created prerequisites for towards their dynamic devel-            (Sotex); insulin line in Oryol (Bioton Vostok); and Grippol
              opment and strengthening of their market positions. The grow-              plus flu vaccine line (Petrovax Pharm) in Podolsk district of
              ing welfare of the population was driving the demand both                  the Moscow Region.
              costlier pharmaceuticals and non-pharmaceuticals.
              Nevertheless despite the dynamic growth of the Russian phar-               Some manufacturers enhanced their presence in the market by
              ma market as a whole, imported drugs have outdone those                    way of M&A, e.g. the infusion solution manufacturer Gematek
              local in terms of the sales and market share growth.                       was acquired by the German company B. Braun. Others opti-
                                                                                         mized their management; thus a holding company STADA CIS
              However, a number of Russian manufacturers took advantage                  was created that has embraced Nizhpharm, Makiz Pharma, and
              of the privileged crediting and have launched both new manu-               Skopinpharm.
              facturing facilities and new drugs.
                                                                                         Changes have also taken place at Otechestvennye Lekarstva
              Just a few facts to illustrate the most noteworthy local launches          that was rebranded as Valenta as well as restructured.
              of 2008: the trademarks Eralfon and Amelotex (Sotex),
              Diaskintest (Lekko), Isopask (Pharmasintez), Grifor (Microgen),            The above actions will serve to strengthen the manufacturer
              NovoFormin (Pharmacevt), and Carnicetine (Pik Pharma).                     market positions and increase their competitive advantages.




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                                                                                           27          Rating of Russian pharmaceutical manufacturers




          What has changed under                                                                   It is possible that further discussion and subsequent implemen-
                                                                                                   tation of this Strategy under the circumstances may be espe-
          the crisis                                                                               cially timely for reviving the domestic pharma industry. The
                                                                                                   imports substitution process would be lengthy as it would
          Local manufacturers have faced, among other difficulties, a                              require change of the regulatory base, fundraising for facility
          limited access to privileged credits as well as risks inherent in                        modernization as well as upgrading most drug portfolios.
          the necessity of purchasing imported APIs zunder conditions
          of the Ruble devaluation. Under the circumstances, they
          have to make certain steps in order to sell their products, on                           Development opportunities
          the one hand, as well as collect the receivables due for the
          products supplied, on the other hand. Such steps may include                             Notwithstanding all difficulties resulting from the crisis, the
          rising selling prices, cutting on delays of payment, and                                 situation should be viewed as lending itself for large-scale
          searching for new marketing and relationship formats.                                    changes and optimization of the manufacture.
          However, some of the changes implemented by the manufac-
          turers run counter to the distributor interests for whom delays                          The state demonstrated its will to support local manufacturers
          of payment and minimum prices are the main factors of man-                               by adopting the List of the Basic (System-forming) Organizations.
          aging their margins.                                                                     This document adopted by the Government Commission for
                                                                                                   Sustainable Development of the Russian Economy currently
          Local drugs account for a 22% share of the Russian pharma                                includes 295 facilities. Listing in this document does not guar-
          market in value terms. The bulk of them are manufactured                                 antee a targeted support; however, it is quite possible that the
          using imported APIs, which means a nearly complete depend-                               organizations listed will receive state guarantees of a kind as
          ence on imports. Besides, lack of competitive brands results in                          well as backing of the interest rates and restructuring tax debts.
          washing out local products being currently observed in the
          Russian pharma market.                                                                   The pharma manufacturers currently on the list include
                                                                                                   Pharmstandard, Veropharm, NPO Microgen, Moskhim-
          There is no formula for a quick and radical change of the situ-                          pharmpreparaty, Valenta, Pharm-Center, and Pharmsintez
          ation. However, now is the time when programs aimed at sup-                              (St. Petersburg).
          port and development of the local pharma manufacture could
          be most appropriate.                                                                     Notwithstanding potential state support, it is unlikely that the
                                                                                                   Russian manufacturers will be leaning on promises too much.
          The state preferences may boost the development of the local                             Therefore they have to focus on adapting to the rapidly chang-
          manufacture, in particular in the state procurement sector, and                          ing business environment.
          provide for growth of the local drug market share in the short
          term; however, such growth will not be significant. In order to                          Some companies may merge with market leaders; others, espe-
          change the situation in the sector on a large scale and in the                           cially medium-sized, may develop partnerships with local dis-
          long term, the Strategy of the Russian Pharma Industry                                   tributors that have a firm grip in specific regions, which will pro-
          Development till 2020 was devised.                                                       vide for reducing the number of links in the distribution chain.




                                                         300                                                                                                                                  60
                                                                                                                                                             269
                                                                                           257                                                   256                      262      269
                                                                               245            48                                                                255                    50
                                                         250           238                                                                                                      264
                                                                                                    234       232        227                                            232
                                                                37                                                                   220
                                                                                                                                                    214                                       40
                                                                          33                           31                       35
                                                         200 197                  190
                                                Mn USD




                                                                                                                   29
                                                                         179          29      173                                      182                                                    30
                                                                                                                                                                                                   Growth, %




                                                                                                       178                 168
                                                                                                                   180
                                                         150     143                                                                        21                                                20
                                                                                                                                                        20

                                                                                                                                                                                              10
                                                         100                                                                                                        5
                                                                                                                                                                                              0
                                                                                                                                                                                          2
                                                         50
                                                                                                                                                                               11             10

                                                          0                                                                                                                                   20
                                                                                                      May




                                                                                                                                                                                    Dec
                                                                                                                                                  Sep
                                                                                Mar




                                                                                                                                      Aug




                                                                                                                                                                         Nov
                                                                        Feb




                                                                                                               Jun
                                                               Jan




                                                                                                                                                              Oct
                                                                                            Apr




                                                                                                                          Jul




         Fig. 1. Month-on-month dynamics of                                                                 2008        2007                 Growth
         Russian manufacturers, 2008
                                                                                                                                                                        Source: Pharmexpert




GO_2009_ENG.indb 27                                                                                                                                                                                            02.05.2009 8:28:54
                      Rating of Russian pharmaceutical manufacturers                            28




                                                           Q408*                                                       79                                                       21


                                                           Q308                                                        80                                                          20


                                                           Q208                                                        78                                                      22


                                                           Q108                                                     77                                                         23


                                                                           0%                  20%                     40%                   60%             80%                             100%

                                                                                             Imports               Manufacture without exports
              Fig. 2. Dynamics of supply structure
              ratio in Russian pharma market (%;                                                                                                                              Source: Pharmexpert
              manufacturer prices), 2008




                                                      Out of pocket                                               75                                                 25




                                                           Hospital                                                80                                                         20




                                                     Reimbursement                                                            96                                                         4



                                                                           0%                  20%                 40%                  60%                 80%                         100%

                                                                                                              Imported               Local
              Fig. 3. Structure of Russian pharma
              market sectors in breakdown for                                                                                                                                 Source: Pharmexpert
              imported/local drugs, 2008




                                                                         0.9                                                                                250
                                                                               0.83
                                                                         0.8                                                          208

                                                                         0.7                                                                                200

                                                                         0.6
                                                                                               0.51                                                         150
                                                                                                                                                                  Growth, %




                                                                                      0.49
                                                                         0.5
                                                              Share, %




                                                                                                                0.45           0.44            0.43
                                                                         0.4          103
                                                                                                       89               94                                  100
                                                                         0.3                           0.33                                           77
                                                                                                                       0.28
                                                                                                                                                    0.29
                                                                         0.2                                                          0.17                  50
                                                                         0.1

                                                                         0.0                                                                                0
                                                                               Activated      Afobazolum          Zorex            Taufon      Enterosgel
                                                                               charcoal


                                                                                                  2008            2007             Growth
              Fig. 4. ТОР5 trademarks with maxi-
              mum sales growth (%), 2008/2007                                                                                                                                 Source: Pharmexpert




GO_2009_ENG.indb 28                                                                                                                                                                                 02.05.2009 8:28:54
                                                                              29         Rating of Russian pharmaceutical manufacturers




          Table 1. ТОР25 Russian pharmaceutical manufacturers by output (manufacturer prices), 2008

          Rank                      Manufacturer                              HQ location                      Share, %                   Output growth (%),
                                                                                                                                          2008/2007
          2008        2007                                                                                     2008          2007

          1           1             Pharmstandard                             Moscow region                    16.77         16.42        23
          2           3             STADA CIS                                 Moscow                           11.16         8.22         64
          3           4             Microgen                                  Moscow                           8.30          7.42         35
          4           2             Valenta                                   Moscow                           7.87          10.74        -11
          5           5             Veropharm                                 Moscow                           6.10          7.26         1
          6           6             Pharm-Center                              Moscow                           5.20          5.99         5
          7           8             Sotex                                     Moscow                           4.25          3.59         43
          8           7             Materia Medica                            Chelyabinsk region               3.85          4.20         11
          9           11            Akrikhin                                  Moscow region                    3.41          2.66         55
          10          9             Biosintez                                 Penza region                     2.97          3.34         7
          11          12            Pharm-Sintez                              Moscow                           2.70          2.25         45
          12          15            Abolmed                                   Moscow                           2.67          1.63         97
          13          10            Moskhimpharmpreparaty                     Moscow                           1.96          2.82         -16
          14          13            Altayvitaminy                             Altay territory                  1.73          2.15         -3
          15          n/a           Polysan                                   St. Petersburg                   1.60          n/a          n/a
          16          14            Dalkhimpharm                              Khabarovsk territory             1.59          1.96         -2
          17          17            Tatkhimpharmpreparaty                     Tatarstan Republic               1.48          1.45         24
          18          18            Escom                                     Stavropol territory              1.27          1.23         25
          19          31            Gedeon Richter-RUS                        Moscow region                    1.23          0.67         122
          20          16            Moscow Endocrine Plant                    Moscow                           1.05          1.49         -15
          21          20            Organica                                  Kemerovo region                  1.03          1.02         22
          22          22            Krasnogorskleksredstva                    Moscow region                    0.98          0.89         34
          23          28            Vertex                                    St. Petersburg                   0.94          0.74         53
          24          32            KRKA-RUS                                  Moscow region                    0.91          0.65         71
          25          27            Ozon                                      Samara region                    0.90          0.79         38

                                                                                   Source: Pharmexpert based on data provided by rating participants; Rosstat



          Table 2. Cumulative rating of Russian pharmaceutical manufacturers, 2008

                                                                                         Sales dynamics,           Share of products in   ISO certificate
          Rank            Manufacturer                       HQ location
                                                                                         Q1-308/Q1-307             line with GMP, %       availability
          1               Pharmstandard                      Moscow region               +                         100                    n/a
          2               STADA CIS                          Moscow                      +                         100                    yes
          3               Veropharm                          Moscow                      +                         45                     yes
          4               Sotex                              Moscow                      +                         100                    yes
          5               Valenta                            Moscow                      -                         -                      no
          6               Pharm-Sintez                       Moscow                      +                         -                      yes
          7               Vertex                             St. Petersburg              +                         100                    no
          8               Partner AO                         Moscow                      +                         100                    yes
          9               Altayvitaminy                      Biysk                       s                         -                      yes
          10              Pharmacor                          St. Petersburg              -                         83                     yes
          11              Pharmasintez                       Irkutsk                     +                         -                      no
          12              ECOlab                             Moscow region               +                         -                      yes

                                                                                             Source: Pharmexpert based on data provided by rating participants
          Legend
          + Sales increase by more than 5%
          - Sales decrease by more than 5%
          s Sales change within the range +/- 5%




GO_2009_ENG.indb 29                                                                                                                                            02.05.2009 8:28:55
                      Rating of Russian pharmaceutical manufacturers                    30




              Table 3. ТОР10 2nd level ATC groups by sales, 2008

               Rank                    ATC group    ATC group name                                                        Share, %                 Sales growth (%),
                                                                                                                                                   2008/2007
               2008      2007                                                                                             2008        2007

               1         2             J05          Antivirals for systemic use                                           7.3         6.3          42
               2         3             L03          Immunostimulating agents                                              6.1         5.9          25
               3         4             N02          Analgesics                                                            5.9         5.9          23
               4         1             J01          Systemic antibacterial                                                5.1         6.5          -5
               5         7             R05          Cough and cold preparations                                           5.0         4.2          44
               6         5             C01          Cardiac therapy                                                       4.3         4.9          7
               7         6             N06          Psychoanaleptics excluding anti-obesity preparations                  4.2         4.5          15
               8         9             N05          Psycholeptic agents                                                   3.9         3.6          31
               9         8             A11          Vitamins                                                              3.5         3.9          11
               10        10            A07          Antidiarrhoeals, oral electrolyte replacers and intestinal anti-      3.4         2.9          40
                                                    inflammatories

                                                        Source: Pharmexpert — Monitoring of retail drug sales, hospital and DLO procurement: Russia (without tenders)

              Table 4. ТОР25 highest selling trademarks, 2008

               Rank                                Trademark                                                Share, %                          Sales growth (%),
                                                                                                                                              2008/2007
               2008             2007                                                                        2008             2007

               1                1                  Arbidol                                                  5.03             4.29             42
               2                2                  Pentalgin                                                2.77             2.44             38
               3                6                  Terpincodum                                              2.04             1.60             55
               4                3                  Mexidol                                                  1.96             2.10             13
               5                5                  Anaferon                                                 1.84             1.77             26
               6                4                  Sodium chloride                                          1.56             1.95             -3
               7                7                  Viferon                                                  1.52             1.48             25
               8                8                  Complivit                                                1.33             1.41             15
               9                10                 Flucostat                                                1.10             1.06             27
               10               16                 Codelac                                                  0.97             0.76             56
               11               12                 Phenotropil                                              0.88             0.94             15
               12               13                 Cortexin                                                 0.86             0.89             17
               13               41                 Activated charcoal                                       0.83             0.49             103
               14               23                 Amixin                                                   0.81             0.64             54
               15               14                 Cycloferon                                               0.80             0.80             21
               16               22                 Corvalolum                                               0.77             0.65             43
               17               30                 Chondroxidum                                             0.75             0.58             59
               18               9                  Crataegus                                                0.71             1.27             -32
               19               20                 Essliver                                                 0.69             0.73             16
               20               28                 Derinat                                                  0.65             0.60             33
               21               25                 Naphthyzin                                               0.65             0.62             27
               22               34                 Salbutamol                                               0.64             0.54             44
               23               33                 Polyoxidony                                              0.63             0.55             39
               24               15                 Glucose                                                  0.62             0.79             -5
               25               44                 Phosphogliv                                              0.61             0.48             57

                                                        Source: Pharmexpert — Monitoring of retail drug sales, hospital and DLO procurement: Russia (without tenders)




              Conclusion: Significant changes may be expected in the indus-                   a growing number of M&As. A manufacturer’s position when
              try; therefore it is difficult to make forecasts. We may see                    the crisis is over will directly depend on its crisis management
              change of market leadership; there is also a high probability of                strategy.




GO_2009_ENG.indb 30                                                                                                                                               02.05.2009 8:28:55
          V. NEW OPPORTUNITIES
          IN UNCERTAIN TIMES
          CUMULATIVE RATING OF RUSSIAN
          PHARMACEUTICAL DISTRIBUTORS



                                                            All companies operating in a rapidly changing competitive environment
                                                            irrespective of the industry can be broken into two categories, viz. those
                                                            already affected by the crisis and those expecting to be affected. In a crisis,
                                                            it is of top importance for a company not so much to focus on its internal
                                                            processes as develop a long-term strategy taking into account external
                                                            changes. Otherwise a company stuck in its current problems may miss all
                                                            opportunities of changing its market stand.

                                                            Unlike the local pharma manufacture that diminished by 3% as of 2008 vs.
                                                            the preceding year, the distribution has remained relatively stable due to a
                                                            number of reasons: on the one hand, the 4th quarter traditionally sees mas-
                                                            sive purchases by the distributors in order to benefit from announced dis-
                                                            counts1; on the other hand, in order to keep the margin when expecting a
                                                            price rise the distributors invest in stocks of the fastest moving goods. As of
                                                            2008, gross sales of pharmaceuticals and non-pharmaceuticals by the dis-
                                                            tributors grew vs. 2007 by 25% in RUB, 29% in USD, and 20% in EUR.
                                                            Direct sales (to drugstores, including those vertically integrated as well as
                                                            clinics) also went up by 30% in RUB, 39.5% in USD, and 23% in EUR
                                                            (Fig. 1). In the quarter-on-quarter dynamics, both gross and direct sales also
                                                            showed higher growths vs. 2nd and 3rd quarters of 2008 (Fig. 2 & 3).




          1 The distributors determine both the strategic

          drug suppliers and target purchase values. The
          discounts received upon achieving the target
          purchase values are taken into account when
          evaluating the drug margin.




GO_2009_ENG.indb 31                                                                                                                       02.05.2009 8:28:55
             Cumulative rating of Russian pharmaceutical distributors                        32




              COMPILATION METHODS
              The system of drawing up a Cumulative Rating of Russian                               Part 2. Ranking companies inside
              Pharmaceutical Distributors is based on streamlining of par-
              ticipants by 9 categories. It consists of two parts.                                  F1-F3 categories
                                                                                                    Inside each category, the companies are ranked relative to an
              Part 1. Criteria for streamlining                                                     aggregate index calculated on the basis of a monthly question-
              distributors by rating categories                                                     naire filled out by participating companies. Each of quantita-
                                                                                                    tive and dynamic indices of a company’s activity has its own
                                                                                                    weight and affects the aggregate index’s value.
              A company is to be included in a rating category in accordance
              with threshold indices represented in Table 1:                                        The company’s rank is calculated in for stages:

                  Sales (in value; for F3 category it is the only threshold
                  n

                  index);                                                                           1. The company’s indices values are ranked relative to maxi-
                n Number of branches/subsidiaries (F1 and F2 categories);                           mum indices in the category.
                n Number of Federal Districts where the company’s certified                         2. The company’s relative indices are calculated by way of
                  warehouses are located (F1 and F2 categories).                                    multiplying the ranked indices by the weight values (Table 2).
              The sales dynamic index is calculated monthly according to                            3. An aggregate index is calculated as a sum of relative indices
              the sales information provided by distributors. The index char-                       for the company.
              acterizing the distributor sales dynamics in the period since the                     4. The companies are ranked inside the category according to
              year’s beginning is published once a quarter.                                         the aggregate index.

              Table 1. Threshold indices for categories F1-F3
               Index                                             F1: National distributors              F2: Interregional distributors      F3: Regional distributors
               Subcategory, category                             F1-А        F1-B            F1-C       F2-A         F2-B        F2-C       F3-A        F3-B         F3-C
               Gross sales, mln RUB, on average per month        5000        2500            1250       500          250         175        75          50           ≤50
               for period under study
               Number of affiliates / branches                   15-20                                  5                                   -
               Number of federal districts where company         6-7                                    2                                   -
               has certified warehouses
                                               Source: Pharmexpert — Categorization methods for the Cumulative rating of pharmaceutical distributors 1st of Pharmacia

              Table 2. Weights of indices used to determine monthly ranks of companies included into Cumulative Rating of Russian Pharmaceutical
              Distributors
               Index group                                                                                       Weight, % (for determining ranks inside category)
                                                                                                                 F1-F2                           F3
               Economic indices
               sales, mln RUB                                                                                    50                              65
               direct sales (in value) to drugstores and hospitals                                               10                              10
               number of branches/subsidiaries/representative offices                                            5                               1
               assortment, number of items on the price-list                                                     5                               5
               number of customers (drugstores and healthcare institutions)                                      2                               2
               Strategic development indices (including dynamic indices)
               number of Federal Districts where the company’s certified warehouses are located                  10                              -
               sales dynamics (1) (in value)                                                                     10                              10
               product range dynamics (2)                                                                        2                               2
               dynamics of the number of branches/subsidiaries/representative offices                            1                               -
               customer number dynamics (drugstores and healthcare institutions) (3)                             5                               5
               Sum (aggregate index)                                                                             100%                            100%
              1 Month-on-month comparison with previous year.
              2 Determined according to the average number of items on the price-list in the period under analysis (month) in month-on-month comparison
              with previous year.
              3 Determined according to the number of customers (drugstores including drugstore chains, healthcare and prophylactic institutions) supplied

              by the company during the month under analysis.
                                                                                                                                       Source: Pharmexpert




GO_2009_ENG.indb 32                                                                                                                                                        02.05.2009 8:28:56
                                                                                                        33                Cumulative rating of Russian pharmaceutical distributors




                                                                                                                                       39.5


                                                                         30                                           29
                                                  25
                                                                                                                                                                                                        23
                                                                                                                                                                                   20




                                                                                             2.75                                                              4.16




                                                                                             Exchange rate




                                                                                                                                                               Exchange rate
                                                                       Direct sales




                                                                                                                                         Direct sales




                                                                                                                                                                                                        Direct sales
                                                Gross sales




                                                                                                                     Gross sales




                                                                                                                                                                                   Gross sales
                                                                                             USD:RUB




                                                                                                                                                               EUR:RUB
                                                                                                                     (USD)




                                                                                                                                         (USD)
                                                (RUB)




                                                                       (RUB)




                                                                                                                                                                                   (EUR)




                                                                                                                                                                                                        (EUR)
          Fig. 1. Growth of gross and direct
          sales of pharmaceuticals and non-
          pharmaceuticals by Russian                                                                                          Growth
          distributors (RUB, USD, and EUR),
          2008/2007                                                              Source: Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia




                                               70.0

                                               60.0                          55.1         55.1

                                               50.0
                                                                                                             43.9
                                                              41.1          50.3                                                                                  41.4
                                               40.0
                                                                                                             32.9          32.8                                                                                          33
                                                               40.0                        41.5                                                                                 30.1
                                               30.0                                                                                   27.4
                                                                                                                                                   24.5
                                                                                                                                                                    31.0                                                 23.0
                                                                                                                                                                                                 19.8 18.9
                                               20.0                                                                    24.4                                                    25.0
                                                                                                                                      22.2
                                                                                                                                                         17.37                                   11.0
                                                                                                                                                                                                                  13.0
                                               10.0
                                                                Q106


                                                                               Q206


                                                                                           Q306


                                                                                                              Q406


                                                                                                                            Q107


                                                                                                                                       Q207


                                                                                                                                                        Q307


                                                                                                                                                                       Q407


                                                                                                                                                                                 Q108


                                                                                                                                                                                                 Q208


                                                                                                                                                                                                               Q308


          Fig. 2. Long-term growth of                                                                                                                                                                                     Q408
          pharmaceutical distributor gross                                                Sales growth over similar period of previous year, % (RUB)
          sales, 2006 — Q408 (quarter-on-                                                 Sales growth over similar period of previous year, % (USD)
          quarter; based on data of
          companies under monitoring)                                            Source: Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia




                                               65.0                                                          61.2
                                                                              59.1         57.7
                                               55.0           47.8
                                                                                                                             46.7                                               45.31
                                                                               54.1        44.3                                       44.2                                                       44.2         44.8
                                               45.0                                                          48.8                                       40.2                                                                     45
                                                              46.6                                                             35.4                                 35.4
                                               35.0                                                                                    32.5
                                                                                                                                                                                                 30.1          30.8
                                                                                                                                                        28.6                     27.0                                            32
                                                                                                                                                                      25.5
                                               25.0

                                               15.0
                                                                Q106


                                                                                Q206


                                                                                            Q306


                                                                                                              Q406


                                                                                                                             Q107


                                                                                                                                       Q207


                                                                                                                                                        Q307


                                                                                                                                                                       Q407


                                                                                                                                                                                 Q108


                                                                                                                                                                                                 Q208


                                                                                                                                                                                                               Q308


                                                                                                                                                                                                                          Q408




         Fig. 3. Long-term growth of
         pharmaceutical distributor direct
         sales (to drugstores as well as in-
         patient and out-patient clinics),                                             Sales growth over similar period of previous year, % (RUB)
         2006 — Q408 (quarter-on-quarter;
                                                                                       Sales growth over similar period of previous year, % (USD)
         based on data of companies under
         monitoring)
                                                                                Source: Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia




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             Cumulative rating of Russian pharmaceutical distributors             34




              Table 1. Cumulative rating of pharmaceutical distributors, 2008

               Rank                                       Distributor                        HQ location               Dynamic sales    Change of
                                                                                                                       index * vs. 2007 intercategory
               2008                       2007                                                                                          rank vs. 2007

               intercategory   inside     intercategory
                               category
               Category F1: National
               F1-A
               1               1          1               Protek CV**                        Moscow                    +25              ~
               2               2          2               SIA International Ltd              Moscow                    +6               ~
               F1-B
               3               1          3               Katren NPK                         Novosibirsk region        +55              ~
               4               2          4               Rosta                              Moscow                    +41              ~
               F1-C
               5               1          6               Alliance Healthcare (Apteka Holding) Moscow                  +63              ~
               6               2          5               Biotec Group                       Moscow                    -20              ~
               Category F2: Interregional
               F2-A
               7               1          10              R-Pharm                            Moscow                    +125             ↑+1
               8               2          9               Moron                              Moscow                    +1               ↑+2
               9               3          8               Genesis                            St. Petersburg            +28              ↓-1
               10              4          11              Interleasing Group                 Moscow                    +63              ~
               11              5          7               Shreya Corporation**               Moscow                    -11              *
               12              6          15              Health-M                           Moscow                    +18              ↑+2
               13              7          13              BSS                                St. Petersburg            +17              ↑+3
               14              8          19              Puls                               Moscow region             +40              ↓-2
               F2-B
               15              1          16              Euroservice                        Moscow                    +30              ↑+2
               16              2          17              Akonit                             St. Petersburg            +27              ↑+3
               17              3          23              Pharmimex Group                    Moscow                    +20              ↓-1
               18              4          18              Intermedservice                    Moscow                    +26              ↑+2
               19              5          29              Baltimor FAK                       Moscow                    +97              ↑+3
               20              6          22              Pharmstore                         Moscow                    +20              ↑+1
               21              7          -               Megard Group                       Moscow                    +32              ↑+3
               22              8          28              Pharmacevt                         Rostov region             +67              ↑+3
               23              9          14              AS Bureau                          Ekaterinburg              -20              ~
               F2-С
               24              1          27              Profit Med                         Moscow                    +50              ↑+2
               25              2          -               Godovalov                          Perm                      #                ↑+2
               26              3          26              Nadezhda Pharm                     Moscow                    +33              ↑+2
               27              4          30              Parma Medical                      Moscow                    +9               ↑+4
               28              5          28              Avikon Med                         Moscow                    +17              ↑+2
               29              6          35              Severo-Zapad                       St. Petersburg            -7               ↑+3
               Category F3: Regional
               F3-A
               30              1          34              Imperia Pharma**                   St. Petersburg            ↑↓               ↑+3
               31              2          36              Volgopharm +                       Volgograd region          +37              ↑+3
               32              3          37              Pharmcomplect                      Nizhniy Novgorod region   +61              ↑+3
               33              4          38              Agroresursy                        Novosibirsk region        +42              ↑+3
               34              5          39              Pharmacia +                        Tyumen region             +20              ↑+3
               35              6          44              Medexport                          Omsk region               +34              ↑+5




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                                                                                 35       Cumulative rating of Russian pharmaceutical distributors




          Table 1. Cont' d

          Rank                                            Distributor                         HQ location                  Dynamic sales    Change of
                                                                                                                           index * vs. 2007 intercategory
          2008                          2007
                                                                                                                                            rank vs. 2007
          intercategory      inside     intercategory
                             category
          36                 7          40                Lipetskpharmacia +                  Lipetsk region               +7               ↑+2
          37                 8          42                Pharmacia                           Izhevsk                      +18              ↑+2
          38                 9          46                Pharmacia +                         Ekaterinburg                 +25              ↑+4
          39                 10         48                Geopharm                            Moscow                       +9               ↑+8
          40                 11         41                Solvex-Olbi                         Moscow                       +1               ↑+6
          41                 12         -                 Bolear                              Moscow                       -17              ↑+5
          42                 13         43                Pharmex                             Omsk region                  #                ↓-1
          43                 14         49                Pharm-SKD**                         Samara                       +22              ↑+2
          44                 15         50                Pharmproekt-M                       Moscow                       #                ↓-1
          45                 16         45                Rospharmacia**                      Moscow                       +10              ↓-1
          F3-B
          46                 1          51                Vostok Pharm                        Rostov region                +17              ↑+9
          47                 2          47                Medservice Region                   Chelyabinsk region           +15              ↑+3
          48                 3          57                Medical Leasing Consulting          Moscow                       +47              ↑+3
          49                 4          33                Binnopharm**                        Moscow                       ↑↓               ↑+2
          50                 5          56                Bryanskpharmacia**                  Bryansk                      ↑↓               ↑+3
          F3-C
          51                 1          54                Cortes Travel                       Moscow                       -1               ↑+5
          52                 2          53                Donskoy hospital                    Rostov-on-Don                +9               ↑+5

          * Dynamic index is calculated based on data provided by distributor, RUB, incl. VAT.
          ** Expert evaluation of the company.
          “ Expert evaluation of growth
          Legend
          # Companies participating in the rating since 2008; no data for previous periods
          + Companies oriented towards supplying their own drugstore chain
          ↑+1Company has moved 1 position up in its category vs. preceding rating
          ↓-1 Company has moved 1 position down in its category vs. preceding rating
          ~ Company’s rank has not changed
          * Company has moved to a higher subcategory
          ↑↓ Sales change within +/- 1%
                                                                           Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia


          Table 2. TOP25 distributors by gross sales, 2008

          Rank                                    Distributor                                                          Relative gross sales*

          2008                   2007

          1                      2                Protek                                                               1
          2                      1                SIA International                                                    0.992
          3                      3                Katren                                                               0.572
          4                      4                Rosta                                                                0.483
          5                      5                Alliance Healthcare                                                  0.249
          6                      9                R-Pharm                                                              0.246
          7                      7                Genesis                                                              0.185
          8                      8                Moron                                                                0.179
          9                      6                Biotec                                                               0.172
          10                     11               Interleasing                                                         0.122
          11                     10               Shreya Corporation                                                   0.089
          12                     12               Health-M                                                             0.085
          13                     17               Puls                                                                 0.076




GO_2009_ENG.indb 35                                                                                                                                         02.05.2009 8:28:57
             Cumulative rating of Russian pharmaceutical distributors                        36




              Table 2. Cont' d

               Rank                                    Distributor                                                                 Relative gross sales*
               2008                 2007
               14                   15                 BSS                                                                         0.074
               15                   18                 Euroservice                                                                 0.070
               16                   19                 Intermedservice                                                             0.060
               17                   21                 Akonit                                                                      0.056
               18                   23                 Pharmimex                                                                   0.056
               19                   24                 Pharmstore                                                                  0.049
               20                   33                 Baltimor                                                                    0.046
               21                   25                 Volgopharm                                                                  0.045
               22                   -                  Megard                                                                      0.045
               23                   26                 Pharmacevt                                                                  0.045
               24                   27                 Pharmcomplect                                                               0.037
               25                   33                 Profit Med                                                                  0.035
              *Relative to sales leader.
                                                                                        Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia

              Table 3. TOP 25 importing distributors, 2008

               Rank                                                  Importing distributor                              Imports share*, %         Imports growth (USD),
                                                                                                                                                  %, 2008/2007
                importers                  importing distributors
               2008          2007          2008         2007                                                            2008         2007

               1            2              1            2            Protek CV ZAO                                      7.90         10.18        6
               2            1              2            1            SIA International Ltd ZAO                          7.63         11.95        -14
               5            7              3            4            Rosta ZAO                                          3.36         2.85         59
               8            5              4            3            Katren NPK ZAO                                     3.20         3.18         35
               10           9              5            5            R-Pharm ZAO                                        2.78         2.58         45
               16           10             6            6            Apteka Holding ZAO                                 2.15         2.26         28
               24           19             7            8            Biotec TOO                                         1.29         1.54         12
               30           12             8            7            Genesis ZAO                                        0.90         2.19         -44
               31           22             9            9            Moron OOO                                          0.88         1.29         -8
               40           40             10           13           National Distribution Company ZAO                  0.53         0.53         36
               41           29             11           11           Euroservice ZAO                                    0.53         0.81         -12
               45           45             12           15           Puls OOO                                           0.47         0.48         32
               47           27             13           10           Shreya Corporation АО                              0.36         0.87         -44
               48           47             14           16           Health-M OOO                                       0.35         0.45         4
               49           48             15           17           Intermedservice ZAO                                0.33         0.42         6
               50           53             16           20           Irvin-2 OOO                                        0.33         0.31         43
               51           49             17           18           Pharmstore OOO                                     0.33         0.42         6
               52           31             18           12           Dominanta Service ZAO                              0.32         0.70         -38
               56           50             19           19           Avesta Pharmaceutica OOO                           0.26         0.33         6
               63           79             20           27           Medipal-Onco OOO                                   0.21         0.14         98
               65           63             21           22           Baltic Security Service OOO                        0.20         0.22         21
               76           71             23           24           Baltimor FAK ZAO                                   0.19         0.21         17
               75           97             22           28           Pharmacevt OOO                                     0.16         0.08         167
               77           155            24           41           Akonit MFF                                         0.15         0.02         871
               86           141            25           37           Pharmstore Group ZAO                               0.12         0.03         421
               Total TOP10                                                                                              30.62        38.55         -**
               Total TOP25                                                                                              34.93        44.04         -**

              * Total imports were adjusted for the value of overestimated sales (customs regimes 40 and 42 only were taken into account; commodities
              imported to Russia via customs warehouses under regimes not for own customers (71, 96, 93, 94, 63) were not considered); ); overestimation
              was due to taking into account the drugs imported for the Customs warehousing regime.
              ** Growth value cannot be calculated because the TOP15 company list has changed, which rules out comparison for similar periods.
                                                                                                               Source: Pharmexpert — Drug import to Russia




GO_2009_ENG.indb 36                                                                                                                                               02.05.2009 8:28:57
                                                                                      37         Cumulative rating of Russian pharmaceutical distributors




          The distributors depend on imports to a high degree, which is                     In breakdown for “Rx / OTC / Parapharmaceuticals / Medical
          another sales growth factor. At the same time, they have cut on                   devices” the share of non-pharmaceuticals has a trend to
          their participation in the state programs; some of them have                      decline, however insignificantly, which is indicative of changes
          also appreciably cut on direct drug imports having switched to                    in the consumer behavior (Fig. 4).
          purchases via representative offices of foreign companies or via
          large distributors that are more stable. Shortly, we may expect
          growth of secondary distribution as well as more M&A deals                        The changes in the consumer behavior are also supported by
          between national/interregional and regional wholesalers.                          the price segmentation (Fig. 5) that shows a shift of demand
                                                                                            towards cheaper drugs.
          The current ratings support the significant changes that took
          place in the pharma market in 2008. Notwithstanding the fact
          that the effect of the crisis on Pharma was insignificant as of the               The ratio of local and imported drugs has changed insignifi-
          year end, that year was less successful for some of the distribu-                 cantly (Fig. 6), with those imported still dominating in the
          tors that those preceding.                                                        distributor product range.




                                                        National distributors                           52                             34                   10        4




                                                    Interregional distributors                          55                                  35                   6    4




                                                        Regional distributors                    39                           38                    12           11




                                                                                 0%           20%              40%          60%             80%             100%

                                                                             Rx            OTC          Parapharmaceuticals           Medical devices
          Fig. 4. Distributor sales structure (in
          value) in breakdown for categories,
          2008 (based on data of companies                                       Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of Pharmacia
          under monitoring), %




                                                          8.06               7.93                7.84                7.97           8.28                 8.02
                                                         10.67              10.90              10.90              12.82            13.11              13.39
                                                         11.59             11.97               12.44              13.65            14.15              13.71
                                                         16.39             17.22               17.01
                                                                                                                  21.62            21.24                 20.78

                                                         29.20             28.01               28.44
                                                                                                                  25.86            25.75                 26.52


                                                         24.09             24.11               23.37              18.08            17.47                 17.58


                                                         H107             Q1 307               2007                  H108          Q1 308                2008
                                                     Less than 3 USD      3 7 USD          7 12 USD          12 20 USD      20 40 USD             More than 40 USD
          Fig. 5. Price segmentation of
          Russian out-of-pocket pharma                               Source: Pharmexpert — Drugs, nutrients & cosmeceuticals/Monitoring of retail sales: Russia
          market (retail prices), 2007—2008




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             Cumulative rating of Russian pharmaceutical distributors                     38




               Table 4. Crisis manifestations and distributor responses

                          Crisis manifestations                               Distributor responses

               1          Change of consumer preferences (at drugstores,        n   Product range diversification
                          the demand has been shifting towards cheaper          n   Discarding/freeze on purchasing slow-moving and low-efficiency products
                          analogues of original drugs)                          n   Reviewing the drug ratio within clusters (provided the strategic price positioning
                                                                                    is retained)
               2          Shortage of loaned money to support the               n   Optimization of financial instruments use
                          distributor’s current efficiency                      n   Cutting on the value and period of customer credits
                                                                                n   Active efforts on collecting receivables

               3          Rising currency exchange rates resulting in           n   Rising selling prices
                          growth of drug costs for importing distributors       n   Temporary refusal of unprofitable products
                                                                                n   Leaning on products less dependent on exchange rate fluctuations
                                                                                n   Managing prices and delays of payment when purchasing imported drugs
               4          Pending accounts receivable from retailers            n   Systematizing receivables collection efforts
                                                                                n   Negotiating payment schedule with main debtors
                                                                                n   Implementing an accounts receivable control system
               5          Decline of sales through reimbursement                n   Boosting interactions with non-network retailers and other distribution
                          program and retail networks as a result of all            channels
                          above reasons; potential growth of secondary
                          distribution share
               6          Decrease of the company’s core business               n   Integrated analysis of the company’s current situation, viz. finance and
                          profitability as a whole                                  operations, cost/effect, and market position
                                                                                n   Revising the existing strategy taking into account external changes
                                                                                n   Developing an anti-crisis program including functional subprograms such as
                                                                                    increasing management efficiency; implementing an integrated cost
                                                                                    management system; managing financial indicators and liquidity; restructuring
                                                                                    and optimizing business processes

                          Source: A. Proshinin, Ways out for distributor companies operating in FMCG markets (http://www.megarost.ru/profile/34959/article/2483.html);
                                                                                                                                             A. Gnuskina, Pharmexpert




                      Local; 30.0




                                                                                                The difficulties involved in the corporate management some-
                                                                                                times result in the acquisition of regional players or mergers
                                                                                                that provide for consolidation of business and strengthening
                                                                                                their positions in the markets where the local player was the
                                                                                                strongest. To illustrate, the national distributor Protek has
                                                                                                acquired the local company AS Bureau; it is quite possible that
                                                                                                the latter’s warehouses will serve to strengthen Protek’s grip in
                                                                   Imported; 70.0               the market.


               Pharmexpert — Cumulative rating of pharmaceutical distributors 1st of            Conclusion: Modeling a future picture based on a flexible solu-
                                                                       Pharmacia
                                                                                                tion of current problems may open new prospects for many dis-
              Fig. 6. Distributor sales structure in breakdown for imported/                    tributors. The attributes that are currently best demanded are
              local products (in value), 2008 (based on data of companies                       flexibility and timeliness as well as the ability to make forecasts
              under monitoring), %                                                              and manage difficult situations.




GO_2009_ENG.indb 38                                                                                                                                               02.05.2009 8:28:57
          VI. PHARMA RETAILERS:
          DEVELOPMENT PAUSED
          RATING OF RUSSIAN DRUGSTORE CHAINS




                      In the pharma market, retailers were in the first ranks of those affected by the
                      world financial crisis. They were also first to face its economic effect, i.e.
                      change of consumer preferences. The year passed was not very productive
                      for pharma retailers as a whole, although there have been no failures either.
                      Many market players had to take a timeout; the active growth we witnessed
                      1—2 years ago, has become nil. Companies have become seriously con-
                      cerned about retaining their assets and maintaining their profitability. Many
                      of drugstore chain owners face a loss of their business as a real thing.




GO_2009_ENG.indb 39                                                                                  02.05.2009 8:28:58
                                       Rating of Russian drugstore chains           40




              COMPILATION METHODS
              1. A company is categorized proceeding from its sales in value terms as well as its territorial coverage (Table 1).

              Table 1. Basic threshold indices
               Index                                                        А1: National      А2: Interregional   А3: Regional
               Subcategory                                                  А1                А2                  А3-A           А3-B   А3-C        А3-D
               Average sales value per quarter, mn RUB                      2000              500                 300            100    50          <50
               Number of Federal districts where drugstore chain operates 6                   3                   -
               (as of end of reporting period)
                                                                                                                                            Source: Pharmexpert

              2. The rating takes into account two groups of indices, viz. financial & economic as well as those of strategic development. Each of
              these groups has a specific weight when calculating the drugstore’s cumulative rank (Table 2).

              Table 2. Weights of indices used to calculate drugstore chain’s rank, %
               Group of indices                                             А1: National      А2: Interregional   А3: Regional
               Subcategory                                                  А1                А2                  А3-A           А3-B   А3-C        А3-D
               Financial and economic                                       50                50                  55             60     60          60
               Sales (value)                                                45                45                  50             55     55          55
               Specific turnover (per 1 outlet)                             5                 5                   5              5      5           5
               Strategic development                                        50                50                  45             40     40          40
               Number of federal subjects where drugstore chain operates    10                10                  -              -      -           -
               Regional coverage (number of regions where drugstore         10                10                  10             -      -           -
               chain operates)
               Number of outlets                                            10                10                  15             20     20          20
               Sales growth                                                 10                10                  10             10     10          10
               Number of purchases (receipts)                               5                 5                   5              5      5           5
               Floor area                                                   5                 5                   5              5      5           5
                                                                                                                                            Source: Pharmexpert

              The company’s rank is calculated according to the following procedure:

                  1.   The company’s indices are ranked relative to maximum values.
                  2.   The company’s relative indices are calculated as ranked indices multiplied by the weights (Tables 1 and 2).
                  3.   A cumulative index is calculated as a sum of the company’s relative indices.
                  4.   The companies are ranked in accordance with their cumulative indices.




              Living through the “pause”                                                   to solve a variety of tasks ranging from regulating their relation-
                                                                                           ships with suppliers to total cuts on expenses. Closing unprofit-
              Any crisis is the time of change; although it may turn out to be             able points of sales may serve to illustrate the cost cutting
              fatal for some players, the economy gets recovered at the same               approach. By the way, the number of drugstores being closed
              time. The pause that pharma retailers have been keeping on                   has been growing at a frightening rate of late, which indirectly
              may prove to be a test for strength beyond a joke. Today’s lead-             testifies to the superfluous infrastructure of specific compa-
              ers are likely to yield to not so big companies. Brand new play-             nies.
              ers may enter the market, including foreign companies whose
              active interference has already been expected a few years ago.               Thus what appeared to be still waters in Russia’s pharma retail
                                                                                           has turned out to be the situation nearing the boiling point. On
              Many companies are also likely to change their owners. This                  the one hand, efforts are being made in order to save busi-
              process has already begun in other sectors of the Russian market,            nesses; on the other hand, those interested are seeking to
              i.e. among the cell phone retailers. The latter has also seen a few          acquire depreciated assets. Both manufacturers and distribu-
              bankruptcies; pharma retailers have stood out of this loop so far.           tors are in need of civilized pharma retailers as neither of the
                                                                                           first two groups of players is able to sell pharmaceuticals
              At the same time, drugstore chains are engaged in “intensive                 directly to end customers; however, each of them primarily
              therapy”, which means that their management teams will have                  watches over their own interests.




GO_2009_ENG.indb 40                                                                                                                                        02.05.2009 8:28:58
                                                                              41           Rating of Russian drugstore chains




          On the threshold of                                                       Both current leaders and large regional companies may become
                                                                                    consolidation centers. The main task of drugstore chain own-
          consolidation era                                                         ers is to keep their companies afloat.


          The active growth of large pharma retailers just 1—2 years ago            Bids made; no more bids
          delighted both market players and analysts. However, it was
          clear already then that the acquisition process will not be lim-          Making business is often compared with playing games, and mar-
          ited to regional players and that the leading pharma retailers            ket participants are called players. There are a lot of things alike
          will soon become the acquisition targets themselves. As we                between a game and business, i.e. there are rules; players make
          have mentioned before, the crisis has restrained consolidation            their bids, think of behavior strategies etc. At the same time, in
          as large companies have virtually stopped acquiring regional              business, he has maximum chances of winning who can anticipate
          assets. At first, it was due to the market price regulation mech-         behavior of other players and take advantage of the situation.
          anism as prices for regional drugstore chains started going up
          as a result of the growing demand. Then large retailers have run          As any game for money, business means taking risks. Looking
          out of the money altogether because of problems associated                back, it is sometimes difficult to unambiguously assess behav-
          with getting loans.                                                       ior of specific companies. However, to a certain extent it was
                                                                                    the ability to take risks that brought them to their current rank
          The companies that have until recently been the pharma                    and gives them confidence in the future. The above however
          industry consolidation centers now have to put their assets               does not apply to businesses built as pyramids.
          in order as soon as possible. In the meantime, the regional
          players that are in a fairly good economic state have focused             Drugstores have fathered the multibillion dollar pharma market.
          on organic growth as competition with large federal chains                There is no doubt that pharma retailers will be necessary in
          in specific regions is virtually nonexistent. Large regional              future. In 2008, drugstores sold 11.6 bn USD worth pharmaceu-
          companies are already ahead of those federal in terms of the              ticals; the average retail markup for drugs exceeded 29%. We will
          development rate. Provided they do not make the same mis-                 not discuss the rest of the product range at this point. As long as
          takes as their larger counterparts did and also provided they             there are large profits in the market the number of those willing
          harmonize their growth and profit rates, then we may see                  to “bite on this pie” will keep growing. Many companies are
          new crystallization centers in a foreseeable future.                      currently keeping on pause. Nonetheless, the show goes on.



                                                                                As of 2008, the category of the National drugstore chains includes
                                                                                Apteki 36.6 (1127 drugstores) and Rigla (580 drugstores)

                                                  700
                                                              589
                                                  600
                                                  500                            463
                                                                                                     413                366
                                                  400
                                                                                                                                            322
                                                  300
                                                  200
                                                  100
                                                    0
                                                            Implozia*      Doctor Stoletov       Pharmacor*            Biotec               Vita
         Fig. 1. TOP5 largest interregional
         drugstore chains, 2008                      * Including franchising drugstores.
                                                                                                                                       Source: Pharmexpert



                                                  600
                                                               536
                                                  500

                                                  400
                                                                                 325
                                                  300
                                                                                                     200                186
                                                  200                                                                                       180

                                                  100

                                                     0
                                                         Mosoblpharmacia      Gubernskie       Kurganpharmacia      Pharmaimpex          Pharmland
          Fig. 2. TOP5 largest regional                                         apteki
          drugstore chains, 2008
                                                                                                                                       Source: Pharmexpert




GO_2009_ENG.indb 41                                                                                                                                          02.05.2009 8:28:58
                                         Rating of Russian drugstore chains                           42




                                                          40.0                                                        37.5
                                                                                                36.7
                                                          35.0
                                                                      28.4
                                                          30.0
                                                                                                                                              22.8
                                                          25.0
                                                          20.0                                                                                                         17.4

                                                          15.0
                                                          10.0                                                                                                                                  6.5
                                                           5.0
                                                           0.0




                                                                                                                                                                                                 Regional A3 D
                                                                                                                                                                        Regional A3 C
                                                                                                                                                Regional A3 B
                                                                                                                      Regional A3 A
                                                                                                Interregional
              Fig. 3. Comparison of total turnover                     National
              growth in various categories of
              drugstore chains (%), 2008/2007                                                                                                                                            Source: Pharmexpert




                                                               National                        36                                                               64



                                                          Interregional                   27                                                            73



                                                              Regional                  25                                                         75


              Fig. 4. Drugstore chain sales
                                                                          0%        10%         20%             30%   40%             50%     60%               70%   80%               90%   100%
              structure in breakdown by
              pharmaceuticals/
              nonpharmaceuticals (%; calculated                                                Nonpharmaceuticals                           Pharmaceuticals
              by sales in value terms), 2008
                                                                                                                                                                                         Source: Pharmexpert




              Table 1. Cumulative rating of national and interregional drugstore chains (for rating participants)

               Rank             Drugstore chain                                   HQ location                                           Number of outlets                Cumulative score

               National drugstore chains: А1
               1                Apteki 36.6*                                      Moscow                                                1 127                            0.99
               2                Rigla (including O3)*                             Moscow                                                580                              0.69
               Interregional drugstore chains: А2
               1                Pharmacor**                                       St. Petersburg                                        413                              0.90
               2                Implozia**                                        Samara                                                589                              0.84
               3                Doctor Stoletov*                                  Moscow                                                463                              0.74
               4                Pervaya pomoshch                                  St. Petersburg                                        164                              0.53
               5                Zdorovye lyudi*                                   St. Petersburg                                        227                              0.53
               6                Vita                                              Samara                                                321                              0.50
               7                Biotec                                            Moscow                                                366                              0.41
              * Member of Russian Association of Pharmacy Chains (RAAS).
              ** Including franchising drugstores.
                                                                                                                                                                                          Source: Pharmexpert




GO_2009_ENG.indb 42                                                                                                                                                                                              02.05.2009 8:28:59
                                                                                        43   Rating of Russian drugstore chains




          Table 2. Cumulative rating of regional drugstore chains, 2008 (for rating participants)

          Rank              Drugstore Chain                            HQ location                     Number of outlets   Cumulative score

          Regional drugstore chains: А3-А
          1                 Mosoblpharmacia                            Moscow region                   536                 0.71
          2                 Staryj lekar**                             Moscow                          152                 0.48
          3                 Gubernskie apteki                          Krasnoyarsk                     325                 0.36
          4                 Melodiya zdorovya                          Novosibirsk                     130                 0.34
          5                 Pharmland                                  Ufa                             180                 0.33
          6                 Pharmaimpex                                Izhevsk                         186                 0.32
          7                 Apteka Nevis* and **                       St. Petersburg                  141                 0.28
          8                 Samson Pharma                              Moscow                          9                   0.28
          9                 A5 Drugstore Chain                         Moscow                          162                 0.26
          10                Rodnik Zdorovya                            St. Petersburg                  59                  0.22
          11                Lipetskpharmacia                           Lipetsk                         139                 0.22
          12                Hexal Drugstore Chain                      Moscow                          36                  0.18
          13                Pharmacia                                  Tyumen                          150                 0.17
          Regional drugstore chains: А3-В
          1                 Kurganpharmacia                            Kurgan                          200                 0.75
          2                 Khabarovsk Pharmacia                       Khabarovsk                      70                  0.74
          3                 Kazanskie apteki**                         Kazan                           44                  0.67
          4                 Apteka IFK                                 Moscow                          15                  0.57
          5                 Avicenna*                                  Irkutsk                         25                  0.56
          6                 Pharmacia                                  Ekaterinburg                    78                  0.55
          7                 Lara                                       Ulan-Ude                        20                  0.54
          8                 Nizhniy Novgorod Drugstore                 Nizhniy Novgorod                70                  0.52
                            Chain*
          9                 Zhivika                                    Ekaterinburg                    55                  0.51
          10                Vitapharm                                  Samara region                   65                  0.49
          11                Zdorovyj gorod                             Voronezh                        25                  0.48
          12                Zdorovye                                   Krasnodar territory             21                  0.46
          13                Moya apteka**                              Novosibirsk region              41                  0.44
          14                Apteka rayona                              Nizhniy Novgorod                35                  0.36
          15                Zdrava                                     Omsk                            26                  0.20
          Regional drugstore chains: А3-С
          1                 Apteki Lekrus                              Moscow                          28                  0.76
          2                 DOMpharma                                  Kolomna                         18                  0.69
          3                 Bryanskpharmacia                           Bryansk                         94                  0.68
          4                 BioMed                                     Samara                          48                  0.63
          5                 Bonum                                      Saratov                         39                  0.62
          6                 Novaya bolnitsa                            Ekaterinburg                    31                  0.58
          7                 Evalar                                     Biysk                           14                  0.49
          8                 Gorodskaya apteka                          Stavropol                       12                  0.46
          9                 Pharmadom                                  St. Petersburg                  26                  0.43
          10                EniseiMed                                  Krasnoyarsk                     17                  0.41
          Regional drugstore chains А3-D
          1                 ASPEC — Parma Medical                      Izhevsk                         13                  0.83
          2                 Panacea                                    Kostroma                        24                  0.70

          * Member of Russian Association of Pharmacy Chains (RAAS).
          ** Including franchising drugstores.
                                                                                                                                   Source: Pharmexpert




GO_2009_ENG.indb 43                                                                                                                                  02.05.2009 8:28:59
                                         Rating of Russian drugstore chains            44




              Table 3. ТОР25 drugstore chains by sales (value), 2008

               Rank by       Drugstore chain                          HQ location             Relative index*
               total sales
                                                                                              sales

                                                                                              total             pharmaceuticals      nonpharmaceuticals
               1             Apteki 36.6                              Moscow                  1.000             1.000                1.000
               2             Rigla (including O3)                     Moscow                  0.486             0.443                0.568
               3             Pharmacor**                              St. Petersburg          0.350             0.401                0.250
               4             Implozia**                               Samara                  0.299             0.351                0.198
               5             Mosoblpharmacia                          Moscow region           0.266             0.341                0.123
               6             Doctor Stoletov                          Moscow                  0.244             0.255                0.225
               7             Vita                                     Samara                  0.207             0.215                0.190
               8             Pervaya pomoshch                         St. Petersburg          0.197             0.240                0.115
               9             Staryj lekar**                           Moscow                  0.194             0.210                0.163
               10            Biotec                                   Moscow                  0.172             0.181                0.156
               11            Zdorovye lyudi                           St. Petersburg          0.151             0.161                0.133
               12            Gubernskie apteki                        Krasnoyarsk             0.114             0.124                0.095
               13            Pharmland                                Ufa                     0.112             0.130                0.076
               14            Samson Pharma                            Moscow                  0.109             0.145                0.041
               15            Pharmaimpex                              Izhevsk                 0.095             0.120                0.049
               16            Apteka Nevis**                           St. Petersburg          0.092             0.098                0.081
               17            Rodnik Zdorovya                          St. Petersburg          0.081             0.092                0.059
               18            Lipetskpharmacia                         Lipetsk                 0.074             0.108                0.009
               19            A5 Drugstore Chain                       Moscow                  0.072             0.063                0.088
               20            Hexal Drugstore Chain                    Moscow                  0.071             0.084                0.046
               21            Pharmacia                                Tyumen                  0.056             0.066                0.038
               22            Khabarovsk Pharmacia                     Khabarovsk              0.052             0.042                0.073
               23            Kazanskie apteki**                       Kazan                   0.049             0.052                0.043
               24            Kurganpharmacia                          Kurgan                  0.047             0.059                0.025
               25            Melodiya zdorovya                        Novosibirsk             0.045             0.041                0.052
              * Relative to leader’s sales.
              ** Including franchising drugstores.

                                                                                                                                     Source: Pharmexpert
              Table 4. Share of TOP25 Russian drugstore chains in out-of-pocket pharma market, 2008

               Rank by pharmaceutical sales Drugstore chain                                 HQ location                    Market share, %

               1                               Apteki 36.6                                  Moscow                         4.97
               2                               Rigla (including O3)                         Moscow                         2.20
               3                               Pharmacor*                                   St. Petersburg                 1.99
               4                               Implozia*                                    Samara                         1.74
               5                               Mosoblpharmacia                              Moscow region                  1.69
               6                               Raduga**                                     St. Petersburg                 1.42
               7                               Doctor Stoletov                              Moscow                         1.26
               8                               Pervaya pomoshch                             St. Petersburg                 1.19
               9                               Vita                                         Samara                         1.07
               10                              Staryj lekar*                                Moscow                         1.04
               11                              Stolichnye Apteki**                          Moscow                         0.94
               12                              Biotec                                       Moscow                         0.90
               13                              Zdorovye lyudi                               St. Petersburg                 0.80
               14                              Samson Pharma                                Moscow                         0.72
               15                              Pharmland                                    Ufa                            0.65
               16                              Gubernskie apteki                            Krasnoyarsk                    0.62
               17                              Pharmaimpex                                  Izhevsk                        0.59
               18                              Lipetskpharmacia                             Lipetsk                        0.54
               *Including franchising drugstores.
               ** Expert evaluation




GO_2009_ENG.indb 44                                                                                                                                 02.05.2009 8:28:59
                                                                                  45      Rating of Russian drugstore chains




          Table 4. Cont' d

           Rank by pharmaceutical sales Drugstore chain                                 HQ location                        Market share, %
           19                              Apteka Nevis*                                St. Petersburg                     0.49
           20                              Rodnik Zdorovya                              St. Petersburg                     0.46
           21                              Hexal Drugstore Chain                        Moscow                             0.42
           22                              Pharmacia                                    Tyumen                             0.33
           23                              A5 Drugstore Chain                           Moscow                             0.31
           24                              Kurganpharmacia                              Kurgan                             0.29
           25                              Kazanskie apteki                             Kazan                              0.26
          *Including franchising drugstores.
          ** Expert evaluation.
                                                                                                                                     Source: Pharmexpert


          Forecast: It is especially difficult to forecast a future development        businesses will go to new owners; retailers are likely to get in a
          of the pharma industry against the background of economic                    closer focus of large distributors and investment funds. In the
          instability; nonetheless, we can foresee that pharma is likely to go         long term, a higher level of interest to pharma retailers can be
          through a number of quality changes, including change of man-                expected from specialized investors including those foreign.
          agement teams, rebranding and restyling, experimenting with
          price policies and trading formats. On a global scale, a number of           Bids have been made; we will see the winners soon.


         PROFILE. Pharmaceutical company PULSE: Together we make
         medications affordable
         Business scope: whole and retail sales of pharmaceuticals

         Structure:
            • Subsidiaries: St. Petersburg, Orenburg, Ryazan, Yaroslavl
            • Representative offices: Tula, Bryansk, Kaluga, Vladimir, Ufa, Kostroma, Petrozavodsk, Ivanovo, Lipetsk
            • Wholesale department
            • Tender and hospital procurement departments
            • Retail sales department; subdivisions: Moscow & Moscow region
            • Drugstore chain Apteka Forte (Moscow & Moscow region)
            • Authorized warehouses in 20 largest cities providing for supplies to 60 Russia’s regions

         Geographic coverage: Russian Federation

         Pricelist: 4000 entries

         Turnover, 2008: 300 mn USD

         Years in the market: 12

         Warehousing floor area: 15 000 sq. m

         What makes suppliers choose PULSE:
           • Broad network of PULSE authorized warehouses in all Russia’s regions is instrumental for a uniform saturation of distribution
               chains and favorable price comparison at a local level, which ultimately provides for the population access to high quality and
               affordable drugs.
           • Rapid development of PULSE departments is conducive to a continuous growth of this company’s share in sales of products
               by leading local and foreign manufacturers.
           • PULSE is distinguished due to its careful attitude to partners. We are interested in growth of our partners’ businesses; therefore
               we are always ready to assist in various activities aimed at drug promotion in Russia.

         Why PULSE is known for its high standards of services for DRUGSTORES:

                •   Accurate and timely delivery of drugs ordered including “same day” and “overnight” delivery.
                •   Flexible pricing; reliable price quotes; fixed prices for agreed periods of time; credit notes and flexible delays of payment.
                •   Well-trained sales personnel provides for quick order processing, fast and accurate collection of drugs ordered as well as a
                    broad timeframe for placing orders.
                •   Ongoing sales actions, both jointly with clients and independent.




GO_2009_ENG.indb 45                                                                                                                                     02.05.2009 8:28:59
          VII. BACK TO THE FUTURE
          RUSSIAN OUT-OF-POCKET
          PHARMA MARKET




                       The year passed will be remembered for drastic changes that occurred in the
                       market environment that had been developing dynamically but that, at the
                       same time, seemed to be lending itself for long-term planning and well
                       under control. Integration in the world economy has not allowed Russia to
                       stay out of the loop of the world financial crisis that, among other things,
                       affected the out-of-pocket pharma market; however, as of 2008, the impact
                       of the crisis has been graded by the data for the first three quarters of the year
                       that saw ascending market trends.




GO_2009_ENG.indb 47                                                                                     02.05.2009 8:28:59
                                 Russian out-of-pocket pharma market                                                        48




              The pharma market development trends in 2008 as a whole                                                                 market growth dynamics in euros and rubles: the sales
              were quite optimistic: the market value reached 8.97 bn USD                                                             growth slowed down (Fig. 3). Since October 2008, the sales
              at wholesale prices (+28% vs. 2007); in packs, there was a 1%                                                           have been characterized by a descending trend in USD as
              growth (Fig. 1). However, the drug sales data as of Q408 testify                                                        well, with only a 13% sales growth rate as of Q408. In a way,
              to market trend corrections by the end of the year (Fig. 3                                                              it was connected with the growing USD:EUR exchange
              and 4).                                                                                                                 rate.

              Before 2008, the out-of-pocket pharma market had been                                                                   Q408 saw a deep plunge of the Consumer confidence index
              developing dynamically: the average growth rate (USD) was                                                               (CCI) in Russia at -20%. Nonetheless, the Russians are
              24% in 2006 and 34% in 2007 (Fig. 2), an ascending trend                                                                more optimistic about their financial status than citizens of
              being well-manifest. At the same time, the market volume                                                                leading European countries. To compare: according to
              was stagnating in packs, a maximum growth not exceeding                                                                 Business and Сonsumer Survey Results, EUROPEAN, CCI as
              6%.                                                                                                                     of 2008 was -26.8% vs. -4.1% in 2007 in Great Britain, -29.3
                                                                                                                                      and -11.1% respectively in France, and -25.9 vs. -21.5%. in
              The growth slowed down in H108, but the market value                                                                    Italy.
              (USD) continued growing at 39, 35, and 31% respectively in
              the 1st, 2nd, and 3rd quarters. In March 2008, the EUR:RUB                                                              The out-out-pocket market volume (in packs) slightly
              exchange rate increased, which affected the out-of-pocket                                                               decreased in Q308 and Q408: by 5 and 3% respectively.




                                                                                                                                                                           34
                                                                                                                                                                                               9.0

                                                                                                                                                                                                     28
                                                                                                                                                         24               7.0
                                                                                                                                  23
                                                                              Sales, bn USD/packs




                                                                                                            17




                                                                                                                                                                                                                Growth, %
                                                                                                                                                    5.2
                                                                                                                            4.2                                                     3.8                   3.8
                                                                                                     3.4        3.4                    3.6                     3.6
                                                                                                                                                                                6
                                                                                                                                  6                                                                  1
                                                                                                                                                          1

                                                                                                            8




                                                                                                                       Market value, USD                             Market volume, packs
                                                                                                                       Sales growth, USD                             Sales growth, packs
              Fig. 1. Dynamics of Russian out-of-
              pocket pharma market (USD,
              packs), 2004—2008                                                                                                               Source: Pharmexpert — Monitoring of retail drug sales in Russia




                                                                                      40


                                                                                      30
                                                                                                                                                                                                 Market growth, USD
                                                      Consumer confidence index




                                                                                      20


                                                                                      10
                                                                                                                                                                                                 Market growth, packs
                                                      Market growth, %




                                                                                               0
                                                                                                                                                                                                 Consumer
                                                                                           10                                                                                                    confidence index


                                                                                           20
                                                                                                    1q

                                                                                                           2q

                                                                                                                      3q

                                                                                                                           4q

                                                                                                                                  1q

                                                                                                                                             2q

                                                                                                                                                    3q

                                                                                                                                                              4q

                                                                                                                                                                     1q

                                                                                                                                                                           2q

                                                                                                                                                                                    3q

                                                                                                                                                                                          4q




              Fig. 2. Growth of Russian out-of-                                                            2006                              2007                           2008
              pocket pharma market (USD,
              packs) and consumer confidence
              indices, 2006—2008                             Source: Pharmexpert — Monitoring of retail drug sales in Russia; Federal State Statistics Service (Rosstat)




GO_2009_ENG.indb 48                                                                                                                                                                                                         02.05.2009 8:28:59
                                                                                                                                                         49        Russian out-of-pocket pharma market




         In the month-on-month breakdown, the market development                                                                                                price per pack of a local drug was going up at a higher rate
         dynamics in 2008 showed a traditional sales growth in spring                                                                                           than that of an imported drug (30 and 19% respectively).
         and autumn—winter periods and a decline in January and in                                                                                              Change of consumer preferences has become obvious. In
         summer (Fig. 4 and 5). But in H208, the market sank except for                                                                                         the crisis, each family has its own list of vital drugs. Some
         December characterized by booming purchases against the                                                                                                consumers have switched from purchasing high- and medi-
         background of inflation (Fig. 3).                                                                                                                      um-price original drugs, primarily imported, to cheaper
                                                                                                                                                                generics including those produced locally (Fig. 7). However,
         The quarter-on-quarter sales structure shows that the drug                                                                                             no skyrocketing sales of local products have been observed
         sales shares in Q308 and Q408 are smaller than those for the                                                                                           so far.
         comparable periods of 2007.
                                                                                                                                                                In 2008, the share of local drugs in the out-of-pocket market
         As of 2008, the average price growth rate in the out-of-pocket                                                                                         remained virtually unchanged as compared to 2007 (24.4 vs.
         market was 28%, largely due to the ruble devaluation. However,                                                                                         24.5%; Fig. 8). The Russian pharma market still depends on
         drug prices were growing at a slower rate in 2008 than in 2007                                                                                         imports, the TOP5 drug manufacturing countries boasting a
         (+34%) notwithstanding the relative stability of the currency                                                                                          58% imports share.
         market in the latter year.
                                                                                                                                                                Pharmstandard leads the TOP10 corporations rating with the
         OTC drug prices were growing faster than those for Rx phar-                                                                                            highest sales growth rate among TOP10, which makes it virtu-
         maceuticals; however, an average price per pack in the OTC                                                                                             ally unreachable to other players in the out-of-pocket market
         segment is lower vs. Rx (Fig. 6). Paradoxically, an average                                                                                            in the short term.


                                                                                                                       50                                                                                                                                     100
                                                                                    Sales growth (in value terms), %




                                                                                                                       40                                                                                                                                     80




                                                                                                                                                                                                                                                                    Exchange rates
                                                                                                                       30                                                                                                                                     60



                                                                                                                       20                                                                                                                                     40



                                                                                                                       10                                                                                                                                     20



                                                                                                                       0                                                                                                                                      0
                                                                                                                                  Jan


                                                                                                                                          Feb


                                                                                                                                                   Mar


                                                                                                                                                          Apr


                                                                                                                                                                   May


                                                                                                                                                                           Jun


                                                                                                                                                                                        Jul


                                                                                                                                                                                                    Aug


                                                                                                                                                                                                                   Sep


                                                                                                                                                                                                                               Oct


                                                                                                                                                                                                                                            Nov


                                                                                                                                                                                                                                                        Dec




          Fig. 3. Drug sales growth in Russian                                                                                                  USD:RUB         EUR:RUB                       Sales growth (USD)
          out-of-pocket pharma market and                                                                                                       Sales growth (EUR)                            Sales growth (RUB)
          currency exchange rate dynamics,
          2008                                                                                                          Source: Pharmexpert — Monitoring of retail drug sales in Russia; Central Bank of Russian Federation



             400                                                     1q                                                                                                                                                                     Sales by quarter
                                                                                                                                                                   900                                                    1q               (mn USD), % total
                                                        2008
                         4q                                                                                                                                                                                         2008                     sales per year
                                                                    26                                     Sales by quarter                                                     4q
                                26                      2007                                              (mn packs), % total
                                                                                                            sales per year                                                                                          2007
                                     27                             25                                                                                                                 27
             350                                                                                                                                                                                                                            25                     2007
                                                                                                                                                                                              30                                     23
                                                                                                                                                                                                                                                                   2008
                                                                                                                                        2007
                                                                                                                                                                   600
                                                                                                                                        2008
             300
                   Sales,                                           24
                                       24                                                                                                                                                                                        23
                   mn packs                                                                                            2q                                                Sales,                   24                                                2q
                                                                         25
                                     23                                                                                                                                  mn USD                                                        24
                                                                                                                                                                                             24
                               3q                                                                                                                                                      3q
             250
                                                                                                                                                                   300
                   Jan
                         Feb
                               Mar
                                     Apr
                                            May
                                                  Jun
                                                        Jul
                                                              Aug
                                                                     Sep
                                                                              Oct
                                                                                                        Nov
                                                                                                                            Dec




                                                                                                                                                                          Jan
                                                                                                                                                                                 Feb
                                                                                                                                                                                       Mar
                                                                                                                                                                                              Apr
                                                                                                                                                                                                       May
                                                                                                                                                                                                             Jun
                                                                                                                                                                                                                    Jul
                                                                                                                                                                                                                           Aug
                                                                                                                                                                                                                                     Sep
                                                                                                                                                                                                                                           Oct
                                                                                                                                                                                                                                                  Nov
                                                                                                                                                                                                                                                        Dec




                   Source: Pharmexpert — Monitoring of retail drug sales in Russia                                                                                       Source: Pharmexpert — Monitoring of retail drug sales in Russia
         Fig. 4. Dynamics of Russian out-of-pocket pharma market                                                                                                Fig. 5. Dynamics of Russian out-of-pocket pharma market value,
         volume (packs), 2007—2008                                                                                                                              2007—2008




GO_2009_ENG.indb 49                                                                                                                                                                                                                                                                  02.05.2009 8:29:00
                                  Russian out-of-pocket pharma market          50




                                                  6
                                                                  Rx
                                                  5                                 4.4                        4.7                   4.3
                                                          4.2
                                                                                                                                                2008
                                                                                           3.6                   3.6
                                                  4
                                                                                                                                                2007
                                                                                                                                      4.0
                                                         3.3
                                                  3
                                                                  OTC

                                                                                                               1.7                    1.7
                                                  2      1.5                        1.5
                                                                                                                                                2008
                                                                                                                                                2007
                                                  1       1.2                                                                             1.4
                                                                                          1.1                   1.2

                                                  0

                                                                1q                   2q                         3q                    4q




                                                  6              Imported
                                                                                                               5.2
                                                                                    5.0                                               4.9
                                                  5      4.7
                                                                                                                                                2008

                                                                                                                                                2007
                                                  4                                                                                    4.5
                                                                                          4.3                        4.2
                                                          3.8
                                                  3

                                                                Local
                                                  2
                                                                                    0.9                                              1.0
                                                         0.9                                                   0.9
                                                                                                                                                2008
                                                  1
                                                         0.7                                                                                    2007
                                                                                          0.7                        0.7              0.8
                                                  0
              Fig. 6. Average price per pack in                 1q                   2q                         3q                    4q
              Russian out-of-pocket pharma
              market, 2007—2008                                                                  Source: Pharmexpert — Monitoring of retail drug sales in Russia




                                                        13.2            14.5                            13.5           15.0        16.0            13.6
                                                                                >20 USD
                                                        15.7            17.0                            15.8                                       17.1
                                                                                                                       18.8        19.4
                                                                                10—20 USD

                                                        23.3
                                                                        28.9                            29.3                                       29.3
                                                                                                                       27.4        28.1
                                                                                5—10 USD



                                                        37.5                    1—5 USD
                                                                        31.4                            33.0           30.4                        32.2
                                                                                                                                   28.9

                                                                                <1 USD
                                                        10. 3           8.2                              8.4               8.4      7,6                7.8

              Fig. 7. Price segmentation of             2007            2008                            Q108           Q208        Q308            Q408
              Russian out-of-pocket pharma
              market (USD), 2007—2008                                                            Source: Pharmexpert — Monitoring of retail drug sales in Russia




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                                                                                51       Russian out-of-pocket pharma market




                                                                                                                               1 Russia
                                                                          5.2
                                                                    7.2                                                        2 France
                                                                                                                               3 Germany
                                                             10.4                                     2.6                      4 Hungary
                                                                                                    3.6                        5 India
                                                                                                                  21.6         6 Italy
                                                           10.8                                     4.4                        7 Slovenia
                                                                                                     4.6                       8 Switzerland
                                                                                                            5.2                9 Netherlands
                                                                                                                               10 Great Britain
                                                                  24.4
                                                                                                                               Other
          Fig. 8. ТОР10 drug manufacturing
          countries (% in USD) in Russian
          out-of-pocket pharma market,
                                                                                            Source: Pharmexpert — Monitoring of retail drug sales in Russia
          2008

          The only change in this rating (Table 1) is between ranks                      soared phenomenally 22 positions upwards with a 110%
          8 and 9: Bayer Healthcare pushed Servier one position down.                    sales growth in 2008.
          Bayer Healthcare rank was calculated without Sagmel trade-
          marks (the latter having been acquired by the former); their
          total market share is 3.78%.                                                   Conclusion: Not all of the Russian drugstores are likely to sur-
                                                                                         vive in 2009. In order to go through the crisis, a drugstore needs
                                                                                         flexibility, quick adaptability to slightest market environment
          Arbidol dominates the out-of-pocket market. Mezym forte has                    changes as well as ability to cut expenses. For success, many of
          left the TOP10 trademark rating (Table 2). Oscillococcinum                     them will rely on their strong belief in their social importance.

          Table 1. TOP10 corporations by sales (wholesale prices) in Russian out-of-pocket pharma market, 2008

           Rank                  Corporation                                                         Market share, %           Sales growth (%), 2008/2007

           2008       2007                                                                           2008          2007

           1          1          Pharmstandard                                                       5.15          4.58        44
           2          2          Sanofi-Aventis                                                      3.64          3.84        21
           3          3          Berlin-Chemie/Menarini                                              3.46          3.38        31
           4          4          Novartis                                                            3.25          3.03        37
           5          5          Sandoz                                                              3.21          2.97        39
           6          6          Gedeon Richter                                                      3.05          2.94        33
           7          7          Nycomed                                                             3.01          2.85        35
           8          9          Bayer Healthcare (without Sagmel)                                   2.87          2.61        41
           9          8          Servier                                                             2.87          2.79        32
           10         10         STADA CIS                                                           2.28          2.29        28
                                                                                     РейтингSource: Pharmexpert — Monitoring of retail drug sales in Russia

          Table 2. TOP10 trademarks by sales (wholesale prices) in Russian out-of-pocket pharma market, 2008

           Rank                  Trademark                                                           Market share, %           Sales growth (%), 2008/2007

           2008       2007                                                                           2008          2007

           1          1          Arbidol                                                             1.40          1.26        43
           2          2          Viagra                                                              0.84          0.93        16
           3          3          Actovegin                                                           0.83          0.92        15
           4          4          Essentiale                                                          0.82          0.73        44
           5          6          Linex                                                               0.80          0.69        49
           6          8          Pentalgin                                                           0.75          0.66        46
           7          7          Theraflu                                                            0.74          0.69        37
           8          5          Vitrum                                                              0.70          0.73        23
           9          31         Oscillococcinum                                                     0.62          0.38        110
           10         9          Xenical                                                             0.60          0.62        25
                                                                                             Source: Pharmexpert — Monitoring of retail drug sales in Russia




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GO_2009_ENG.indb 52   02.05.2009 8:29:01
          VIII. HOSPITAL
          PROCUREMENT
          SET FOR INNOVATION
          RUSSIAN HOSPITAL DRUG SECTOR



                      The year 2008 witnessed positive changes in the structure of the Russian
                      hospital drug procument market. As a result of the total healthcare spending
                      growth as well as funding specific programs, procument of new generation
                      drugs that are costlier but more efficacious has been going up.

                      An average price per pack in the hospital sector grew by 36% in 2008 to reach
                      4.1 USD. The costliest drugs are diagnostic and antineoplastic agents as well
                      as therapies for blood and blood forming organs disorders (Fig. 1).




GO_2009_ENG.indb 53                                                                               02.05.2009 8:29:02
                                            Russian hospital drug sector                   54




                                                                                                                                                           36.82
                                                              60                                                                  60

                                                                         56                                                                                 52
                                                                                                     49


                                                      36
                                                             34,09                                             34

                                                                                           25
                                                                                                                                                                          19                      22

                                                                                                10.35                                                                                    17
                                                                                                                         8                                                         9
                                                                                  8                                                                                                           4.1
                                                                                                                                              6.27
                                                                                                                    5.64         0.5                                 4.03 3.46
                                                                                                          3.61
                                                                     2.39 1.65 2.62                                          1.82 1.67                 1                               2.11 2.23
                                                      2.44


                                                       J      L      N        K        A         B         C        M         R          D         H        T         G        V        S     P
              Fig. 1. Average price per pack /
              price growth in different ATC                Price, USD                 Average price for hospital market, USD                                    Price growth (%), 2008/2007
              groups, Russian hospital drug
              market, 2008/2007                                                                 Source: Pharmexpert — Monitoring of hospital drug procurement in Russia




              A   —   Alimentary tract and metabolism
              B   —   Blood and blood forming organs                                                                               2008
              C   —   Cardiovascular system                                                                                               6
              D   —   Dermatologicals                                                                                                                  9
              G   —   Genito-urinary system and sex hormones                                                        25
                                                                                                                                   2007
              H   —   Systemic hormonal preparations (excluding sex hor-                                                             3 7                                       More than 1000 USD
                      mones)                                                                                                 30               10                               500—1000 USD
                                                                                                                                                                15             100—500 USD
              J —     General anti-infectives systemic
                                                                                                                                               12                              50—100 USD
              K —     Hospital solutions                                                                                                                                       10—50 USD
              L —     Antineoplastic and immunomodulating agents                                           8                 10                                                5—10 USD
              M—      Musculo-skeletal system                                                                                            28                                    Less than 5 USD
                                                                                                                                                           10
              N—      Central nervous system
              P —     Parasitology
                                                                                                                                  27
              R —     Respiratory system
              S —     Sensory organs
              T —     Diagnostic agents
              V —     Various                                                                                                          Source: Pharmexpert — Monitoring of hospital drug
                                                                                                                                                                procurement in Russia
                                                                                                     Fig. 2. Price segmentation of Russian hospital drug market (%),
              The price segmentation of the market testifies to a shift towards                      2007—2008
              procurement of drugs at 100 USD and more per pack: thus,
              drugs in the price range 100—500 USD accounted for a 15%
              hospital market share in 2008, up by 5% from the previous
              year’s value; those at 500—1000 USD per pack won a 9% MS,
              and those over 1000 USD boasted a 6% MS, which in all cov-
              ered 30% of the hospital procurement market (Fig. 2).                                  General anti-infectives
              Antineoplastic agents account for approx. 70% of the price                             Group J has been the hospital market leader for years; however
              segment more than 1000 USD per pack, 54% of them being                                 there is a trend to diminishing its MS: since 2006, it has lost 5%
              target drugs and 16% other drugs; 12% are therapies for blood                          in the total hospital procurement value (Table 1).
              and blood forming organs (8% antithrombotics and 4% hemo-
              statics); about 8% are immunosuppressive agents, 4% are                                In 2008, the biggest cuts on procurement vs. 2007 are observed
              immunomodulating agents, and 3% are antivirals including                               in cephalosporins (-2.4% in the total hospital procurement
              HIV infection therapies.                                                               value), carbapenems (-0.8%), and penicillins (-0.6%). Up
                                                                                                     went purchases of HIV infection therapies, intravenous immu-
              The rating of the 1st level ATC groups in value terms is pre-                          noglobulins (+0.3% MS for each group), combination vac-
              sented in Table 1.                                                                     cines (+0.2%) as well as fluoroquinolones etc.




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                                                                                            55         Russian hospital drug sector




          Table 1. Rating of the 1st level ATC groups, Russian hospital drug market (USD, %), 2002—2008

          Rank                 ATC group/share (USD)

                               2002                 2003                     2004            2005                2006                2007                2008

          1                    J (28.83)            J (25.96)                J (27.65)       J (27.67)           J (29.86)           J (27.88)           J (24.29)
          2                    A (16.5)             A (16.83)                A (12.95)       L (14.33)           L (13.26)           L (14.25)           L (18.06)
          3                    N (11.49)            N (12.36)                N (11.74)       N (12.09)           N (11.66)           N (12.09)           N (11.77)
          4                    K (9.48)             K (8.42)                 K (9.12)        A (9.94)            A (9.79)            K (9.77)            K (9.57)
          5                    C (8.57)             C (8.16)                 L (8.47)        K (7.36)            K (8.15)            A (8.32)            A (7.97)
          6                    B (5.70)             L (7.63)                 C (7.89)        C (7.01)            C (7.94)            C (7.17)            B (7.67)
          7                    L (3.83)             B (5.35)                 B (5.88)        B (5.40)            B (5.29)            B (6.28)            C (7.22)
          8                    D (3.09)             R (3.06)                 H (3.45)        M (3.18)            M (2.92)            M (3.39)            M (2.73)
          9                    M (2.65)             M (2.84)                 R (2.97)        R (2.99)            R (2.68)            H (2.38)            R (2.70)
          10                   R (2.65)             D (2.63)                 M (2.86)        D (2.76)            H (2.17)            R (2.29)            D (2.23)
          11                   H (2.63)             H (2.47)                 D (2.78)        H (2.29)            T (1.99)            D (2.21)            H (1.98)
          12                   T (1.29)             V (1.53)                 T (1.49)        T (2.09)            D (1.97)            T (1.87)            T (1.88)
          13                   V (1.22)             G (1.12)                 V (1.19)        G (1.28)            V (0.89)            G (0.85)            G (0.77)
          14                   G (1.21)             T (1.03)                 G (0.91)        V (0.98)            G (0.87)            V (0.75)            V (0.75)
          15                   S (0.76)             S (0.51)                 S (0.53)        S (0.49)            S (0.42)            S (0.45)            S (0.37)
          16                   P (0.10)             P (0.10)                 P (0.12)        P (0.14)            P (0.14)            P (0.05)            P (0.04)

                                                                                                 Source: Pharmexpert — Monitoring of hospital drug procurement in Russia




                                                                                                  toring period (Table 1); as of 2008, the group’s share amounted
                                                                                                  to 18%.

                                                                                                  There was a growth on procurement of antineoplastic agents
                                                               29.9                               for the treatment of most widespread types of cancer. A decrease
                 28.8               27.7                                                          of share was observed for immunomodulating agents (from 2.1
                                                                                     27.5         to 1.9%) and antineoplastic antibiotics (from 1.3 to 1.1%).
                                             27.7                     27.9
                           26.0
                                                                                    24.3


            2002        2003      2004      2005       2006           2007       2008
                                                                                                                                    14.3                             18.1
                      Average hospital procurement share (%), 2002—2008                                                                                    14.3
                                                                                                                                                 13.3
                      Total hospital procurement share, %                                                                                                             11.4
                      Trend                                                                                    7.6           8.5

                                                                                                    3.8
                                  Source: Pharmexpert — Monitoring of hospital drug
                                                           procurement in Russia                    2002     2003       2004       2005     2006        2007      2008
          Fig. 3. Group J share dynamics in hospital procurement, 2002—
          2008                                                                                              Average hospital procurement share (%), 2002—2008
                                                                                                            Total hospital procurement share, %
                                                                                                            Trend



          Antineoplastic agents                                                                                         Source: Pharmexpert — Monitoring of hospital drug
                                                                                                                                                 procurement in Russia
          A growth of Group L share in the total hospital procurement                              Fig. 4. Group L share dynamics in hospital procurement, 2002—
          value has been manifest since the very beginning of the moni-                            2008




GO_2009_ENG.indb 55                                                                                                                                                          02.05.2009 8:29:02
                                                   Russian hospital drug sector              56




              Theparies for central nervous                                                       Therapies for alimentary tract
              system                                                                              and metabolism
              Group N has been ranking third for the entire monitoring                            Group A has been losing its hospital market share year-on-
              period at a 12% share. In 2008, the growth champions were                           year. In 2008, there were appreciable cuts on procurement of
              antipsychotics (procurement share grew from 2.5 to 3.2%);                           spasmolytic drugs (from 1.6 to 1.0%), antiemetic agents (from
              the share of general anaesthetics diminished from 2.8 to                            1.0 to 0.8%) as well as antidiarrheal medications. Diabetes
              1.9%.                                                                               mellitus drug purchases grew from 1.1 to 1.4%; purchases of
                                                                                                  mineral-based medications, especially potassium preparations,
                                                                                                  went up.


                        12.4
                                                   12.1
                                                                        12.1
                                                                                                                16.8
                                                                                                   16.5
                                                                                   11.9
                                           11.7                                                                            13.0
                                                              11.7                11.8
                11.5
                                                                                                                                                                  11.8

                                                                                                                                     9.9       9.8
                2002         2003      2004       2005    2006       2007      2008                                                                     8.3     8.0


                            Average hospital procurement share (%), 2002—2008
                                                                                                    2002    2003        2004      2005     2006      2007     2008
                            Total hospital procurement share, %
                            Trend                                                                          Average hospital procurement share (%), 2002—2008
                                                                                                           Total hospital procurement share, %
                                      Source: Pharmexpert — Monitoring of hospital drug                    Trend
                                                               procurement in Russia
                                                                                                                       Source: Pharmexpert — Monitoring of hospital drug
              Fig. 5. Group N share dynamics in hospital procurement,                                                                           procurement in Russia
              2002—2008
                                                                                                  Fig. 7. Group A share dynamics in hospital procurement, 2002—
                                                                                                  2008

                                                                                                  Sanofi-Aventis leads the corporation rating in the hospital mar-
                                                                                                  ket as the year before (Table 3). In 2008, this company’s hospi-
              Hospital solutions                                                                  tal drugs accounted for 29% of the total procurement of anti-
                                                                                                  thrombotics, 27% vaccines, 18% antineoplastic agents, and
              Group К ranks fourth with slight share fluctuations during the                      17% insulins. Sanofi-Aventis five trademarks are present in the
              entire monitoring period. As of 2008, the group’s MS reached                        brand rating (Table 4), viz. antineoplastic agents Taxotere,
              9.6%, with heahily procured standard solutions such as sodi-                        Eloxatin, and Campto, antithrombotic agent Clexane, and anti-
              um chloride, intravenous electrolyte solutions, and fat emul-                       biotic drug Tavanic. The company’s hospital market share grew
              sions.                                                                              by 13% vs. 2007 to reach nearly 8% as a result of enhanced
                                                                                                  procurement of antineoplastic agents, vaccines, antithrombot-
                                                                                                  ics as well as fluoroquinolones.

                                                                                                  AstraZeneca that accounts for 79% of cytostatic hormone
                                                                                                  therapy agents and 41% of anaesthetics procured in the hos-
                      9.5                                                   9.6                   pital market diminished its market share in 2008 as a result
                                          9.1
                                                                                                  of cuts on purchasing general anaesthetics and carbapenems;
                                                                                   8.8            however it still ranks second in the corporation rating.
                            8.4                               8.2
                                                                                                  The trademark rating comprises two of its products, i.e.
                                                                                                  antibiotic drug Meronem and local anaesthetic agent
                                                   7.4                                            Naropin.

                2002         2003      2004       2005    2006       2007      2008      .        Roche made its way from the 5th to 3rd position. It provided for
                                                                                                  58% of target drugs procured by Russian hospitals in 2008.
                            Average hospital procurement share (%), 2002—2008
                            Total hospital procurement share, %                                   Abolmed is the leader among the local manufacturers in terms
                            Trend                                                                 of its hospital market share; cephalosporins account for 98% of
                                                                                                  the company’s products purchased by hospitals, which is 22%
                                      Source: Pharmexpert — Monitoring of hospital drug           of the total cephalosporin procurement.
                                                               procurement in Russia
              Fig. 6. Group K share dynamics in hospital procurement,                             Pharm-Center, another local participant of the ТОР25 corpo-
              2002—2008                                                                           rations rating, diminished its share almost twofold vs. 2007 that




GO_2009_ENG.indb 56                                                                                                                                               02.05.2009 8:29:03
                                                                              57         Russian hospital drug sector




          resulted in the loss of 11 ranks. The bulk of its drugs purchased        Novo Nordisk posted the highest growth rate among the ТОР25
          for hospital needs are systemic antibiotics and hospital solu-           corporations, which promoted it from the 41st rank in 2007 to
          tions.                                                                   23rd in 2008. Its MS growth in the period under coverage is by
                                                                                   85% due to the enhanced procurement of insulins, blood
          The third local participant of the ТОР25 rating, NPO Microgen,           coagulation factors, and growth hormones (in 2008, its share in
          provides for 33% vaccines, 20% serums, and 24% plasma sub-               the procurement of the above groups was 62, 26, and 99%
          stitute solutions of their respective total procurement.                 respectively).



          Table 2. Top 3rd level ATC groups (by procurement share) in Russian hospital drug market, 2008

          АТС-1       АТС-3                                               In total hospital procurement             In 1st level ATC value

                                                                          Share (USD),%         Share growth (%),   Share (USD),%            Share growth (%),
                                                                                                2008/2007                                    2008/2007
                                                                          2008       2007                           2008       2007

          J           J01D — Cephalosporins                               8.40       10.78      -22                 34.58      38.66         -11
                      J01P — Carbapenems                                  3.20       3.97       -19                 13.19      14.22         -7
                      J01G — Fluoroquinolones                             2.03       1.97       3                   8.36       7.07          18
          L           L01X — All other antineoplastics                    6.32       3.69       71                  34.98      25.91         35
                      L01C — Vinca alkaloids and other plant products     4.27       3.50       22                  23.63      24.57         -4
                      L01B — Antimetabolites                              2.10       1.89       11                  11.63      13.27         -12
          N           N05A — Antipsychotics                               3.18       2.54       25                  26.99      21.01         28
                      N01A — Anaesthetics, general                        1.86       2.75       -32                 15.79      22.77         -31
                      N01B — Anaesthetics, local                          1.27       1.31       -3                  10.81      10.80         0
          K           K01B — Standard solutions                           3.10       2.99       4                   32.44      30.62         6
                      K02A — Dextrans                                     2.03       2.06       -1                  21.25      21.05         1
                      K03B — Protein solutions                            0.98       1.10       -11                 10.20      11.23         -9
          A           A05B — Hepatic protectors, lipotropics              1.22       0.99       24                  15.30      11.85         29
                      A10C — Human insulins and analogues                 1.09       0.90       21                  13.64      10.77         27
                      A02B — Antiulcerants                                0.98       0.98       0                   12.29      11.81         4
          B           B01B — Heparins                                     2.13       2.34       -9                  27.79      37.29         -25
                      B02D — Blood coagulation                            1.53       0.32       386                 19.98      5.02          298
                      B01D — Fibrinolytics                                1.00       0.64       56                  13.10      10.27         28
          C           C04A — Cerebral and peripheral vasotherapeutics     2.10       1.96       7                   29.00      27.39         6
                      C09A — ACE inhibitors, plain                        0.71       0.70       1                   9.81       9.79          0
                      C06A — Other cardiovascular products                0.61       0.55       11                  8.43       7.68          10
          M           M01A — Anti-rheumatics, non-steroidal               1.23       1.45       -15                 44.97      42.93         5
                      M03A — Muscle relaxants, peripherally acting        0.70       1.16       -40                 25.48      34.16         -25
                      M05B — Bone calcium regulators                      0.41       0.43       -5                  15.06      12.80         18
          R           R06A — Systemic antihistamines                      0.67       0.82       -18                 24.76      35.72         -31
                      R07C — Lung surfactants                             0.50       0.25       104                 18.60      10.75         73
                      R03D — Corticoids                                   0.34       0.13       169                 12.70      5.57          128
          D           D08A — Antiseptics and disinfectants                1.81       1.63       11                  81.43      73.58         11
                      D03A — Wound healing agents                         0.13       0.11       12                  5.62       5.06          11
                      D06A — Topical antibiotics and/or sulphonamides     0.10       0.09       3                   4.35       4.24          3
          H           H02A — Systemic corticosteroids, plain              0.90       1.23       -27                 45.21      51.73         -13
                      H01C — Hypotalamic hormones                         0.83       1.04       -21                 41.67      43.88         -5
                      H04C — Growth hormones                              0.10       -          -                   4.91       -             -
          T           T01A — Low osmolar angio-urography                  1.12       1.02       10                  59.53      54.67         9
                      T01B — Ionic angio-urography                        0.40       0.63       -36                 21.38      33.56         -36
                      T01E — MRI agents                                   0.23       0.17       33                  12.01      9.10          32
          G           G02A — Labour inducers                              0.24       0.22       7                   30.91      26.27         18
                      G03G — Gonadotrophins, including other ovulation    0.14       0.18       -24                 17.92      21.44         -16
                             stimulants
                      G04A — Urinary anti-infectives and antiseptics      0.10       0.10       -1                  12.75      11.73         9




GO_2009_ENG.indb 57                                                                                                                                              02.05.2009 8:29:03
                                               Russian hospital drug sector      58




              Table 2. Cont' d

               АТС-1   АТС-3                                                  In total hospital procurement             In 1st level ATC value
                                                                              Share (USD),%         Share growth (%),   Share (USD),%            Share growth (%),
                                                                                                    2008/2007                                    2008/2007
                                                                              2008       2007                           2008         2007
               V       V07A — All other non-therapeutic products              0.18       0.16       11                  24.20        21.70       12
                       V03E — Antidotes                                       0.17       0.14       16                  22.25        19.24       16
                       V03D — Detoxifying agents for antineoplastic           0.15       0.17       -12                 20.08        22.90       -12
                              treatment
               S       S01A — Ophthalmological anti-infectives                0.07       0.08       -5                  20.53        17.48       17
                       S01E — Miotics and antiglaucoma preparations           0.06       0.07       -13                 16.80        15.64       7
                       S01F — Mydriatics and cycloplegics                     0.04       0.04       15                  12.23        8.66        41
               P       P03A — Ectoparasiticides, including scabicides         0.02       0.03       -20                 57.81        53.07       9

                                                                                      Source: Pharmexpert — Monitoring of hospital drug procurement in Russia


              Table 3. ТОР25 corporations by drug procurement share, Russian hospital market, 2008

               Rank              Corporation                                    Hospital procurement share (USD), %            Share growth (%), 2008/2007

               2008     2007                                                    2008                     2007

               1        1        Sanofi-Aventis                                 7.73                     6.84                  13
               2        2        AstraZeneca                                    5.25                     5.73                  -8
               3        5        Roche                                          4.51                     3.43                  32
               4        3        Sandoz                                         3.14                     3.97                  -21
               5        6        Gedeon Richter                                 2.79                     3.32                  -16
               6        13       Teva Pharmaceutical Industries Ltd             2.69                     1.76                  53
               7        11       Bayer Healthcare                               2.66                     2.06                  29
               8        9        Nycomed                                        2.62                     2.52                  4
               9        7        GSK                                            2.55                     3.11                  -18
               10       15       Novartis                                       2.23                     1.70                  31
               11       8        Pfizer                                         2.19                     2.65                  -17
               12       10       Abolmed                                        2.04                     2.45                  -17
               13       22       Boehringer Ingelheim                           2.03                     1.24                  63
               14       12       BMS                                            1.90                     1.80                  5
               15       4        Pharm-Center                                   1.79                     3.54                  -49
               16       17       Eli Lilly                                      1.75                     1.64                  6
               17       32       Baxter                                         1.67                     0.95                  75
               18       30       Janssen-Cilag                                  1.58                     1.06                  48
               19       16       Microgen NPO                                   1.51                     1.67                  -9
               20       26       Biotec                                         1.51                     1.22                  24
               21       18       Berlin-Chemie/Menarini                         1.37                     1.47                  -7
               22       21       Pliva                                          1.33                     1.25                  6
               23       41       Novo Nordisk                                   1.30                     0.70                  85
               24       14       Merck Sharp & Dohme                            1.28                     1.73                  -26
               25       31       Fresenius AG                                   1.27                     1.06                  20

                                                                                      Source: Pharmexpert — Monitoring of hospital drug procurement in Russia




GO_2009_ENG.indb 58                                                                                                                                            02.05.2009 8:29:04
                                                                           59         Russian hospital drug sector




          Table 4. ТОР25 trademarks by procurement share, Russian hospital market, 2008

          Rank                  Trademark                                  Hospital procurement share (USD), %        Share growth, 2008/2007, %

          2008        2007                                                 2008                 2007

          1           1         Sodium chloride                            3.10                 2.99                  4
          2           2         Meronem                                    2.15                 2.69                  -20
          3           3         Glucose                                    1.43                 1.38                  4
          4           12        Taxotere                                   1.19                 0.84                  41
          5           16        Mabthera                                   1.08                 0.71                  52
          6           17        Ethyl alcohol                              1.06                 0.70                  52
          7           10        Actovegin                                  0.97                 0.90                  8
          8           5         Tienam                                     0.95                 1.22                  -22
          9           4         Amoxiclav                                  0.93                 1.25                  -26
          10          19        Eloxatin                                   0.93                 0.66                  40
          11          8         Albumin                                    0.89                 0.98                  -10
          12          14        Clexane                                    0.87                 0.80                  9
          13          7         Cefotaxime                                 0.84                 1.06                  -21
          14          13        Gemzar                                     0.82                 0.84                  -1
          15          30        Actilise                                   0.74                 0.54                  38
          16          18        Tavanic                                    0.73                 0.68                  7
          17          39        Ultravist                                  0.72                 0.45                  62
          18          6         Cefazolin                                  0.71                 1.09                  -34
          19          11        Pentaglobin                                0.65                 0.87                  -26
          20          31        Naropin                                    0.64                 0.53                  21
          21          9         Fraxiparine                                0.62                 0.93                  -33
          22          27        Maxipime                                   0.58                 0.58                  0
          23          45        Avastin                                    0.57                 0.42                  37
          24          98        Campto                                     0.56                 0.25                  124
          25          1811      Octagam                                    0.55                 0.001                 47626

                                                                                Source: Pharmexpert — Monitoring of hospital drug procurement in Russia


          Table 5. ТОР7 drugs (by procurement share) launched in Russian hospital market in 2008

          Rank        Trademark / corporation                АТС-2                                                              Share (USD), %

          1           Wilate (Octapharma AG)                 B02 — Antifibrinolytics, antidotes to anti-coagulants,             0.32
                                                             inhibitors, blood coagulation and haemostyptics
          2           Omegaven (Fresenius AG)                K01 — Intravenous solutions                                        0.22
          3           Tyverb (GSK)                           L01 — Antineoplastics                                              0.21
          4           Humira (Vetter Pharma Fertigung1)      L04 — Immunosuppressive agents                                     0.17
          5           Betaferon (Bayer Healthcare)           L03 — Immunostimulating agents                                     0.11
          6           Monafram (Framon ZAO)                  B01 — Antithrombotic agents                                        0.10
          7           Sprycel (BMS)                          L01 — Antineoplastics                                              0.06

                                                                                Source: Pharmexpert — Monitoring of hospital drug procurement in Russia




          1   In Russia represented by Abbott.




GO_2009_ENG.indb 59                                                                                                                                   02.05.2009 8:29:04
              PROFILE. MEGARD GROUP
                Mission:
                Provide for immunobiological security of this and next generations of the Russians.
                While maintaining traditions and proceeding from the advances of the Russian science, to participate in the implementation of
                national projects and state programs thus forming the health culture of the society as a whole.


              MEGARD GROUP (est. in 2005) is the largest distributor of medical biotech products in Russia and CIS countries.

              Biotech products account for nearly 80% of the company’s total product range.

              The company supplies the products as follows:

                  •   Allergens and allergoids: substances used in allergology for diagnostics and quenching response to allergens;
                  •   Bacteriophages: viruses and bacterial cultures selectively affecting pathogenic microorganisms; they are used in antibacterial
                      therapy as an alternative to antibiotics;
                  •   Vaccines: preparations derived from microorganisms (bacteria, rickettsia, viruses) or their life products; they are used for
                      immunizing humans and animals as prophylaxis or treatment;
                  •   Anatoxins: toxins devoid of toxicity but retaining ability to form antibodies and immunity in organisms; they are used for
                      immunizing humans and animals as prophylaxis or treatment;
                  •   Immunomodulating agents;
                  •   Human immunoglobulins: antibodies developed in response to antigens; they are the main immunity factor;
                  •   Probiotics: human friendly living microorganisms used in adequate quantities; they restore the micro flora and have a general
                      health improving effect;
                  •   Diagnostic agents;
                  •   Immunoenzymatic testing systems for detecting specific albumens indicative of various pathologies;
                  •   Nutrients and medicinal herbs; the company offers more than a dozen nutrients and herbal preparations used for prophylaxis
                      and treatment of specific diseases;
                  •   Blood preparations;
                  •   Bacterial and viral culture media;
                  •   APIs and finished drugs by a number of leading pharmaceutical manufacturers.

              Strategy: the basis of MEGARD GROUP market strategy are efficient logistic and management schemes of biotech distribution.

              Geographic coverage: Kazakhstan, Belarus, Uzbekistan, Ukraine, Azerbaijan, India, Mongolia etc.

              For more information please visit www.megard.ru.




GO_2009_ENG.indb 60                                                                                                                            02.05.2009 8:29:04
          IX. REIMBURSEMENT:
          LIFE VEST IN CRISIS
          ESSENTIAL DRUG PROVISION/SEVEN DISEASES
          PROGRAMS IN RUSSIA




                       The reimbursement program has already been in effect in Russia for the
                       fifth year. It is worth noticing that despite all problems this program has
                       come into a more or less stable shape.

                       In 2008, major changes occurred in the reimbursement program, viz.

                          •   patients with seven diseases that proved to be the heaviest burden on
                              the federal budget (myeloleucosis, hemophilia, multiple sclerosis,
                              Gaucher disease, hypophyseal dwarfism, mucoviscidosis, as well as
                              patients after transplantation of organs or tissues) were grouped under
                              a separate Costliest Nosologies (VZN) subprogram (aka Seven
                              Diseases). Drugs for these patient categories are procured via auctions
                              and funded from the federal budget;
                          •   powers for reimbursable drug provision to other specific population
                              categories were delegated to federal subjects within the framework of
                              the Essential Drug Provision (ONLS) subprogram.




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        Essential Drug Provision/Seven Diseases programs in Russia                                        62




              In 2008, 2.9 bn USD worth drugs (in reimbursement prices)                                         In 2008, the minimum share of local drugs both in value
              were supplied under the reimbursement program, including                                          (5.4%) and in real terms (34.6%) was registered since the DLO
              the VZN subprogram (+44% vs. 2007; Fig. 1).                                                       launch (Fig. 4). This is due to the fac t that mainly innovative
                                                                                                                imported drugs are listed for the VZN subprogram, Rastan
              Since the reimbursement (DLO) program was launched, access                                        being the only exception (Table 1).
              of specific population categories to high-quality medications has
              grown immensely. In 2008, the average price per pack of drug in
              the reimbursement sector was 24.5 USD, 6.5 times as high as at                                    The Central and Northwestern federal districts (FDs) seem to
              the DLO launch (Fig. 2). During the same period (2005—2008),                                      be most comfortable in terms of the population access to reim-
              the price per pack in the hospital sector grew 2.5 times, and in the                              bursable drugs (Fig. 5). It is these FDs that boast the highest
              out-of-pocket sector just twofold. The price per pack skyrocketed                                 concentration of federal medical R&D institutions and best
              in 2008 after the VZN subprogram was separated for funding                                        disease diagnostics practices.
              from the federal budget and centralized drug procurement.
                                                                                                                All АТС groups participating in the VZN subprogram are
              In 2008, the price per pack of a drug was the highest for myelo-                                  represented in the rating of ТОР25 АТС groups in ONLS/
              leucosis (on average, 2.6 thsd USD), while the highest treat-                                     VZN by distribution among patients (in value terms) (Table 2).
              ment cost per patient was in the Gaucher disease segment at                                       They demonstrate the highest distribution growth rates as
              about 300 thsd USD a year (Fig. 3).                                                               well.




                                                                                        4                      154%


                                                                                                                                                            44%
                                                                                        3
                                                                                                                                            20%
                                                                  Drug supply, bn USD




                                                                                                                                                         VZN — 1.3
                                                                                        2




                                                                                                                                                                       2.9 bn USD
                                                                                                                      2.5
                                                                                        1                                                  2.0
                                                                                                                                                        ONLS — 1.6
                                                                                                   1.0

                                                                                        0
              Fig. 1. Reimbursable drug supply                                                     2005               2006                2007              2008
              dynamics in value terms, 2005—                                                                                       Source: Pharmexpert — Reimbursable drug distribution
              2008




                                                                                                                                                               24.5


                                                                                                                                         11.2
                                                                                                                   7.7
                                                                                             3.7    1.7                      2.1                               4.1
                                                                                                                                          3.0
                                                                                                    1.2                      1.5                  1.8          2.3
                                                                                            2005                  2006                   2007                  2008

                                                                                                          DLO       Hospital market
              Fig. 2. Wholesale price per pack
                                                                                                          Out of pocket market
              dynamics (USD) in various sectors
              of Russian pharma market, 2005—                                                                                      Source: Pharmexpert — Reimbursable drug distribution
              2008




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                                                                                                        63                   Essential Drug Provision/Seven Diseases programs in Russia




                                                                  300
                                                                             2.6
                                                                                                           2.3



                                                                  200




                                                      Thsd USD
                                                                                                                                                   1.3

                                                                  100

                                                                                                                                                                         0.4
                                                                                                                                                                                                    0.3            0.3             0.3



                                                                    0




                                                                                                                             Multiple sclerosis
                                                                                                  Gaucher disease




                                                                                                                                                                                                                                    Transplantology
                                                                                                                                                                                   Mucoviscidosis
                                                                             Myeloleucosis




                                                                                                                                                                                                             Hypophyseal
                                                                                                                                                            Hemophilia




                                                                                                                                                                                                             dwarfism
         Fig. 3. Average price per pack of
         drug in Seven Diseases (VZN)                                    Cost per patient with specific disease                                                                Average price per pack, thsd USD
         subprogram (thsd USD); average
         drug therapy cost per patient (thsd
                                                                 Sources: Pharmexpert — Reimbursable drug distribution; Roszdravnadzor; calculations: Pharmexpert
         USD)




                                                       2008                                                                                        94.6                                                                    5.4


                                                       2007                                                                                       91.2                                                                 8.8
                                                                                                                                                                                                                                 In value terms
                                                       2006                                                                                       90.0                                                              10.0


                                                       2005                                                                      85.0                                                                          15.0


                                                       2008                                                           65.4                                                                            34.6


                                                       2007                                         51.6                                                                                 48.4
                                                                                                                                                                                                                                 In real terms
                                                       2006                                                         58.8                                                                            41.2


                                                       2005                                       49.3                                                                              50.7

                                                                        0%                          25%                                              50%                                  75%                              100%


         Fig. 4. Ratio of imported and local                                                                         Imported                               Local
         drugs in ONLS/VZN sector in value
         and real terms, 2005—2008                                                                                                                        Source: Pharmexpert — Reimbursable drug distribution




          Table 1. Drug shares (%, USD) in VZN subprogram

          VZN                  Disease share in     INN                                      ТМ                                                      ТМ share in VZN                     ТМ rank in VZN                     ТМ sales growth in DLO,
                               VZN total value, %                                                                                                    total value, %                      total value                        total (%), 2008/2007


          Myeloleucosis        41.3                 Bortezomib                               Velcade                                                 19.16                               1                                  389
                                                    Imanitib                                 Glivec                                                  12.06                               3                                  121
                                                    Rituximab                                Mabthera                                                7.91                                4                                  336
                                                    Fludarabine                              Fludara                                                 2.21                                11                                 256




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        Essential Drug Provision/Seven Diseases programs in Russia                          64




              Table 1. Cont’d (1)
               VZN                  Disease share in     INN                           ТМ                       ТМ share in VZN   ТМ rank in VZN    ТМ sales growth in DLO,
                                    VZN total value, %                                                          total value, %    total value       total (%), 2008/2007
               Hemophilia           28.2                 Coagulation factor            Octanate                 13.04             2                 414
                                                         VIII                          Hemoctin                 4.68              8                 79
                                                                                       Koate-DVI                0.85              19                160
                                                                                       Hemofil                  0.70              21                1 180
                                                                                       Immunate                 0.52              22                68
                                                         Eptacog alpha                 Novoseven                4.78              7                 329
                                                         [activated]
                                                         Coagulation factor IX Octanine                         1.69              15                248
                                                                                       Immunine                 0.86              18                362
                                                                                       Aimafix                  0.002             29                -88
                                                         Octocog alpha                 Recombinate              1.12              17                27 994
               Multiple sclerosis   17.6                 Interferon beta-1b            Betaferon                7.57              5                 118
                                                         Glatiramer acetate            Copaxone                 7.48              6                 227
                                                         Interferon beta-1а            Rebif                    2.51              10                616
               Transplantology      4.5                  Cyclosporine                  Sandimmun                1.81              14                104
                                                                                       Panimun                  0.02              28                3 633
                                                         Mycophenolic acid             Myfortic                 1.30              16                192
                                                         Mycophenolate                 Cellcept                 0.85              20                49
                                                         mofetil
                                                         Tacrolimus                    Prograf                  0.52              23                -
               Gaucher disease      3.4                  Imiglucerase                  Cerezyme                 3.45              9                 356
               Hypophyseal          2.8                  Somatropin                    Norditropin              1.93              13                154
               dwarfism                                                                Humatrope                0.35              24                840
                                                                                       Saizen                   0.33              25                114
                                                                                       Genotropin               0.17              26                170
                                                                                       Rastan                   0.08              27                2 965
               Mucoviscidosis       2.1                  Dornase alpha                 Pulmozyme                2.05              12                149
                                                                                                                       Source: Pharmexpert — Reimbursable drug distribution




                                                                                            4
                                                                               7

                                                                                                                  33
                                                                        9                       5                                 FD population, % of Russia’s
                                                                                        9                                         total population
                                                                                                         26

                                                                              16

                                                                   13
                                                                                   9
                                                                                                         21
                                                                                            14                                    Drug share (%) in ONLS/VZN
                                                                                                                                  program, in value terms

                                                                              14
                                                                                                          19




                                                                   Central FD                              Volga FD
                                                                   Siberian FD                             Northwestern FD
                                                                   Southern FD                             Urals FD
                                                                   Far Eastern FD
              Fig. 5. Drug shares (%) in ONLS/
              VZN program in breakdown for                                                          Sources: Source: Pharmexpert — Reimbursable drug distribution; Rosstat
              federal districts, 2008




GO_2009_ENG.indb 64                                                                                                                                                    02.05.2009 8:29:05
                                                                                 65        Essential Drug Provision/Seven Diseases programs in Russia




         Table 2. TOP25 2nd level1 АТС groups by drug sales in DLO sector (USD), 2008
          Rank          АТС group                                                                   Market share, %          Distribution    VZN share (%
                                                                                                                             growth (%),     of group’s total
                                                                                                    2008       2007          2008/2007       participation in DLO)
          1             L01 — Antineoplastics                                                       23.73      18.71         162             79
          2             B02 — Antifibrinolytics, antidotes to anti-coagulants, inhibitors, blood    13.20      7.23          277             97
                        coagulation and haemostyptics
          3             A10 — Drugs used in diabetes                                                12.59      13.77         89              -
          4             L03 — Immunostimulating agents                                              8.97       7.13          160             89
          5             R03 — Anti-asthma and COPD products                                         4.42       5.16          77              -
          6             B03 — Anti-anaemic preparations                                             3.74       4.60          68              -
          7             L04 — Immunosuppressive agents                                              3.37       3.18          119             61
          8             L02 — Cytostatic hormone therapy                                            3.15       4.61          41              -
          9             C09 — Agents acting on the renin-angiotensin system                         2.66       4.14          33              -
          10            H04 — Other hormones                                                        2.32       2.22          116             56
          11            N05 — Psycholeptics                                                         2.08       3.05          41              -
          12            A16 — Other alimentary tract and metabolism products                        1.58       0.72          356             99
          13            M05 — Other drugs for disorders of the musculo-skeletal system              1.50       2.09          48              -
          14            N03 — Anti-epileptics                                                       1.45       1.43          109             -
          15            N06 — Psychoanaleptics excluding anti-obesity preparations                  1.37       2.65          7               -
          16            C01 — Cardiac therapy                                                       1.33       2.08          32              -
          17            R05 — Cough and cold preparations                                           1.03       0.93          129             90
          18            C08 — Calcium antagonists                                                   0.79       1.34          21              -
          19            C07 — Beta-blocking agents                                                  0.77       1.08          48              -
          20            H01 — Pituitary and hypothalamic hormones                                   0.76       0.77          104             -
          21            A05 — Cholagogues and hepatic protectors                                    0.67       1.11          26              -
          22            G04 — Urologicals                                                           0.67       1.04          33              -
          23            J05 — Antivirals for systemic use                                           0.66       0.29          361             -
          24            C10 — Hypolipidaemics/anti-atheroma preparations                            0.59       0.90          37              -
          25            N04 — Anti-Parkinson drugs                                                  0.57       0.50          132             -
          Total TOP25                                                                               93.97      90.73
                                                                                                        Source: Pharmexpert — Reimbursable drug distribution


          The top lines of the corporations rating are taken up by the                 Although local manufacturers presently cannot boast a sig-
          companies participating in the VZN subprogram (Table 3).                     nificant share in the reimbursement sector, the industry
          The local manufacturer Pharm-Sintez (Moscow) ranking 24th                    leaders may count on a broader participation. The ranking of
          has good chances to improve its standing as import substitution              TOP10 local trademarks (Table 5) is headed by Bilumid
          is one of its strategic priorities and its drug sales growth was             (Veropharm); this company increased its reimbursement
          345% in 2008.                                                                market share more than twofold in 2008. The maximum
                                                                                       sales growth was posted by Resorba and Octreotide (Pharm-
          Nine drugs in the ТОР25 trademark rating (without VZN sub-                   Sintez, Moscow). The local insulin Biosulin (Pharmstandard)
          program) are insulins (Table 4). Insulins Humulin and Lantus                 demonstrated a 154% sales growth. Sotex feels pretty much
          lead the ranking (MS 3.92 and 3.71% respectively). The maxi-                 sure in this sector with Epocrin ranking 8th with a 342% sales
          mum sales growth (169%) was posted by Symbicort, a bron-                     growth year-on-year. The corporation Vector Medica seeks
          chial asthma preparation. Two other drugs for this nosology,                 to improve the ranking position of its TM Reaferonum that
          Seretide and Berodual, are present among ТОР25; they rank 4th                made its way to TOP10 with positive dynamics in the reim-
          and 23rd respectively.                                                       bursement sector.

          Table 3. TOP25 corporations by drug sales in DLO sector (USD), 2008
          Rank                         Corporation                                          Market share, %            Distribution growth   DLO share in total
                                                                                                                       (%), 2008/2007        sales in Russia, %
          DLO, total      VZN                                                               2008        2007
          1               1            Janssen-Cilag                                        13.11       10.28          163                   84
          2               2            Novartis                                             11.56       11.75          103                   52
          3               4            Roche                                                9.91        9.51           115                   68
          4               7            Novo Nordisk                                         8.35        7.34           135                   92
          1   EphMRA classification.




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        Essential Drug Provision/Seven Diseases programs in Russia             66




              Table 3. Cont’d
               Rank                    Corporation                                      Market share, %            Distribution growth   DLO share in total
               DLO, total   VZN                                                                                    (%), 2008/2007        sales in Russia, %
                                                                                        2008           2007
               5            3          Octapharma AG                                    6.97           3.03        375                   95
               6            5          Bayer Healthcare                                 4.97           4.48        129                   30
               7            6          Teva Pharmaceutical Industries Ltd               4.89           4.63        118                   55
               8            -          Sanofi-Aventis                                   3.27           3.25        108                   19
               9            13         Eli Lilly                                        3.12           3.54        82                    60
               10           -          AstraZeneca                                      3.08           4.59        39                    44
               11           8          Biotest Pharma GMBH                              2.15           2.56        73                    84
               12           -          GSK                                              2.00           1.85        123                   23
               13           -          Schering-Plough                                  1.70           2.38        48                    28
               14           -          Servier                                          1.60           1.99        67                    15
               15           9          Genzyme Pharmaceuticals                          1.58           0.72        356                   100
               16           -          Boehringer Ingelheim                             1.51           2.02        54                    20
               17           10         Baxter                                           1.49           0.52        496                   70
               18           -          Berlin-Chemie/Menarini                           1.03           1.54        38                    8
               19           -          STADA Arzneimittel AG                            1.00           2.42        -15                   12
               20           -          Solvay Pharma                                    0.82           1.47        16                    11
               21           -          KRKA                                             0.80           1.55        6                     10
               22           12         Astellas Pharma Inc                              0.73           0.81        86                    15
               23           -          Nycomed                                          0.67           0.81        70                    6
               24           -          Pharm-Sintez (Moscow)                            0.61           0.28        345                   54
               25           -          Gedeon Richter                                   0.60           0.91        35                    5
               Total TOP25                                                              87.52          84.23
                                                                                                       Source: Pharmexpert — Reimbursable drug distribution
              Table 4. TOP25 trademarks by distribution in DLO sector (without VZN; USD), 2008

               Rank               Trademark (corporation)                                      Market share, %           Distribution growth (%), 2008/2007

               1                  Humulin (Eli Lilly)                                          3.92                      66
               2                  Lantus (Sanofi-Aventis)                                      3.71                      106
               3                  Eprex (Janssen-Cilag)                                        3.53                      31
               4                  Seretide (GSK)                                               2.87                      98
               5                  Protaphane (Novo Nordisk)                                    2.63                      88
               6                  Recormon (Roche)                                             2.46                      123
               7                  Rispolept (Janssen-Cilag)                                    2.33                      25
               8                  Herceptin (Roche)                                            2.09                      33
               9                  Novorapid (Novo Nordisk)                                     1.96                      96
               10                 Arimidex (AstraZeneca)                                       1.74                      14
               11                 Novomix (Novo Nordisk)                                       1.73                      119
               12                 Actrapid (Novo Nordisk)                                      1.72                      71
               13                 Zometa (Novartis)                                            1.72                      25
               14                 Temodal (Schering-Plough)                                    1.43                      37
               15                 Remicade (Schering-Plough)                                   1.36                      50
               16                 Levemir (Novo Nordisk)                                       1.33                      123
               17                 Topamax (Janssen-Cilag)                                      1.31                      81
               18                 Humalog (Eli Lilly)                                          1.22                      83
               19                 Insuman (Sanofi-Aventis)                                     1.13                      111
               20                 Avastin (Roche)                                              1.11                      22
               21                 Sandostatin (Novartis)                                       1.08                      61
               22                 Xeloda (Roche)                                               1.05                      33
               23                 Berodual (Boehringer Ingelheim)                              1.03                      55
               24                 Prestarium (Servier)                                         0.98                      55
               25                 Symbicort (AstraZeneca)                                      0.87                      169
               Total TOP25                                                                     46.31
                                                                                                       Source: Pharmexpert — Reimbursable drug distribution




GO_2009_ENG.indb 66                                                                                                                                     02.05.2009 8:29:05
                                                                           67          Essential Drug Provision/Seven Diseases programs in Russia




          Table 5. TOP10 local trademarks by distribution in DLO sector (USD), 2008
          Rank               Trademark                                          Total distribution share, local TM (%)   Distribution growth (%), 2008/2007

                                                                                2008                 2007

          1                  Bilumid                                            5.11                 2.25                186
          2                  Resorba                                            5.09                 0.57                1 021
          3                  Amlotop                                            4.50                 7.23                -22
          4                  Phenotropil                                        4.25                 5.72                -7
          5                  Biosulin                                           3.26                 1.61                154
          6                  Octreotide                                         3.26                 0.22                1 763
          7                  Essliver                                           3.02                 4.24                -11
          8                  Epocrin                                            2.72                 0.77                342
          9                  Chondroitin                                        2.56                 3.71                -13
          10                 Reaferonum                                         2.12                 1.66                60
                                                                                                     Source: Pharmexpert — Reimbursable drug distribution


          Forecast: Notwithstanding the encouraging results of the reim-          less program participants than the year before, i.e. 5075 thsd
          bursement program implementation in 2008, patients liable for           people. Those left in are just the patients for whom the drug
          drug reimbursement continue quitting the program as they pre-           reimbursement program is the life vest in the deepening financial
          fer monetary equivalents of drugs. In 2009, there will be 16%           and economic crisis.




GO_2009_ENG.indb 67                                                                                                                                           02.05.2009 8:29:05
        Essential Drug Provision/Seven Diseases programs in Russia                      68




              SUPPLEMENT
             Table 1. Results of wholesale auction for drug supply under Seven Diseases program, H109

              Lot #   Drug                                        # of appli- Winning contractor   Max. initial price, RUB   Price of state   Other applicants
                                                                  cations                                                    contract, RUB
              1       Imiglucerase injection solution powder      1          Pharmimex OOO         114 747 905.49            114 747 905.49   -
                      200 U # 1
              2       Imiglucerase injection solution powder      1          Pharmimex OOO         484 123 563.34            484 123 563.34   -
                      400 U # 1
              3       Octocog alpha lyophilized for intravenous   3          Medipal-Onco OOO 249 655 725.00                 163 524 499.53   Gemamed OOO,
                      injection solution 1000 ME # 1                                                                                          R-Pharm ZAO
              4       Octocog alpha lyophilized for intravenous   3          R-Pharm ZAO           198 269 156.25            115 987 456.54   Medipal-Onco OOO,
                      injection solution 500 ME # 1                                                                                           Gemamed OOO
              5       Octocog alpha lyophilized for intravenous   3          R-Pharm ZAO           34 510 501.23             20 533 747.92    Medipal-Onco OOO,
                      injection solution 250 ME # 1                                                                                           Gemamed OOO
              6       Eptacog alpha (activated) lyophilized       2          Protek CV ZAO         441 372 174.32            441 372 174.32   Optimalnoe
                      for intravenous injection solution 120                                                                                  zdorovie OOO
                      CU # 1
              7       Eptacog alpha (activated) lyophilized       2          Protek CV ZAO         269 616 174.08            269 616 174.08   Optimalnoe
                      for intravenous injection solution 240                                                                                  zdorovie OOO
                      CU # 1
              8       Eptacog alpha (activated) lyophilized for   2          Protek CV ZAO         53 004 716.60             53 004 716.60    Optimalnoe
                      internal solution 60 CU # 1                                                                                             zdorovie OOO
              9       Coagulation factor VIII lyophilized for    1           Pharmimex OOO         58 807 488.00             58 807 488.00    -
                      intravenous injection or infusion solution
                      250 ME # 1
              10      Coagulation factor VIII lyophilized for   1            Pharmimex OOO         1 453 504 896.00 1 453 504 896.00 -
                      intravenous injection solution 500 ME # 1
              11      Coagulation factor VIII lyophilized for     1          Pharmimex OOO         1 664 692 224.00 1 664 692 224.00 -
                      intravenous injection solution 1000 ME
                      #1
              12      Coagulation factor IX lyophilized for       -          -                     1 064 360.00              -                -
                      infusion solution 200 ME # 1
              13      Coagulation factor IX lyophilized for       1          Medipal-Onco OOO 149 996 880.00                 149 996 880.00   -
                      infusion solution 600 ME # 1
              14      Coagulation factor IX lyophilized for       1          Pharmimex OOO         7 934 025.00              7 934 025.00     -
                      infusion solution 250 ME # 1
              15      Coagulation factor IX lyophilized for      2           Pharmimex OAO         138 878 286.67            137 489 503.81   Medtekhsnab RO
                      intravenous injection or infusion solution
                      500 ME # 1
              16      Coagulation factor IX lyophilized for       2          Pharmimex OAO         127 788 100.00            126 510 219.00   Medtekhsnab RO
                      infusion solution 1000 ME # 1
              17      Somatropin subcutaneous solution 10         2          Protek CV ZAO         225 112 729.60            225 112 729.60   Optimalnoe
                      mg/ml 1.5 ml # 1                                                                                                        zdorovie OOO
              18      Somatropin lyophilized for subcutaneous 1              Biotec OOO            40 739 434.75             40 739 434.75    -
                      solution 8 mg # 1
              19      Somatropin lyophilized for subcutaneous 1              Pharmstandard         20 971 984.92             20 971 984.92    -
                      solution 4 ME # 1                                      OOO
              20      Somatropin lyophilized for subcutaneous 2              Euroservice ZAO       18 957 511.14             14 028 558.22    Apteka Holding
                      solution 5.3 mg # 1                                                                                                     ZAO
              21      Somatropin lyophilized for injection        1          R-Pharm ZAO           52 475 041.69             52 475 041.69    -
                      solution 6 mg # 1
              22      Dornase alpha inhalation solution 2.5       1          Optimalnoe            334 956 388.20            334 956 388.20   -
                      mg 2.5 ml # 6                                          zdorovie OOO
              23      Mycophenolic acid intestine-soluble         3          Protek CV ZAO         11 709 024.12             11 709 024.12    Rosta ZAO,
                      covered tablets 180 mg # 100                                                                                            R-Pharm ZAO
              24      Mycophenolic acid intestine-soluble         3          Protek CV ZAO         38 958 211.98             38 958 211.98    Rosta ZAO,
                      covered tablets 360 mg # 50                                                                                             R-Pharm ZAO




GO_2009_ENG.indb 68                                                                                                                                          02.05.2009 8:29:05
                                                                                  69        Essential Drug Provision/Seven Diseases programs in Russia




         Table 1. Cont’d (1)
         Lot #   Drug                                      # of appli- Winning contractor   Max. initial price, RUB   Price of state       Other applicants
                                                           cations                                                    contract, RUB
         25      Mycophenolic acid intestine-soluble       3          Protek CV ZAO         167 614 896.66            167 614 896.66       Rosta ZAO,
                 covered tablets 360 mg # 120                                                                                              R-Pharm ZAO
         26      Mycophenolate mofetil capsules 250        2          Irvin-2 OOO           99 899 280.00             99 899 280.00        R-Pharm ZAO
                 mg # 100
         27      Mycophenolate mofetil covered tablets     1          R-Pharm ZAO           60 772 915.84             60 772 915.84        -
                 500 mg # 50
         28      Tacrolimus capsules 0.5 mg # 50           1          Medtekhsnab RO        30 693 839.61             30 693 839.61        -
         29      Tacrolimus capsules 1 mg # 50             1          Medtekhsnab RO        141 857 653.07            141 857 653.07       -
         30      Tacrolimus capsules 5 mg # 50             1          Medtekhsnab RO        27 805 493.71             27 805 493.71        -
         31      Imatinib capsules 100 mg # 120            2          R-Pharm ZAO           1 202 194 179.90 1 196 183 209.00 Pharmimex OAO
         32      Rituximab infusion solution concentrate   1          Rosta ZAO             328 278 756.17            328 278 756.17       -
                 100 mg/10 ml # 2
         33      Rituximab infusion solution concentrate   1          Rosta ZAO             874 413 734.46            874 413 734.46       -
                 500 mg/50 ml # 1
         34      Bortezomib lyophilized for intravenous    2          Irvin-2 OOO           1 469 905 466.40 1 469 905 466.40 Optimalnoe
                 injection solution 3.5 mg # 1                                                                                zdorovie OOO
         35      Interferon beta-1a lyophilized for        1          Pharmimex OOO         80 591 940.00             80 591 940.00        -
                 intramuscular injection solution 30
                 mcg/ml (6 mln МЕ/ml) # 1
         36      Interferon beta-1b lyophilized for    3              Rosta ZAO             1 260 758 781.22 1 260 758 781.22 R-Pharm ZAO,
                 subcutaneous solution 9.6 mln ME # 15                                                                        Protek CV ZAO
         37      Interferon beta-1a subcutaneous           1          Biotec OOO            51 041 562.00             51 041 562.00        -
                 solution 22 mcg/0.5 ml # 3
         38      Interferon beta-1a subcutaneous           1          Biotec OOO            391 894 932.00            391 894 932.00       -
                 solution 44 mcg/0.5 ml # 3
         39      Cyclosporine (Panimun Bioral) internal    1          Optimalnoe            124 218.00                124 218.00           -
                 solution 100 mg/ml 50 ml # 1                         zdorovie OOO
         40      Cyclosporine (Panimun Bioral) capsules    1          Optimalnoe            794 998.40                794 998.40           -
                 100 mg # 50                                          zdorovie OOO
         41      Cyclosporine (Sandimmun Neoral) soft      2          Protek CV ZAO         69 220 800.00             69 220 800.00        R-Pharm ZAO
                 capsules 100 mg # 50
         42      Cyclosporine (Sandimmun Neoral) soft      2          Protek CV ZAO         73 182 998.52             73 182 998.52        R-Pharm ZAO
                 capsules 25 mg # 50
         43      Cyclosporine (Sandimmun Neoral) soft      2          Protek CV ZAO         60 109 549.50             60 109 549.50        R-Pharm ZAO
                 capsules 50 mg # 50
         44      Cyclosporine (Sandimmun Neoral)           2          Protek CV ZAO         21 200 600.16             21 200 600.16        R-Pharm ZAO
                 internal solution 100 mg/ml 50 ml # 1
         45      Fludarabine covered tablets 10 mg # 20 3             R-Pharm ZAO           263 217 450.50            263 217 450.50       Protek CV ZAO,
                                                                                                                                           Optimalnoe
                                                                                                                                           zdorovie OOO
         46      Glatiramer acetate subcutaneous           3          Rosta ZAO             1 062 203 841.27 1 062 203 841.27 Protek CV ZAO,
                 solution 20 mg/ml 1 ml # 28                                                                                  R-Pharm ZAO
         47      Cyclosporine (Panimun Bioral) capsules    1          Optimalnoe            411 472.92                411 472.92           -
                 25 mg # 50                                           zdorovie OOO
         48      Cyclosporine (Panimun Bioral) capsules    1          Optimalnoe            587 448.76                587 448.76           -
                 50 mg # 50                                           zdorovie OOO
                                                                                                             Source: Official auction site of Russian Federation




GO_2009_ENG.indb 69                                                                                                                                                02.05.2009 8:29:05
        Essential Drug Provision/Seven Diseases programs in Russia            70




              Table 2. Winning contractors for drug supply under Seven Diseases program, H109
               #             Company                                                    Total contract, mln RUB   Share of Seven Diseases program, %

               1             Pharmimex OOO                                              3 864.40                  28.14
               2             Rosta ZAO                                                  3 525.66                  25.67
               3             R-Pharm ZAO                                                1 709.17                  12.45
               4             Irvin-2 OOO                                                1 569.80                  11.43
               5             Protek CV ZAO                                              1 431.10                  10.42
               6             Biotec OOO                                                 483.68                    3.52
               7             Optimalnoe zdorovie OOO                                    336.87                    2.45
               8             Medipal-Onco OOO                                           313.52                    2.28
               9             Pharmimex OAO                                              264.00                    1.92
               10            Medtekhsnab RO                                             200.36                    1.46
               11            Pharmstandard OOO                                          20.97                     0.15
               12            Euroservice ZAO                                            14.03                     0.10
               Total                                                                    13 733.56                 100.00
                                                                                                                      Source: Pharmexpert calculations




GO_2009_ENG.indb 70                                                                                                                              02.05.2009 8:29:06
          X. LOCAL PRIORITIES
          EBB AND FLOW
          PHARMA MARKETS OF CIS COUNTRIES




                      Recently, the CIS economies were growing faster than most other world
                      countries. The income growth as a result of rising raw material prices was
                      pushing up retail trade, manufacturing, construction and other economic
                      sectors. However, specializing in raw material is dangerous, which was men-
                      tioned by economists and other experts time and again. This made the CIS
                      economies vulnerable and strongly dependent on the world raw price. It did
                      not take the problems long to snatch at the economies.




GO_2009_ENG.indb 71                                                                             02.05.2009 8:29:06
                                           Pharma markets of CIS countries                     72




              In 2008, the cumulative GDP of the CIS countries grew by                                 year-on-year was recorded for Ukraine and Azerbaijan (-13%;
              5%, which is lower than the year before (8%). The lowest                                 Fig. 2).
              GDP growth rates were recorded in Ukraine (2.1%) and
              Kazakhstan (2.4%), while the highest rates were posted by                                If viewed in six month dynamics, the out-of-pocket market
              Azerbaijan (10.8%) and Belarus (10.0%) (Table 1). Such                                   growth rates trended down by the end of 2008 (Fig. 3), which
              slowdown (Fig. 1) can be explained both as natural after a                               testifies to changes under the crisis.
              span of a fast economic growth and as an effect of the eco-
              nomic crisis.                                                                            The real income growth as a result of fast-growing pharma
                                                                                                       markets in the CIS countries in 2008 boosted per capita drug
              In 2008, the out-of-pocket pharma market value of the CIS                                consumption. The latter index changed the least in Uzbekistan
              countries totaled 12.7 bn USD, 26% up vs. the preceding year                             at just 1% (however, it should be borne in mind that this coun-
              (Fig. 2).                                                                                try’s market lacks transparency; Table 1). The highest growth
                                                                                                       rates of drug consumption per capita were posted by Moldova
              The out-of-pocket market growth slowed down vs. 2007 in                                  (+48%) and Georgia (+34%). In Ukraine, Kazakhstan, and
              basically all CIS countries, except Georgia (+20%), Uzbekistan                           Armenia, the growth was at 15—17%, in Azerbaijan — 22%, in
              (+3%), and Belarus (+1%). The most dramatic slowdown                                     Belarus and Russia — about 30% (Fig. 4).

              Table 1. Basic macroeconomic indices of CIS countries (%; 2008/2007)

               Country                  GDP              Industrial products   Agricultural products    Retail turnover     Export 4           Import 4       Consumer price indices

               Azerbaijan               110.8            106.0                 106.1                    116.1               860.1              129.7          120.8
               Armenia                  106.8            102.0                 101.3                    104.41              95.5               139.5          109.0
               Belarus                  110.0            110.8                 108.9                    120.5               143.4              144.1          114.8
               Georgia                  104.02           n/a                   n/a                      n/a                 127.7              124.0          110.0
               Kazakhstan               102.4            102.1                 94.4                     103.61              157.2              115.1          117.0
               Moldova                  107.62           100.7                 131.9                    111.71. 3           121.6              137.1          112.7
               Russia                   105.6            102.1                 110.8                    113.01)             140.1              138.6          114.1
               Uzbekistan2              109.4            112.4                 104.1                    115.0               n/a                n/a            n/a
               Ukraine                  102.1            96.9                  117.5                    118.1               141.7              149.4          125.2
               CIS, total*              105.0            102.0                 111.0                    114.0               150.9              138.3          117.0

              1 Without food and catering enterprises.
              2 Jan—Sep 2008 (%)/Jan—Sep 2007.
              3 Trade companies.
              4 Jan—Nov 2008 (%)/Jan—Nov 2007.
              * Evaluation (calculations).


                                                                                                                                    Source: CIS Interstate Committee for Statistics




                                                                     109

                                                                                                                                                            108
                                                                                                       108                        108          108
                                                                     108



                                                                     107
                                                                                                                    107
                                                                 %             106
                                                                     106


                                                                     105                                                                                                 105
                                                                                             105

                                                                     104


                                                                     103
                                                                                   2001       2002           2003         2004          2005         2006         2007   2008
              Fig. 1. Average GDP (%, year-on-
                                                                                                                                   Source: CIS Interstate Committee for Statistics
              year) in CIS countries, 2001—2008




GO_2009_ENG.indb 72                                                                                                                                                             02.05.2009 8:29:06
                                                                                                                               73               Pharma markets of CIS countries




                                                                           10,0                                                                                                                                                                                                    60
                                                                                              8.97
                                                                                       9,0                                                                                                                                                  48                                     50
                                                                                       8,0
                                                                                                                                                                                                       37                                   47




                                                Market value, bn USD
                                                                                       7,0                                                                                                                                                                                         40
                                                                                                34                                                                                                                        34
                                                                                                                                                         28




                                                                                                                                                                                                                                                                                                  Growth, %
                                                                                       6,0                                                                                                                                                                                         30
                                                                                                                     27
                                                                                       5,0                                           22
                                                                                                29                                                 27                                                            24                                                  18            20
                                                                                       4,0                         14
                                                                                                                                     17                                                                                                                         17
                                                                                       3,0                                                                                                                                 14                                                      10
                                                                                                                                                                           2
                                                                                       2,0                     1.76
                                                                                                                                                                       1                                                                                                           0
                                                                                       1,0                                        0.64            0.45             0.26                        0.22                     0.18            0.12                0.08
                                                                                         0                                                                                                                                                                                          10




                                                                                                                                   Kazakhstan




                                                                                                                                                                       Uzbekistan



                                                                                                                                                                                                    Azerbaijan




                                                                                                                                                                                                                                            Moldova



                                                                                                                                                                                                                                                                Armenia
                                                                                                                                                                                                                           Georgia
                                                                                                                Ukraine




                                                                                                                                                   Belarus
                                                                                              Russia




         Fig. 2. Out-of-pocket pharma                                                                     Market value, 2008                                  Growth, 2008/2007                                                  Growth, 2007/2006
         market value in CIS countries
         (wholesale prices), 2008                                                                                         Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries



                                                                                       8.00                                                                                                                                                                               20

                                                                                                                                                                                                                                 17                                       18
                                                                                       7.00                                                              16
                                                                                                                                                                                                                                                                          16
                                                                                       6.00                                                                                              14
                                                                                                                                                                                                                                                                          14
                                                                                       5.00
                                                                                                                             11                                                                                                                                           12
                                                Market value




                                                                                                                                                                                                                                                                                   Growth
                                                                                       4.00                                                                                                                                                                               10
                                                                                                                                                                                                                                                 6.74
                                                                                                                                                                                                                      6.66
                                                                                                                                                                                        5.69                                                                              8
                                                                                       3.00                                                           4.98
                                                                                                                              4.30                                                                                                                                        6
                                                                                                        3.89
                                                                                       2.00
                                                                                                                                                                                                                                                                          4
                                                                                       1.00                                                                                                                                                           1                   2

                                                                                       0.00                                                                                                                                                                               0
                                                                                                        H106                 H206                   H107                            H207                              H108                       H208

         Fig. 3. CIS pharma market value in                                                                                 Market value, bn USD                                               Growth, %
         six month dynamics (wholesale
         prices), 2006—2008                                                                                               Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries


                                                                                       80                                                                                                                                                                                      60
                                                    Drug consumption per capita, USD




                                                                                       70     68.3                                                                                                                                                        49                   50
                                                                                       60                                                                                                                                                                     48
                                                                                              34                                                                                              36                                                                               40
                                                                                                                                                                                                                      34
                                                                                       50                                      46.2
                                                                                                                  27            28
                                                                                                                                                41.0                                                                                                                           30
                                                                                       40                                                                                                  22                         40.4
                                                                                              29                                  28             20                                                                                   18
                                                                                                                                                                                                                                                                                            Growth, %




                                                                                                               38.0                                                                                                                                       32.6                 20
                                                                                       30                                                                                                                                                        17
                                                                                                                                                                                          25.1
                                                                                                                15                              16                                                                    15                                                       10
                                                                                       20                                                                                                                                             24.5
                                                                                                                                                                  9.7
                                                                                                                                                                                    1                                                                                          0
                                                                                       10
                                                                                                                                                                     3
                                                                                        0                                                                                                                                                                                      10
                                                                                                                                                 Kazakhstan



                                                                                                                                                                   Uzbekistan



                                                                                                                                                                                               Azerbaijan




                                                                                                                                                                                                                                                           Moldova
                                                                                                                                                                                                                                       Armenia
                                                                                                                                                                                                                       Georgia
                                                                                                                Ukraine



                                                                                                                                  Belarus
                                                                                               Russia




                                                                                                                              Drug consumption per capita, 2008
         Fig. 4. Drug consumption per capita                                                                                  Growth, 2008/2007             Growth, 2007/2006
         in CIS countries (wholesale prices),
         2008                                                                                                             Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




GO_2009_ENG.indb 73                                                                                                                                                                                                                                                                                           02.05.2009 8:29:06
                                      Pharma markets of CIS countries               74




              In 2008, the share of out-of-pocket purchases of costly drugs                     of drugs manufactured locally were selling in other CIS
              increased in all CIS countries (Fig. 5).                                          countries.

                                                                                                In 2008, the cumulative share of drugs manufactured and sold
              Local drug sales in the CIS countries totaled 3.65 bn USD                         within the CIS was 27.2%, slightly smaller than the year before at
              in 2008, 25% up from the previous year’s value. Local drugs                       27.3%. The shrinking share of local drugs can be explained by the
              selling in their respective countries accounted for a 24.4%                       higher sales growth rate of drugs imported from countries other
              share of the CIS total out-of-pocket market (Fig. 6); 2.9%                        than CIS. This is typical of Ukraine, Belarus etc. (Table 2).




                                                          2007       19.6           25.4                25.5            17.6    11.9
                                                                                                                                                RF
                                                          2008     15.2           22.8             28.7               20.9      12.4


                                                          2007            30.4                  29.5             22.4        12.0      5.7
                                                                                                                                                Ukr
                                                          2008       22.5                29.5              24.2          16.8       6.9


                                                          2007             33.8                  29.7             19.6        11.3 5.6
                                                                                                                                                Bel
                                                          2008       27.4                   30.2               20.2      14.9       7.3                    <2 USD

                                                                                                                                                           2—5 USD
                                                          2007            24.2            29.3             22.9          14.6       9.0
                                                                                                                                                Kaz        5—10 USD
                                                          2008       22.4                27.1            23.9          15.6      11.0
                                                                                                                                                           10—25 USD

                                                          2007            24.4             32.4                21.7          14.0 7.4                      >25 USD
                                                                                                                                                Mol
                                                          2008      19.0                29.8              25.9          16.8        8.5


                                                                                     64.4                         17.6       10.2         2.9
                                                          2007                                                                      4.9         Uzb
                                                                                  63.6                          17.4         10.3         3.5
                                                          2008                                                                      5.2


                                                          2007      19.5            25.5               24.1            20.5      10.4
                                                                                                                                                Arm
                                                          2008     15.8          21.2             25.4            23.4          14.3


                                                          2007      15.2           28.9                  32.4             17.0       6.4
                                                                                                                                                Az
                                                          2008     8.8     20.0                 33.6              24.3          13.2


                                                          2007            29.5                  31.0             23.2          12.6 3.7
                                                                                                                                                Geor
              Fig. 5. Price segmentation in CIS           2008       24.5                23.8             26.8           18.5        6.4
              out-of-pocket pharma markets (%;
              wholesale prices), 2007—2008                                   Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




              Table 2. Local drug shares in CIS out-of-pocket pharma markets, 2007—2008
               Country                                     Local drug share, %                                                                  Growth (%), 2008/2007

                                                           2008                                    2007

               Russia                                      27.85                                   27.60                                        30
               Ukraine                                     21.38                                   23.26                                        5
               Belarus                                     16.18                                   17.86                                        16
               Uzbekistan                                  15.37                                   9.71                                         62
               Georgia                                     10.26                                   8.13                                         69
               Armenia                                     6.80                                    7.04                                         13
               Kazakhstan                                  6.06                                    5.43                                         31
               Moldova                                     5.86                                    6.39                                         35
               Azerbaijan                                  2.83                                    2.53                                         39
                                                                                 Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




GO_2009_ENG.indb 74                                                                                                                                                     02.05.2009 8:29:07
                                                                                   75         Pharma markets of CIS countries




          The shares of local drugs in Russia, Ukraine, and Belarus that                 Moldova, the local drug segments have been growing at lower
          have a fairly well-developed pharma industry significantly                     rates as compared to imports from outside the CIS; that is why
          exceed those in other CIS countries (Table 3). The local drugs                 there have been no drastic changes in their rankings as the
          won the top position in Georgia as of 2008 (to compare: 3rd                    manufacturing countries.
          place in 2007) due to a nearly 70% sales growth in the out-of-
          pocket pharma market (Table 2). In Uzbekistan, the local drug                  Local drugs manufactured in Armenia and Azerbaijan were not
          segment has grown appreciably to outdo those of drugs manu-                    among ТОР5 in their respective countries in 2008 (they rank
          factured in Germany, India, and Ukraine. In Kazakhstan and                     6th and 12th respectively).




                                                                 3.67                      3.13                  2.87


                                                                 23.88                    24.15                  24.37




                                                                 72.45                    72.72                  72.76




                                                                 2006                     2007                   2008

                                                                       Local drugs selling in other CIS countries
                                                                       Local drugs selling in their respective countries
         Fig. 6. Ratio of local/foreign drugs                          Other drugs
         in CIS countries (%, wholesale
         prices), 2008                                                       Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




          Table 3. ТОР5 manufacturing countries (%) in CIS out-of-pocket pharma markets, 2008

          #          Russia    Ukraine          Belarus      Kazakhstan        Moldova            Uzbekistan       Armenia        Azerbaijan      Georgia

          1          Russia    Ukraine          Belarus      Germany           Germany            Russia           France         Germany         Georgia
                     — 27.85   — 21.38          — 16.18      — 13.17           — 16.76            — 15.43          — 12.14        — 11.70         — 10.26
          2          France    Germany          Germany      Austria           Hungary            Uzbekistan       Germany        India — 8.75    India
                     — 10.16   — 14.54          — 12.60      — 8.64            — 10.06            — 15.37          — 9.89                         — 9.94
          3          Germany   France           France       Russia            India — 6.75       Germany          USA — 9.39     Turkey — 8.53   Germany
                     — 9.84    — 9.74           — 8.72       — 8.22                               — 11.30                                         — 8.55
          4          Hungary   India            USA — 5.94   USA — 7.16        France             Ukraine          Italy — 7.41   France — 7.77 France
                     — 6.82    — 6.39                                          — 6.14             — 7.77                                        — 6.54
          5          India     USA — 4.34       Hungary      Kazakhstan        Moldova            India — 7.01     Hungary        Russia — 5.25 USA
                     — 4.94                     — 5.23       — 6.06            — 5.86                              — 7.05                       — 5.40

                                                                               Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




          Local companies1 are among ТОР5 manufacturers in the out-                      In 2008, the share of ТОР10 corporations (Fig. 7) increased vs.
          of-pocket pharma markets of Russia, Ukraine, Belarus, and                      2007 in virtually all countries, except Belarus, which testifies to
          Uzbekistan (Table 4).                                                          a growing competition.

          1   In color.




GO_2009_ENG.indb 75                                                                                                                                            02.05.2009 8:29:07
                                       Pharma markets of CIS countries                           76




              Table 4. ТОР5 manufacturers in CIS out-of-pocket pharma markets, 2008
               #      Russia           Ukraine     Belarus                    Kazakhstan              Moldova           Uzbekistan                    Armenia                      Azerbaijan                Georgia

               1      Pharmstandard    Berlin-     Berlin-Chemie/             Nycomed                 Gedeon            Berlin-Chemie/ GSK — 5.79 Sanofi-Aventis Sanofi-
                      — 4.81           Chemie/     Menarini — 4.53            — 4.86                  Richter           Menarini — 5.1            — 4.02         Aventis
                                       Menarini                                                       — 6.8                                                      — 4.16
                                       — 4.32
               2      Sanofi-Aventis   Sanofi-     Sanofi-Aventis             Bayer                   Berlin-           Borisov Plant                 Servier                      GSK — 3.13                GSK
                      — 3.36           Aventis     — 3.96                     Healthcare              Chemie/           of Medicinal                  — 5.68                                                 — 3.95
                                       — 3.46                                 — 4.25                  Menarini          Preparations
                                                                                                      — 4.61            — 4.69
               3      Berlin-Chemie/ Krka          Borisov Plant              Sandoz                  Krka              Jurabek                       Gedeon                       Nycomed                   Roche
                      Menarini — 3.2 — 2.64        of Medicinal               — 3.87                  — 3.64            Laboratories                  Richter                      — 2.51                    — 2.92
                                                   Preparations                                                         — 3.93                        — 4.81
                                                   — 3.81
               4      Bayer            Pharmak     Gedeon Richter             Sanofi-                 Sanofi-           Gedeon Richter                Nycomed                      Gedeon                    Gedeon
                      Healthcare       — 2.5       — 3.38                     Aventis                 Aventis           — 3.43                        — 4.24                       Richter                   Richter
                      — 3.15                                                  — 3.79                  — 3.57                                                                       — 2.39                    — 2.53
               5      Sandoz — 3.13 GSK — 2.5 Belmedpreparaty                 Gedeon                  GSK               Nobel Ilac                    Novartis                     Sandoz — 2                CSC Ltd
                                              — 3.04                          Richter                 — 3.4             Sanayi Ve                     — 4.15                                                 — 2.52
                                                                              — 3.37                                    Ticaret AS
                                                                                                                        — 3.28
                                                                                             Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




                                                                             40.1 40.6


                                                                                             32.4                                      33.1 32.0 32.7
                                                                                                                               32.5                                                          31.5
                                                                                                      30.9                                                              30.9 30.2
                                                                                                                       27.7                                    29.1
                                                                             24.9 24.7                                                                                                               26.8 27.0
                                                             21.3                                              26.4
                                                                     22.9                                                                             22.0
                                                                                             20.2                                      20.1 20.4                                             20.4
                                                                                                      18.7                     19.3                                      18.4
                                                                                                                       16.1                                    16.3 17.6
                                                             14.7 14.1                                                                                                                               15.0 15.4
                                                                             16.3 16.3                         13.9                                   15.1
                                                                                             13.6                                                                                            13.7
                                                                                                      12.3                     12.2 13.0 12.9                  11.0 11.4 11.7
                                                             9.3     9.7                                       9.6 11.0                                                                              10.2 10.4

                                                                             5.6     5.8      5.1                                              5.3     6.8                           5.2     5.1
                                                             4.6     4.0                              4.5      4.4     4.2     4.9     4.9                     4.3      4.8                          3.8      4.3
                                                              2007

                                                                      2008

                                                                              2007

                                                                                      2008

                                                                                               2007

                                                                                                        2008

                                                                                                                2007

                                                                                                                        2008

                                                                                                                                2007

                                                                                                                                        2008

                                                                                                                                               2007

                                                                                                                                                        2008

                                                                                                                                                                2007

                                                                                                                                                                            2008

                                                                                                                                                                                      2007

                                                                                                                                                                                              2008

                                                                                                                                                                                                      2007

                                                                                                                                                                                                              2008




                                                                 Az             Arm               Bel            Geor              Kaz           Mol                   RF               Uzb              Ukr

              Fig. 7. Manufacturer concentration                                                  TOP10                TOP5            TOP3           TOP1
              in CIS out-of-pocket pharma
              markets, 2007—2008                                                        Source: Pharmexpert — Monitoring of drugstore drug procurement in CIS countries




GO_2009_ENG.indb 76                                                                                                                                                                                                  02.05.2009 8:29:07
                                                                                                                77             Pharma markets of CIS countries




          Specific macroeconomic indices
                                                                                                                         In January 2009, the local industrial output decreased month-
          of CIS countries, early 2009                                                                                   on-month in basically all CIS countries, except Azerbaijan.
                                                                                                                         The retail turnover was trending down both in January and
          The available economic data for the CIS countries as of early                                                  February against the background of the growing unemploy-
          2009 imply that the situation will not improve in the short term;                                              ment. Exports, once the pillars of all CIS economies, have
          consequently, the pharma market development will slow down.                                                    shrunk appreciably (Fig. 8).




          15                              Jan              Feb                                                     10                                                     Jan           Feb
                                                                               11.2                                                               5.6
          10
                                                                                             6.4       5.4           0
                                    4.5
            5
                 0.5                                                                                                                                                              3.4                                        2.2
                                                                                                                                     5.1                                                       4.2              4.3
            0                                                                                                      10                                               6.6
                        0.1                    0.8
            5                                        2.5
                                                                                                                   20
          10                                                                                                                                                 22.1
                                                                   9                                                       22.8
                                                            10.4
          15                                                                                                       30                                                                                  27
                                                                                                    16.1                                                                   32.9         32.1                          33.4
          20
                                                                                      19.9                         40
          25                  23.5
          30                                                                                                       50
          35
                                                                                                                   60
          40
                                                                                                                                           64.1
          45                                                              43.6                                     70
                  Az               Arm          Bel              Kaz        Mol         RF           Ukr                       Az           Arm               Bel            Kaz          Mol              RF          Ukr

                                                a) Industrial output                                                                                                b) Retail turnover




          35.0                                                                               30.4                                          5.0
                                         Jan               Feb                        29.2                                                                                Jan 2009/Nov 2008

          30.0
                                                                                                                                           5.0
          25.0

                                                                        17.8                                17.8                           15.0
          20.0
                                                                               15.8

          15.0                                                                                       12.2                                  25.0
                                                      9.9
                                                                                                                                                                                27.6
          10.0                                                                                                                                      30.9
                                                                                                                         6.6               35.0                                                                          32.7
           5.0
                                     1.7                     2.4
                                           0.0                                                                                 0.6         45.0                                                      42.3
                                                                                                                                                                                        44.0                    43.4
           0.0
                             0.0
                      1.1                                                                                                                                           48.5
           5.0                                                                                                                             55.0
                        Az               Arm               Bel            Kaz           Mol                RF              Ukr                          Az      Arm             Bel     Kaz          Mol        RF      Ukr
                                                                       c) Unemployment                                                                                                         d) Export


          Fig. 8. Change of specific macroeconomic indices in CIS countries, early 2009 (growth vs. comparable periods of 2008, %)
                                                                                                                                                              Source: CIS Interstate Committee for Statistics




          Conclusion: In 2008, the CIS markets were characterized by a                                                   to persist for the next 2—3 years. The development of CIS
          general growth slowdown, accelerating sales of local drugs as                                                  pharma markets will mostly likely slow down; however, we do not
          well as consumer preference shifts to costlier drugs. The eco-                                                 expect dramatic changes for the worse because of the market
          nomic crisis became manifest by the end of the year and is likely                                              specifics: people cannot do without drugs.




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GO_2009_ENG.indb 78   02.05.2009 8:29:08
          XI. POWER FACTORS:
          SUM OF CONSTANTS
          AND VARIABLES
          ANNUAL RATING OF MOST INFLUENTIAL
          SUBJECTS OF RUSSIAN PHARMA MARKET


                      The world financial crisis and the economic recession that followed have
                      undoubtedly become the main events in the pharma market in the year
                      passed. The effects of the crisis became manifest in early 2008; however they
                      primarily affected the companies having a considerable debt load as well as
                      those leaning heavily on loans. Since the mid-year, an appreciable drug price
                      growth has been observed in the out-of-pocket market; however, the market
                      felt the heaviest blow by the end of the year when changes in consumer pref-
                      erences as well as the drug consumption decrease became obvious.




                                                                         Influence




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                                                                                    80
                                              of Russian pharma market




              Sampling methods and general                                                employees; representatives of Russian and foreign manufactur-
                                                                                          ers; representatives of distributors; drugstore directors/manag-
              characteristics                                                             ers (Fig. 2). The above target groups are characterized as
                                                                                          experts as they have specialized information on the pharma
              Those familiar with Pharmexpert rating projects should be                   market. The sample included 1300 experts.
              aware what a cumulative rating means. Primarily it means
              that a company’s rank was calculated based not on a specific                The share of questionnaires per Federal District (FD) was cal-
              single parameter (e.g. sales or output) but on a number of                  culated using the formula as follows:
              parameters, each affecting the efficiency of business as a
              whole. The Rating of most influential subjects of the Russian
                                                                                                    Share of questionnaires per FD = Sample
              pharma market is also cumulative as it provides for looking                  (1300 respondents)×FD’s share (%) in total Russian pharma
              at the pharma industry not only from the viewpoint of busi-                                      market value/100.
              ness but also from the viewpoint of the pharma community
              as a whole.                                                                 The experts determined five most influential subjects of the
                                                                                          pharma market in nine nominations, viz. Distributors;
              In late 2008 — early 2009, Pharmexpert implemented another                  Pharmaceutical manufacturers; Drugstore chains; Medical and
              wave of the «Rating of most influential subjects of the Russian             pharmaceutical universities; Rx drugs; OTC drugs; Web sites;
              pharma market».                                                             Businessmen, state officials, public figures, and scientists; Public
                                                                                          and nonprofit organizations & associations.
              The research covered 20 Russia’s largest cities in all seven
              Federal Districts. The cities were selected based on the popula-            The number of points in making the rankings was calculated as
              tion as well as the pharma market value in their respective                 follows: each 1st place corresponded to 7 points; each 2nd place
              regions (Fig. 1).                                                           was given 6 points; for 3rd, 4th, and 5th places, 5, 4 and 3 points
                                                                                          were given, respectively. The total score was then calculated,
              The sample has been calculated based on the targeted selection              and the tables of the most influential subjects of the pharma
              of respondents from six expert groups, viz. scientists; state               market were drawn based on their rankings.

                                                                                          Comparing general data for different nominations provides for
                                                                                          interesting findings: e.g. comparison of the leaders by the num-
                                 5.4%                                                     ber of points (Fig. 3) may indirectly testify to the importance of
                                             19.5%
                                                                                          each group of subjects for the Russian pharma market as a
                      17.0%
                                                            Central FD                    whole. As of 2008, distributors are the leaders once again; the
                                                            Northwestern FD
                                                                                          year before they had yielded to drugstore chains.
                                                            Southern FD                   Comparison of the number of participants in each nomina-
                                                            Urals FD                      tion (Fig. 4) as well as the gap between the leader and its
                                                                                          immediate rival (Fig. 5) provide for a conclusion about the
                  15.4%                                     Siberian FD
                                                                                          level of the subjects’ competition in the information field. It
                                                    19.2%   Volga FD                      is worth noticing that the number of participants in the Rx
                                                            Far Eastern FD                and OTC drug groups has been growing year-on-year. The
                                           8.9%                                           absolute leaders in their respective nominations in terms of
                              14.6%                                                       the largest gap with their immediate rivals can be observed
                                                                                          among Drugstore chains, OTC drugs, and Public organiza-
                                                             Source: Pharmexpert          tions.
              Fig. 1. Distribution of respondents by Federal Districts, %                 Let’s consider each specific category.




                                                                             6%
                                                                                   4%

                                                                                         10%        State employees

                                                      41%                                           Scientists
                                                                                                    Representatives of distributors
                                                                                                    Representatives of Russian pharmaceutical manufacturers
                                                                                          17%       Representatives of foreign pharmaceutical manufacturers
                                                                                                    Drugstore directors/managers



                                                                          22%
              Fig. 2. Distribution of respondents
              by expert groups, %                                                                                                        Source: Pharmexpert




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                                                                              81
                                                                                          of Russian pharma market




                                                                                                             Distributors
                                                                                                                  4 000

                                                             Businessmen and state officials                                                 Drugstore chains
                                                                                                                 3 000 3 968
                                                                                                                                       3 760
                                                                                                                 2 000
                                                                                                             941
                                                                                                               1 000
                                                                             Rx drugs                                                                 Manufacturers
                                                                                                       959                                  3 367
                                                                                                                       0


                                                                                                  1 904
                                                                                                                                            2 991
                                                 Medical and pharmaceutical universities                                                            Public organizations
                                                                                                             2 214           2 225


         Fig. 3. Comparison of the leaders in                                                OTC drugs                           Web sites
         each nomination by the number of
         points                                                                                                                                         Source: Pharmexpert




                                                                                             Rx drugs
                                                                                                    400
                                                                                                          302                      Businessmen and state officials
                                                                               Web sites                300
                                                                                                                             269
                                                                                                        200
                                                                                                       27
                                                                                                        100
                                                             Public organizations                                                  245       OTC drugs
                                                                                                  37
                                                                                                             0
                                                                                                   47
                                                                                                                                 211
                                                       Medical and pharmaceutical                         54                             Manufacturers
                                                                                                                      169
                                                               universities

         Fig. 4. Comparison of all                                                      Distributors                        Drugstore chains
         nominations by the number of
         participants                                                                                                                                   Source: Pharmexpert



                                                                                                          Drugstore chains
                                                                                                             60 56
                                                                                   Distributors              50                        51
                                                                                                                 40                     OTC drugs

                                                                                                        13       30
                                                                                                                 20
                                                                             Rx drugs                            10                             49
                                                                                                  16
                                                                                                                  0                             Public organizations


                                                                                                  25
                                                                                                                                       32
                                                         Businessmen and state officials                     25             29               Web sites



         Fig. 5. Comparison of the leaders in                   Medical and pharmaceutical universities                      Manufacturers
         each nomination by gap in rating
         points with immediate rival, %                                                                                                                 Source: Pharmexpert


          Most influential pharmaceutical                                            KRKA); others purchased and modernized the existing pro-
                                                                                     duction sites (STADA). The truly local companies have also
          manufacturer                                                               gone a long way of development; some of them developed
                                                                                     brands comparing favorably with foreign analogues and
          In the Russian pharma market, it is increasingly more diffi-               leading in terms of sales in specific ATC groups (e.g.
          cult to distinguish between foreign and local companies.                   Pharmstandard, Veropharm). That is why, when summing up
          A number of foreign manufacturers now have production                      the year’s results, the experts have for the first time decided
          facilities of their own in this country: some invested in facil-           to consider both Russian and foreign manufacturers within a
          ity construction from zero cycle (e.g. Gedeon Richter,                     common rating.




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                                             of Russian pharma market




              Table 1. TOP10 most influential pharmaceutical manufacturers
                                                                                                                   Protek’s company; Genesis started a bankruptcy process. But it
               Rank 2008      Manufacturer                              Points                                     is clear that changes will not be limited to those mentioned
                                                                                                                   above, especially among those getting “gold” and “silver”
               1              Pharmstandard                             3,367
                                                                                                                   medals; more activities may be expected from the companies
               2              Berlin-Chemie/Menarini                    2,401                                      ranking from third to sixth; more M&A deals as well as bank-
               3              KRKA                                      1,935                                      ruptcies may also be expected.
               4              Novartis                                  1,706
                                                                                                                   Table 2. TOP10 most influential distributors
               5              STADA CIS                                 1,643
               6              Gedeon Richter                            1,599                                      Rank 2008                   Distributors                                                 Points

               7              Nycomed                                   1,580                                      1                           Protek                                                       3,968
               8              Pfizer                                    1,488                                      2                           SIA International                                            3,465
               9              Veropharm                                 1,416                                      3                           Katren                                                       2,929
               10             Altayvitaminy                             1,189                                      4                           Rosta                                                        1,306
                                                                       Source: Pharmexpert                         5                           Alliance Healthcare                                          1,026
                                                                                                                   6                           Moron                                                        669
              Most influential distributor                                                                         7                           Shreya Corporation                                           664
                                                                                                                   8                           Biotec Group                                                 544

              Distributors that are the key link of the product distribution                                       9                           Euroservice                                                  373
              chain in the Russian pharma market used to be the market                                             10                          Geopharm                                                     273
              founders, and they still remain the pillars holding the entire                                                                                                                              Source: Pharmexpert
              16.9 bn EUR worth market.

              Despite all potentially adverse influences, the year passed was                                      Most influential drugstore chain
              as a whole successful for Russian pharmaceutical distributors:
              on the one hand, pressure from drugstore chains has eased as                                         Drugstore chains enjoy a unique market position as the “last
              most of them have paused on development; on the other hand,                                          mile” of the product travel to customer. This position
              distributors turned out to be more stable financially. It goes                                       accounts both for the retailer strength and weakness.
              without saying that a number of companies have come across                                           The retailer is in a strong position as it may, to a certain
              certain difficulties; in particular, some players have been                                          degree, dictate its terms and conditions to suppliers, partici-
              adversely affected by the decentralization of drug procurement                                       pate in demand formation as well as be engaged in product
              under the reimbursement program. This fact might have been                                           promotion; its weak point is the necessity of massive invest-
              partly decisive in determining the rating leader: Protek has                                         ments in infrastructure as well as ongoing competition with
              regained its first rank after a year of being “number two”. It was                                   independent drugstores.
              smaller companies that have turned out to be winners; in par-
              ticular, Euroservice made its way to the TOP10 most influential                                      In 2008, pharmaceutical retailers entered a recession stage:
              distributor rating as of 2008; this company was outside TOP10                                        drugstore chains were in the first ranks of the companies hit by
              the year before.                                                                                     the world financial crisis. Many companies had to close
                                                                                                                   unprofitable drugstores; some faced irregular drug supplies as
              On the contrary, some wholesalers that were among ТОР10 the                                          wholesalers were delaying shipments waiting for the payment
              year before have ceased existing; e.g. AS Bureau became a                                            for the products already supplied.



                                                                4 500                                                                            Points                                                                   20
                                                                          17.8      17.8
                                                                4 000                                                                                                                                                     18
                                                                                                                                                 MS including reimbursement program, %
                                                                3 500     3 968                                                                                                                                           16
                                                                                                                                                                                                                          14
                                                                3 000
                                                                                                            11.3           11.0                                                                                           12
                                                                                    3 465
                                                       Points




                                                                2 500
                                                                                                                                                                                                                               %




                                                                                                         2 929                                                                                                            10
                                                                2 000
                                                                                                                                                                                                                          8
                                                                1 500                                                                 4.9                                                                                 6
                                                                1 000                                                                                                                4.0
                                                                                                                    1 306         1 026            2.7         664                          373                           4
                                                                 500                                                                                                        544              1.2              273
                                                                                                                                                 669                                                                      2
                                                                                                                                                                    1.4                                         0.3
                                                                   0                                                                                                                                                      0
                                                                                     SIA International




                                                                                                                                                                             Biotec Group
                                                                                                                                                              Corporation




                                                                                                                                                                                            Euroservice
                                                                                                                                  Healthcare




                                                                                                                                                                                                               Geopharm
                                                                                                                                  Alliance




                                                                                                                                                              Shreya
                                                                                                          Katren
                                                                           Protek




                                                                                                                                                  Moron
                                                                                                                       Rosta




              Fig. 6. Ratio of distributor influence
              index and market share, 2008                                                                                                                                                         Source: Pharmexpert




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                                                                                                      83
                                                                                                                 of Russian pharma market




                                                                                                            Table 4. TOP10 most influential public and nonprofit
          Apteki 36.6 once again lead the rating as of 2008, Rigla appre-
                                                                                                            organizations & associations
          ciably lagging behind and ranking second. However, their
          market shares are relatively small (4.97 and 2.61% respectively                                   Rank 2008     Organizations & associations                      Points
          as of 2008); the concentration of the TOP10 drugstore chains
          is less than 19%, therefore a real competition in this sector is                                  1             Russian Pharmaceutical Association —              2 991
          still ahead.                                                                                                    Rospharma
                                                                                                            2             Russian Association of Manufacturers              1 536
          At the same time, the crisis may serve a catalyst of consolidation                                              and Suppliers of Pharmaceuticals,
          and concentration of this sector, as both regional and interregional                                            Medical Products and Equipment —
          players experiencing liquidity problems have become cheaper.                                                    Rosmedprom
          Thus, the TOP10 most influential drugstore chains may change
                                                                                                            3             Russian Association of Pharmaceutical             1 035
          dramatically by the next year, as both large interregional compa-
                                                                                                                          Marketing — RAFM
          nies (such as Pharmacor and Doctor Stoletov) and current “dark
          horses” (e.g. Raduga, Melodiya Zdorovya) may become leaders.                                      4             Russian Association of Pharmacy                   853
                                                                                                                          Chains — RAAS
          Table 3. TOP10 most influential drugstore chains                                                  5             Association of Russian Pharmaceutical             825
                                                                                                                          Manufacturers — ARFP
          Rank 2008       Drugstore chains                                   Points
                                                                                                            6             Russian Pharmaceutical League — RFL               592
          1               Apteki 36.6                                        3 760
                                                                                                            7             Union of Professional Pharmaceutical              388
          2               Rigla (including O3)                               1 647
                                                                                                                          Organizations — SPFO
          3               Doctor Stoletov                                    991
                                                                                                            8             World Health Organization — WHO                   331
          4               Pharmacor                                          705
                                                                                                            9             Association of International                      237
          5               Implozia                                           674
                                                                                                                          Pharmaceutical Manufacturers — AIPM
          6               Vita                                               670
                                                                                                            10            Pharmacy Association — Soyuzpharma                111
          7               Pervaya Pomoshch                                   397
          8               Staryj Lekar                                       367                                                                              Source: Pharmexpert
          9               Samson Pharma                                      306
          10              Zdorovye Lyudi                                     300
                                                                       Source: Pharmexpert
                                                                                                            Most influential businessmen,
                                                                                                            state officials, public figures,
          Most influential public and                                                                       and scientists
          nonprofit organizations
                                                                                                            The key problem of the Russian pharma market is collision
          & associations                                                                                    of the political and market systems. The public figures and
                                                                                                            scientists, while enjoying powers themselves, lean heavily
          The authority of most public associations is directly related to                                  both on state authorities and large businesses; that is why we
          their leaders’ charisma. The TOP10 public and nonprofit                                           included representatives of all the four groups into the rating
          organizations are ranked in Table 4.                                                              (Table 5).




                                                                      1500                                                                               Apteki 36.6 4.97

                                                                      1300            Implozia 1.74

                                                                      1100   Zdorovye
                                                                             Lyudi 0.80
                                                  Number of outlets




                                                                      900                      Doctor Stoletov 1.26

                                                                      700
                                                                                                                        Rigla 2.61
                                                                      500

                                                                      300
                                                                                                      Pharmacor 1.99
                                                                      100
                                                                                                Vita 1.07
                                                                       100
                                                                           0       500     1 000    1 500              2 000         2 500   3 000       3 500      4 000      4 500
                                                                         Staryj     Pervaya Pomoshch 1.19                Influence, points
                                                                       Lekar 1.04
                                                                              Samson Pharma 0.72
          Fig. 7. Ratio of influence index,
          market share, and number of
                                                                                                                                                                 Source: Pharmexpert
          outlets in a drugstore chain, 2008




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                                            of Russian pharma market




              Table 5. TOP10 most influential businessmen, state and public figures, scientists

               Rank 2008         Businessmen, state and public figures, scientists                                           Points

               1                 Tatiana Golikova, Russia’s Minister of Health and Social Development                        941
               2                 Vladimir Putin, Russia’s Prime Minister                                                     708
               3                 Dmitry Medvedev, Russia’s President                                                         381
               4                 Igor Rudinsky, CEO, SIA International                                                       316
               5                 Vadim Yakunin, Chairman of Board, Protek Group                                              292
               6                 Gennady Onishchenko, Head, Rospotrebnadzor                                                  241
               7                 Vladimir Bryntsalov, Owner, Bryntsalov A                                                    221
               8                 Leonid Roshal, Chairman, Commission of Public Chamber of Health                             175
               9                 Nickolay Yurgel, Head, Roszdravnadzor                                                       162
               10                Mikhail Zurabov, Adviser of Russia’s President                                              157

                                                                                                                                   Source: Pharmexpert

              Most influential medical and                                                Most popular web sites
              pharmaceutical universities
                                                                                          There is an important event in this rating as Pharmexpert
              When ranking medical and pharmaceutical universities people                 has stopped taking out its web site www.pharmexpert.ru
              cannot help ranking good and bad memories of their alumni                   from TOP10. It ranks second as of 2008, following the tra-
              that are a large part of respondents for this project. Besides, the         ditional leader www.pharmvestnik.ru (Table 7). It is worth
              activity level of the universities themselves on the hottest issues         noticing the ranking ascend of the web sites of generic com-
              (e.g. a potential reform of pharma education in Russia) is also             panies KRKA, Nizhpharm (STADA), and Akrikhin, which
              very important. The university rankings are presented in                    testifies to their efficient positioning and user-friendly
              Table 6.                                                                    interfaces.

              Table 6. TOP10 most influential medical and pharmaceutical universities

               Rank 2008        University                                                                                   Points

               1                Sechenov Medical Academy (Moscow)                                                            1,904
               2                St. Petersburg Chemical and Pharmaceutical Academy (St. Petersburg)                          1,431
               3                St. Petersburg State Medical University (St. Petersburg)                                     1,316
               4                Pyatigorsk State Pharmaceutical Academy (Pyatigorsk)                                         1,107
               5                Perm State Pharmaceutical Academy (Perm)                                                     951
               6                Kursk State Medical University (Kursk)                                                       715
               7                Military Medical Academy (St. Petersburg)                                                    686
               8                Samara State Medical University (Samara)                                                     672
               9                Burdenko State Medical Academy (Voronezh)                                                    660
               10               Kazan State Medical University (Kazan)                                                       582
                                                                                                                                      Source: Pharmexpert
              Table 7. TOP10 most popular web sites

               Rank 2008        Web site                                                                                     Points

               1                pharmvestnik.ru                                                                              2,225
               2                pharmexpert.ru                                                                               1,519
               3                protek.ru                                                                                    1,484
               4                krka.ru                                                                                      1,447
               5                medi.ru                                                                                      982
               6                nizhpharm.ru                                                                                 824
               7                pharmindex.ru                                                                                802
               8                akrihin.ru                                                                                   786
               9                remedium.ru                                                                                  647
               10               rlsnet.ru                                                                                    435
                                                                                                                                      Source: Pharmexpert




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                                                                                                      85
                                                                                                                 of Russian pharma market




          Most popular Rx drugs                                                                             (Novartis), Mezym forte (Berlin-Chemie/Menarini), No-spa
                                                                                                            (Sanofi-Aventis), and Linex (Sandoz) have long ago become
          It has been a pretty long time since the Rx segment “locomo-                                      “people’s brands”.
          tive” brought anything sensational to the table. The tradition
          was broken in 2008 after a marketing breakthrough of Ranbaxy                                      Essentiale (Sanofi-Aventis) has come back to TOP10. It is
          Laboratories Ltd with its trademark Ketanov. Our analysts’                                        also worth noticing the marketing success of Aqua Maris
          ovation also extends to the local company Pharmasoft: its                                         (Jadran) that found a new market niche as well as Diflucan
          trademark Mexidol has for the first time made its way to the                                      (Pfizer) and ACC (Sandoz) that are newcomers for this rat-
          rating of the TOP10 most popular Rx drugs (Table 8). Another                                      ing.
          sensation is Yarina (Bayer Healthcare) ascend to TOP10.
          Viagra and Yarina have become a stronghold of gradually                                           Table 9. TOP10 most popular OTC drugs
          improving sexual life of the Russians.
                                                                                                            Rank 2008         OTC drugs/manufacturers               Points
          The four leaders, i.e. Actovegin (Nycomed), Viagra (Pfizer),                                      1                 Arbidol                               2,214
          Amoxiclav (Sandoz), and Preductal (Servier), are the long-lived                                                     (Pharmstandard)
          rating participants due to their good public and professional
                                                                                                            2                 Theraflu1 (Novartis)                  1,087
          reputation.
                                                                                                            3                 Mezym    forte2                       1,085
          Table 8. TOP10 most popular Rx drugs                                                                                (Berlin-Chemie/Menarini)
                                                                                                            4                 No-spa3                               807
          Rank 2008        Rx drugs/manufacturers                               Points                                        (Sanofi-Aventis)
          1                Actovegin (Nycomed)                                  959                         5                 Linex (Sandoz)                        697
          2                Viagra (Pfizer)                                      802                         6                 Essentiale4                           575
                                                                                                                              (Sanofi-Aventis)
          3                Amoxiclav (Sandoz)                                   516
                                                                                                            7                 Aqua Maris                            537
          4                Preductal1   (Servier)                               505
                                                                                                                              (Jadran)
          5                Ketanov (Ranbaxy Laboratories)                       445
                                                                                                            8                 Coldrex5 (GSK)                        437
          6                Mexidol (Pharmasoft)                                 435
                                                                                                            9                 Diflucan (Pfizer)                     436
          7                Heptral (Abbott Laboratories)                        371
                                                                                                            10                ACC6 (Sandoz)                         421
          8                Yarina (Bayer Healthcare)                            356
                                                                                                            1 Number of points for Theraflu, Theraflu extra, Theraflu lar, and
          9                Bioparox (Servier)                                   354
                                                                                                            Theraflu extratab was summed up.
          10               Omez (Dr. Reddy’s)                                   349                         2 Number of points for Mezym forte and Mezym forte 10000 was
          1   Number of points for Preductal and Preductal МВ was summed up.                                summed up.
                                                                                                            3 Number of points for No-spa and No-spa forte was summed up.
                                                            Source: Pharmexpert
                                                                                                            4 Number of points for Essentiale forte Н and Essentiale Н was

                                                                                                            summed up.
          Most popular OTC drugs                                                                            5 Number of points for Coldrex hotrem, Coldrex maxigripp, Coldrex

                                                                                                            broncho, Coldrex night, and Coldrex junior was summed up.
                                                                                                            6 Number of points for ACC, ACC long, ACC 100, ACC 200, and ACC
          The ranks of leaders in this nomination have not changed vs.                                      inject was summed up.
          the preceding year (Table 9): Arbidol (Pharmstandard), Theraflu                                                                                    Source: Pharmexpert




                                                                                                                                                Viagra
                                                                      1.80
                                                                      1.60                                                                                          Actovegin
                                                                      1.40
                                                                                            Heptral
                                                    Market share, %




                                                                      1.20                             Mexidol
                                                                                                                   Preductal
                                                                      1.00
                                                                                   Yarina
                                                                      0.80                                           Amoxiclav
                                                                                                Bioparox
                                                                      0.60
                                                                      0.40         Omez                     Ketanov

                                                                      0.20
                                                                      0.00
                                                                          200       300          400         500        600         700           800    900      1 000      1 100
                                                                                                                   Influence, points
          Fig. 8. Ratio of Rx drug influence
          index and market share, 2008                                                                                                                         Source: Pharmexpert




GO_2009_ENG.indb 85                                                                                                                                                                  02.05.2009 8:29:10
                               Annual rating of most influential subjects
                                                                                                       86
                                             of Russian pharma market




                                                                       3.50
                                                                       3.00                                                                                       Arbidol




                                                     Market share, %
                                                                       2.50
                                                                                          Essentiale
                                                                       2.00
                                                                                                             Linex
                                                                       1.50    Coldrex
                                                                                                                             Mezym forte
                                                                       1.00
                                                                                                 Aqua Maris
                                                                       0.50    Diflucan
                                                                       0.00                                                  Theraflu
                                                                       0.50           ACC                   No spa

                                                                       1.00
                                                                              100              600                   1 100                 1 600        2 100           2 600
                                                                                                                                 Influence, points
              Fig. 9. Ratio of OTC drug influence
              index and market share, 2008                                                                                                                  Source: Pharmexpert




              Conclusion: The ongoing changes in the pharma market made for                                   blurred). Some “pillars of power” still head their respective rank-
              decreasing the number of the ranking nominations (Russian and                                   ings; however, change of consumer preferences either because of the
              foreign manufacturers as well as businessmen and politicians were                               crisis or other factors have caused reallocation of forces in other
              united within single categories as their implications have become                               nominations. We expect more drastic changes in the medium term.




GO_2009_ENG.indb 86                                                                                                                                                         02.05.2009 8:29:11
          XII. RATING OF INVESTMENT
          ATTRACTIVENESS
          OF RUSSIAN FEDERAL
          SUBJECTS

                      As a result of the Rating of investment attractiveness of the Federal subjects,
                      ТОР5 regions were determined in eleven nominations as follows:

                         1. Highest salary.
                         2. Highest cash income per capita.
                         3. Highest consumer spending.
                         4. Highest cost of living.
                         5. Largest population.
                         6. Largest urban population.
                         7. Largest unemployed population.
                         8. Largest out-of-pocket market.
                         9. Largest hospital market.
                         10. Largest reimbursement market.
                         11. Largest number of doctors.




GO_2009_ENG.indb 87                                                                                 02.05.2009 8:29:11
                                                        Rating of investment attractiveness
                                                                                                                                                                                                      88
                                                                of Russian Federal subjects




              METHODS
              The compilation methods for the Rating of investment attractiveness of Russian Federal subjects are based on analyzing their eco-
              nomic and socio-demographic indicators as well as basic indicators of individual sectors of the regional pharma and medical services
              markets. Analysis included the following stages:

              1. Ranking the regions within the categories of the Economic, Socio-demographic, and Pharma & healthcare indicators.
              2. Determining expert weight of each indicator in a specific category.
              3. Forming the ranking within each category.
              4. Determining the final rank of the Federal subject proceeding from the weighted sums of intermediate rankings.

              The analysis was based on 2008 data according to the indices in Table 1.

              Table 1. Basic categories and indices used for evaluating investment attractiveness of Russian Federal subjects

               #                                 Category                                                                                                                                          Index

               1.                                Economic indicators                                                                                                                               Average employee nominal monthly salary
                                                                                                                                                                                                   Cash income per capita
                                                                                                                                                                                                   Consumer spending
                                                                                                                                                                                                   Cost of living
               2.                                Socio-demographic indicators                                                                                                                      Population, total
                                                                                                                                                                                                   Population, urban
                                                                                                                                                                                                   Population, unemployed
               3.                                Pharma and healthcare indicators                                                                                                                  Out-of-pocket market
                                                                                                                                                                                                   Hospital market
                                                                                                                                                                                                   Reimbursement market
                                                                                                                                                                                                   Number of doctors

              The resultant rating of the investment attractiveness of the Federal subjects (in breakdown by regions) in the perspective of different
              pharma market sectors is presented in Table 2.

              Table 2. Rating of investment attractiveness of Russian Federal subjects (by pharma market sectors), 2008

                                                                        Rank, economic indicators                                                                                                                                             Rank, socio-demographic                                                                                             Rank, pharma and healthcare
                                                                                                                                                                                                                                              indicators                                                                                                          indicators
                                                                                                                                                                                                                                                                                                                                                                                                                                       (reimbursement prices), mn USD, 2008
                                                                                                                                                                                                                                                                                                                                                                  Out-of-pocket market, mn USD, 2008
                                                                        Average employee nominal monthly




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Rank, total, pharma and healthcare
                                                                                                                                                                                                       Rank, total, economic indicators




                                                                                                                                                                                                                                                                                                                                                                                                       Hospital market, mn USD, 2008
                                                                                                                                                                                                                                                                                                                                 Rank, total, socio-demographic
                                                                                                                                                                                                                                                                                                  Population, unemployed, thsd
                                                                                                           Cash income per capita, RUB




                                                                                                                                                                  Cost of living per capita, RUB
                                                                                                                                         Consumer spending, RUB




                                                                                                                                                                                                                                                                                                                                                                                                                                                                              Number of doctors, thsd
                                                                                                                                                                                                                                                                                                                                                                                                                                       Reimbursement market
                                                                                                                                                                                                                                                                        Population, urban, thsd
                                                                                                                                                                                                                                              Population, total, thsd
                               Federal subject
               Ranking, 2008




                                                                        salary, RUB




                                                                                                                                                                                                                                                                                                                                 indicators




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        indicators




                        1      Moscow                                   4                                  1                             1                        8                                                                       2   1                         1                         37                                         2                    1                                    1                               1                                      1                                               1
                        2      Moscow region                            10                                 5                             5                        17                                                                      6   2                         2                         14                                         1                    3                                    9                               2                                      3                                               2
                        3      St. Petersburg                           9                                  4                             4                        22                                                                      8   4                         3                         35                                         6                    2                                    2                               3                                      2                                               4
                        4      Sverdlovsk region                        16                                 7                             7                        27                                                 11                       5                         4                         7                                          3                    5                                    5                               7                                      5                                               3
                        5      Tyumen region                            2                                  2                             2                        26                                                                      3   10                        9                         4                                          9                    6                                    13                              17                                     7                                               9
                        6      Krasnodar territory                      42                                 15                            15                       39                                                 24                       3                         8                         5                                          4                    10                                   8                               9                                      4                                               5
                        7      Samara region                            31                                 6                             6                        20                                                 15                       12                        11                        26                                  12                          7                                    25                              13                                     11                                      12
                        8      Chelyabinsk region                       30                                 18                            18                       48                                                 23                       9                         5                         23                                         8                    12                                   7                               16                                     15                                              8
                        9      Republic of Tatarstan                    28                                 13                            13                       72                                                 26                       8                         7                         20                                         7                    9                                    10                              5                                      8                                               6
                    10         Novosibirsk region                       23                                 12                            12                       21                                                 16                       18                        16                        13                                  16                          13                                   16                              4                                      12                                      13
                    11         Perm territory                           29                                 14                            14                       19                                                 17                       15                        15                        6                                   14                          18                                   26                              8                                      13                                      14




GO_2009_ENG.indb 88                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             02.05.2009 8:29:11
                                                                                                                                                                                                                                               Rating of investment attractiveness
                                                                                                                                                                                    89
                                                                                                                                                                                                                                               of Russian Federal subjects




          Table 2. Cont' d (1)

                                                         Rank, economic indicators                                                                                                                                         Rank, socio-demographic                                                                                             Rank, pharma and healthcare
                                                                                                                                                                                                                           indicators                                                                                                          indicators




                                                                                                                                                                                                                                                                                                                                                                                                                    (reimbursement prices), mn USD, 2008
                                                                                                                                                                                                                                                                                                                                               Out-of-pocket market, mn USD, 2008
                                                         Average employee nominal monthly




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Rank, total, pharma and healthcare
                                                                                                                                                                                    Rank, total, economic indicators




                                                                                                                                                                                                                                                                                                                                                                                    Hospital market, mn USD, 2008
                                                                                                                                                                                                                                                                                                              Rank, total, socio-demographic
                                                                                                                                                                                                                                                                               Population, unemployed, thsd
                                                                                            Cash income per capita, RUB




                                                                                                                                                   Cost of living per capita, RUB
                                                                                                                          Consumer spending, RUB




                                                                                                                                                                                                                                                                                                                                                                                                                                                           Number of doctors, thsd
                                                                                                                                                                                                                                                                                                                                                                                                                    Reimbursement market
                                                                                                                                                                                                                                                     Population, urban, thsd
                                                                                                                                                                                                                           Population, total, thsd
                           Federal subject
           Ranking, 2008




                                                         salary, RUB




                                                                                                                                                                                                                                                                                                              indicators




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     indicators
                12         Krasnoyarsk territory         13                                 17                            17                       16                                             14                       13                        14                        18                                  13                          16                                   47                              15                                     14                                      17
                13         Republic of Bashkortostan     33                                 10                            10                       69                                             25                       7                         12                        12                                  10                          4                                    19                              11                                     6                                       10
                14         Rostov region                 52                                 19                            19                       45                                             31                       6                         6                         3                                          5                    11                                   17                              10                                     9                                               7
                15         Nizhniy Novgorod region       44                                 22                            22                       28                                             28                       11                        10                        16                                  11                          8                                    15                              12                                     10                                      11
                16         Irkutsk region                17                                 34                            34                       25                                             22                       22                        17                        8                                   19                          15                                   33                              6                                      21                                      15
                17         Khabarovsk territory          12                                 16                            16                       7                                              10                       33                        28                        28                                  30                          24                                   11                              19                                     28                                      23
                18         Kemerovo region               25                                 20                            20                       60                                             27                       14                        13                        19                                  15                          17                                   54                              25                                     16                                      22
                19         Primorie territory            19                                 24                            24                       10                                             19                       26                        21                        22                                  24                          21                                   36                              37                                     26                                      27
                20         Leningrad region              18                                 45                            45                       41                                             34                       27                        30                        33                                  27                          25                                   4                               21                                     41                                      18
                21         Archangel region              14                                 26                            26                       12                                             18                       40                        37                        40                                  38                          28                                   3                               46                                     31                                      29
                22         Omsk region                   38                                 29                            29                       35                                             29                       25                        23                        21                                  25                          19                                   31                              22                                     23                                      24
                23         Komi Republic                 11                                 8                             8                        9                                                                   7   53                        48                        48                                  51                          49                                   12                              30                                     52                                      41
                24         Murmansk region               8                                  9                             9                        6                                                                   4   60                        44                        53                                  55                          37                                   18                              34                                     55                                      44
                25         Volgograd region              48                                 38                            38                       49                                             44                       19                        18                        11                                  18                          27                                   24                              42                                     18                                      20
                26         Stavropol territory           65                                 32                            32                       46                                             47                       16                        20                        10                                  17                          30                                   28                              29                                     20                                      19
                27         Republic of Sakha (Yakutia)   7                                  11                            11                       4                                                                   5   56                        55                        42                                  57                          34                                   45                              50                                     46                                      50
                28         Voronezh region               53                                 58                            58                       57                                             57                       23                        22                        30                                  23                          14                                   14                              23                                     19                                      16
                29         Yaroslavl region              34                                 44                            44                       29                                             36                       36                        31                        44                                  33                          38                                   42                              43                                     29                                      36
                30         Vologda region                22                                 55                            55                       23                                             38                       41                        41                        50                                  41                          43                                   6                               31                                     53                                      33
                31         Altai territory               74                                 52                            52                       36                                             54                       21                        24                        9                                   22                          23                                   51                              14                                     22                                      26
                32         Kaliningrad region            24                                 25                            25                       18                                             21                       57                        49                        41                                  54                          41                                   21                              40                                     60                                      46
                33         Tomsk region                  15                                 27                            27                       24                                             20                       49                        51                        43                                  49                          32                                   71                              36                                     32                                      48
                34         Tula region                   45                                 42                            42                       43                                             43                       28                        25                        63                                  29                          62                                   37                              24                                     43                                      34
                35         Tver region                   43                                 35                            35                       38                                             37                       35                        33                        54                                  36                          51                                   41                              39                                     30                                      39
                36         Saratov region                54                                 65                            65                       56                                             64                       20                        19                        15                                  20                          20                                   27                              41                                     17                                      21
                38         Republic of Daghestan         80                                 31                            31                       76                                             53                       17                        27                        1                                   21                          58                                   34                              35                                     24                                      30
                37         Orenburg region               46                                 60                            60                       65                                             58                       24                        26                        25                                  26                          22                                   29                              20                                     25                                      25
                39         Belgorod region               40                                 41                            41                       73                                             48                       30                        35                        60                                  34                          42                                   53                              26                                     36                                      38
                40         Lipetsk region                39                                 33                            33                       58                                             40                       43                        46                        61                                  44                          35                                   46                              45                                     47                                      43
                41         Sakhalin region               3                                  3                             3                        3                                                                   1   70                        69                        67                                  70                          53                                   66                              70                                     69                                      69
                42         Udmurt Republic               49                                 61                            61                       63                                             61                       29                        32                        29                                  28                          33                                   32                              49                                     27                                      31
                43         Kirov region                  66                                 63                            63                       44                                             65                       32                        34                        31                                  32                          31                                   30                              18                                     34                                      28
                44         Vladimir region               56                                 64                            64                       34                                             55                       31                        29                        46                                  31                          45                                   50                              28                                     48                                      37
                45         Transbaikal territory         26                                 53                            53                       31                                             41                       46                        50                        24                                  43                          40                                   68                              58                                     37                                      47
                46         Penza region                  57                                 57                            57                       62                                             62                       34                        38                        34                                  35                          26                                   35                              33                                     44                                      32
                47         Kaluga region                 35                                 30                            30                       53                                             35                       50                        45                        64                                  50                          46                                   62                              47                                     58                                      51
                48         Ryazan region                 47                                 50                            50                       42                                             49                       44                        42                        59                                  42                          39                                   49                              32                                     35                                      42
                49         Republic of Karelia           21                                 49                            49                       15                                             30                       67                        60                        57                                  63                          55                                   23                              55                                     61                                      55
                50         Kamchatka territory           6                                  21                            21                       2                                                                   9   74                        71                        73                                  74                          70                                   70                              62                                     71                                      71
                51         Ulyanovsk region              67                                 56                            56                       61                                             67                       37                        36                        39                                  37                          29                                   40                              38                                     50                                      35




GO_2009_ENG.indb 89                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       02.05.2009 8:29:11
                                                 Rating of investment attractiveness
                                                                                                                                                                                           90
                                                         of Russian Federal subjects




              Table 2. Cont' d (2)

                                                                Rank, economic indicators                                                                                                                                     Rank, socio-demographic                                                                                             Rank, pharma and healthcare
                                                                                                                                                                                                                              indicators                                                                                                          indicators




                                                                                                                                                                                                                                                                                                                                                                                                                          (reimbursement prices), mn USD, 2008
                                                                                                                                                                                                                                                                                                                                                  Out-of-pocket market, mn USD, 2008
                                                                Average employee nominal monthly




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           Rank, total, pharma and healthcare
                                                                                                                                                                                           Rank, total, economic indicators




                                                                                                                                                                                                                                                                                                                                                                                       Hospital market, mn USD, 2008
                                                                                                                                                                                                                                                                                                                 Rank, total, socio-demographic
                                                                                                                                                                                                                                                                                  Population, unemployed, thsd
                                                                                                   Cash income per capita, RUB




                                                                                                                                                          Cost of living per capita, RUB
                                                                                                                                 Consumer spending, RUB




                                                                                                                                                                                                                                                                                                                                                                                                                                                                 Number of doctors, thsd
                                                                                                                                                                                                                                                                                                                                                                                                                          Reimbursement market
                                                                                                                                                                                                                                                        Population, urban, thsd
                                                                                                                                                                                                                              Population, total, thsd
                               Federal subject
               Ranking, 2008




                                                                salary, RUB




                                                                                                                                                                                                                                                                                                                 indicators




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           indicators
                    52         Amur region                      20                                 54                            54                       11                                             32                   59                        56                        70                                  60                          50                                   56                                 48                                     45                                      61
                    53         Astrakhan region                 50                                 36                            36                       55                                             46                   51                        53                        49                                  52                          52                                   43                                 64                                     33                                      53
                    54         Novgorod region                  36                                 37                            37                       32                                             33                   68                        65                        74                                  69                          57                                   22                                 65                                     65                                      62
                    55         Magadan region                   5                                  23                            23                       5                                              12                   79                        76                        79                                  78                          73                                   75                                 79                                     77                                      77
                    56         Chuvash Republic                 58                                 70                            70                       68                                             71                   39                        43                        36                                  40                          36                                   39                                 60                                     38                                      40
                    57         Kursk region                     60                                 46                            46                       64                                             52                   45                        47                        51                                  46                          66                                   61                                 51                                     39                                      54
                    59         Smolensk region                  55                                 39                            39                       37                                             45                   52                        52                        52                                  53                          64                                   59                                 52                                     40                                      59
                    58         Bryansk region                   71                                 51                            51                       67                                             66                   38                        39                        47                                  39                          63                                   44                                 27                                     51                                      45
                    60         Tambov region                    70                                 40                            40                       80                                             59                   47                        54                        38                                  48                          47                                   57                                 53                                     59                                      49
                    61         Chukotka autonomous okrug        1                                  28                            28                       1                                              13                   80                        80                        80                                  80                          80                                   79                                 80                                     80                                      80
                    62         Kurgan region                    61                                 43                            43                       51                                             50                   54                        57                        45                                  58                          56                                   38                                 59                                     64                                      56
                    63         Buryat Republic                  32                                 47                            47                       30                                             39                   55                        58                        32                                  56                          69                                   72                                 56                                     56                                      66
                    64         Pskov region                     63                                 48                            48                       52                                             51                   63                        63                        65                                  64                          60                                   20                                 63                                     68                                      58
                    65         Ivanovo region                   72                                 68                            68                       50                                             70                   48                        40                        62                                  45                          65                                   60                                 44                                     42                                      52
                    66         Evreyskaya autononous region     27                                 62                            62                       14                                             42                   78                        78                        78                                  79                          78                                   74                                 77                                     79                                      79
                    67         Republic of Khakassia            37                                 74                            74                       40                                             56                   69                        70                        71                                  71                          54                                   77                                 67                                     70                                      70
                    68         Chechen Republic                 51                                 80                            80                       54                                             80                   42                        68                        2                                   47                          76                                   52                                 69                                     63                                      57
                    69         Oryol region                     64                                 59                            59                       74                                             69                   62                        59                        66                                  61                          59                                   65                                 57                                     62                                      64
                    70         Republic of Mordovia             69                                 75                            75                       71                                             75                   61                        62                        77                                  62                          44                                   48                                 61                                     54                                      60
                    71         Republic of Mariy El             68                                 69                            69                       70                                             73                   64                        67                        56                                  65                          48                                   58                                 68                                     67                                      63
                    72         Kostroma region                  62                                 71                            71                       47                                             68                   66                        64                        72                                  67                          61                                   64                                 54                                     66                                      67
                    73         Tyva Republic                    41                                 77                            77                       33                                             60                   75                        75                        68                                  75                          71                                   78                                 74                                     75                                      75
                    74         Kabardino-Balkar Republic        75                                 73                            73                       79                                             77                   58                        61                        27                                  59                          67                                   55                                 75                                     57                                      65
                    75         Republic of Northern Ossetia     78                                 66                            66                       78                                             74                   65                        66                        55                                  66                          68                                   63                                 66                                     49                                      68
                               — Alania
                    76         Altai Republic                   59                                 76                            76                       13                                             63                   77                        79                        76                                  77                          72                                   80                                 78                                     78                                      78
                    77         Republic of Adygeya              73                                 67                            67                       59                                             72                   72                        72                        75                                  73                          75                                   67                                 73                                     72                                      74
                    78         Karachai-Cherkess Republic       77                                 72                            72                       77                                             76                   73                        74                        58                                  72                          74                                   69                                 72                                     73                                      72
                    79         Ingush Republic                  76                                 79                            79                       66                                             78                   71                        73                        17                                  68                          79                                   76                                 76                                     76                                      73
                    80         Kalmyk Republic                  79                                 78                            78                       75                                             79                   76                        77                        69                                  76                          77                                   73                                 71                                     74                                      76
                                                                                                                                                                                                                                                                                                                                                                                                                                  Source: Rosstat
                                                                                                                                                                                                                                                                                                                                                                                                                       Calculations: Pharmexpert




GO_2009_ENG.indb 90                                                                                                                                                                                                                                                                                                                                                                                                                                                                                02.05.2009 8:29:11
                                                               Rating of investment attractiveness
                                                    91
                                                               of Russian Federal subjects




          TOP5 regions: Highest salary                   TOP5 regions: Largest unemployed
           1.         Chukotka autonomous okrug
                                                         population
           2.         Tyumen region
                                                          1.          Republic of Daghestan
           3.         Sakhalin region
           4.         Moscow                              2.          Chechen Republic
           5.         Magadan region
                                                          3.          Rostov region

          TOP5 regions: Highest cash income per           4.          Tyumen region

          capita                                          5.          Krasnodar territory


           1.         Moscow
           2.         Tyumen region                      TOP5 regions: Largest out-of-pocket
           3.         Sakhalin region                    market
           4.         St. Petersburg
           5.         Moscow region                       1.          Moscow

                                                          2.          St. Petersburg
          TOP5 regions: Highest consumer
                                                          3.          Moscow region
          spending
                                                          4.          Republic of Bashkortostan
           1.         Moscow                              5.          Sverdlovsk region
           2.         Tyumen region
           3.         Sakhalin region
           4.         St. Petersburg                     TOP5 regions: Largest hospital market
           5.         Moscow region
                                                          1.          Moscow
          TOP5 regions: Highest cost of living            2.          St. Petersburg

                                                          3.          Archangel region
           1.         Chukotka autonomous okrug
                                                          4.          Leningrad region
           2.         Kamchatka territory
           3.         Sakhalin region                     5.          Sverdlovsk region

           4.         Republic of Sakha (Yakutia)
           5.         Magadan region                     TOP5 regions: Largest reimbursement
                                                         market
          TOP5 regions: Largest population
                                                          1.          Moscow
           1.         Moscow
                                                          2.          Moscow region
           2.         Moscow region
                                                          3.          St. Petersburg
           3.         Krasnodar territory
           4.         St. Petersburg                      4.          Novosibirsk region

           5.         Sverdlovsk region                   5.          Republic of Tatarstan


                                                         TOP5 regions: Largest number of doctors
          TOP5 regions: Largest urban population
                                                          1.          Moscow
           1.         Moscow
                                                          2.          St. Petersburg
           2.         Moscow region
                                                          3.          Moscow region
           3.         St. Petersburg
           4.         Sverdlovsk region                   4.          Krasnodar territory

           5.         Chelyabinsk region                  5.          Sverdlovsk region




GO_2009_ENG.indb 91                                                                                  02.05.2009 8:29:12
          XIII. TUNING
          DRUG PRICES
          PHARMA PRICING SPECIFICS




                       The history of economic turbulences in Russia testifies to the fact that any
                       crisis results, first of all, in a price rise. Market tools have proven ineffective
                       in controlling such situations. The above can be illustrated by the events of
                       late 2008 when a more than threefold fall of world oil prices resulted in the
                       reduction of petrol prices by just a few percents. However, in this report we
                       will focus on main pricing trends in retail pharmaceutical sales.

                       Price is not only the key concept of the market economy and the main com-
                       petition tool; in Pharma, it is also a social factor affecting public health and
                       the level of social tension. The latter is especially important for Russia where
                       the bulk of drugs are purchased out-of-pocket. That is why the drug price
                       growth commanded the attention of customers, pharmaceutical companies,
                       and officials.




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                                                  Pharma pricing specifics            94




              Presently, the drug price regulation issue has become the focus              The official-level activities with a view to stabilizing a drug
              of discussion by the government. Russia’s President has already              price rise are limited by the strong dependence of the phar-
              voiced the necessity of declaring drug selling prices. The                   ma industry on imports. Any currency rate fluctuations
              Federal Antitrust Service (FAS) and Federal Drug Surveillance                result in drug price movements, which is detrimental for end
              Agency (Roszdravnadvor) are also developing drug control                     customers. At the same time, more than 50% of all INNs
              regulations; however, these regulations will primarily embrace               circulating in the Russian pharma market do not have local
              Essential and Vital Drugs (the so-called ZhNVLS list).                       analogues (Fig. 2).

              Unfortunately, the official-level activities aimed at limiting the           It is no secret that even local drugs are based on imported APIs.
              drug price growth followed more than six months after the drug               Consequently, the cost of officinal drugs depends on pricing
              basket price has risen appreciably. The same is true for the mass            policies of raw suppliers and payment currency rate fluctua-
              media reaction.                                                              tions. In the meantime, it is next to impossible to solve the
                                                                                           entire import dependence problem in the short term as it
              Fig. 1 demonstrates average drug price dynamics month-on-                    requires large-scale R&D efforts as well as investment in infra-
              month in Russia. The prices peaked in June and July, the aver-               structure. This is, in part, the focus of the Pharmaceutical
              age price posting a growth for most local and imported drugs.                Industry Development Strategy till 2020.
              Such dynamics is not indicative of an increased demand for
              costlier brands; it just testifies to a significant price growth for         However, a comparison of Paasche price index1 for local and
              specific drugs.                                                              imported drugs with EUR:RUB and USD:RUB exchange




                                                                                                                                    169     172     173
                                                                                                            167    165       162
                                                                                                     156
                                                                   148     151       151    151
                                                           142


                                                                                                                              81     83      85      86
                                                                            74                              76      75
                                                                     70               69      70     71
                                                            65


                                                                    30      31                                                32     33      34      34
                                                            26                       27       26     27      27      28


                                                           Jan     Feb     Mar       Apr   May       Jun    Jul     Aug      Sep    Oct     Nov     Dec

                                                                             Market average           Imported            Local
              Fig. 1. Average drug price dynamics
              in out-of-pocket segment (RUB),
              2008                                                            Source: Pharmexpert — Monitoring of retail drug sales in Russia (month-on-month)




                                                                                              47.3

                                                                                                                  INNs having local analogues


                                                                                                                  INNs not having local analogues




                                                                 52.7




              Fig. 2. Share (% of total) of unique
              INNs not having local analogues,
              2008                                     Source: Pharmexpert — Monitoring of drugstore and hospital drug procurement and reimbursable distribution


              1 Price index weighted based on industrial output of the current year. Paasche index is calculated as the ratio of cost of a commodity set
              manufactured in a given year and sold at market prices of the same year to cost of a similar commodity set at the price rate of the basic
              (reference) year.




GO_2009_ENG.indb 94                                                                                                                                        02.05.2009 8:29:12
                                                                                       95         Pharma pricing specifics




          rates (Fig. 3) showed that devaluation of the national currency                     fact that prices for local drugs are still lower than for imported.
          was not the only factor that has triggered off the drug price                       At the same time, there are also non-economic factors behind
          growth.                                                                             their behavior such as the desire to make use of the economic
                                                                                              situation in order to boost their profitability. It is difficult to
          A Paasche index rush, which is indicative of the drug price                         assess the contribution of each specific factor in the situation as
          inflation level, was registered in July although the USD:RUB                        a whole, based solely on external auditing data; however if
          rate was at its year’s minimum. An average EUR:RUB rate                             needs be, such assessment may be made by special-purpose
          continued decreasing till November. However, it is euro that                        agencies that will be able to demand explanations from compa-
          was the main payment currency for imported drugs in 2008                            nies in case there is a dramatic rise of drug selling prices.
          (>48% of all payments; Fig. 4). At the same time, the share of                      Foreign companies have been more cautious in respect of con-
          dollar payment diminished by 17.6% in the same year, with                           taining drug prices so far; they are characterized by a higher
          ruble payments gaining ground.                                                      financial stability as well.

          Thus, the currency devaluation was an important but not the                         When analyzing the drug price growth factors, it would be
          only price growth factor. Of more interest is the fact that the                     wrong to find fault with pharmaceutical manufacturers only.
          price growth rate for local drugs was higher that that for                          Wholesale and retail markups are also very important in
          imported drugs during 2008. The devaluation could have                              forming the final price; on average, together they account
          affected API prices; however, there could not have been a quick                     for a 50—70% markup to the manufacturer (ex-works)
          price effect in such case. Most likely, the reason is the desire of                 price. It is curious to observe that the retail drug price index
          local pharma companies to compensate for potential risks by                         as of 2008 was higher than that in the wholesale segment,
          raising prices in advance. Such strategy can be explained by                        which testifies to a rising retail markup. This trend cannot
          financial instability of specific companies. Local players have                     be validated by economic factors as the leasing rates that
          gone through a number of crises; therefore they are striving to                     make an appreciable contribution in retailer costs have been
          be on the safe side by all means, especially proceeding from the                    decreasing.




                                                                               36.8      37.1    36.9     36.8     36.8                                        38.0
                                                             36.0     36.1                                                   36.3     36.3 35.3          34.8
                                                                                                                                     1.17  1.20         1.21 1.25
                                                                                                                  1.13     1.15
                                                         1.06                          1.06     1.09    1.10
                                                                    1.06      1.06                                                                               1.21
                                                                                                                                      1.18     1.18     1.18
                                                                                                                            1.14
                                                                                                         1.07     1.12
                                                                     1.03              1.03     1.05
                                                            1.02               1.03




                                                                                                                23.3      24.2      25.3     26.4     27.3     28.2
                                                                                              23.7     23.6
                                                        24.5       24.5      23.8     23.5




                                                         Jan        Feb       Mar      Apr      May     Jun       Jul      Aug       Sep      Oct      Nov      Dec

          Fig. 3. Paasche price index in out-                                               USD:RUB               Paasche index/imported drugs
          of-pocket drug sector vs. USD:RUB                                                 EUR:RUB               Paasche index/local drugs
          and EUR:RUB dynamics (month-on-
          month vs. previous year), 2008                                       Source: Pharmexpert — Monitoring of retail drug sales in Russia (month-on-month)




                                                     2008                            48.5                                          38.6                      12.6       0.3




                                                     2007                     36.7                                           56.2                               6.8     0.3




          Fig. 4. Currency shares (%) in                                                        EUR     USD       RUB       Other
          payments for imported drugs,
          2007—2008                                                                                                        Source: Pharmexpert — Drug import to Russia




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                                                Pharma pricing specifics               96




              It turns out that in fact the consumer is not so much funding                    substitutes in similar price niches. In this case, their active
              the real economy sector or drug distribution infrastructure                      promotion coupled with good brand image is likely to be the
              development as compensating the debt risks of specific retail-                   main factor.
              ers. And it is pharmaceutical manufacturers that must be most
              of all interested in controlling drug markup level in the distri-                In a crisis, drug prices come to the forefront due to their social
              bution chain. Higher retail prices are to the advantage of retail-               importance. Should they grow as a result of increasing the cost
              ers only; manufacturers, reversely, may face lower demand for                    of raw materials or other overhead expenses, it would be next
              their products that may consequently result in lower sales.                      to impossible to control such growth. However, speculative
                                                                                               drug price “rallies” should be tracked by pharma market play-
              The price elasticity of demand for drugs is lower than for other                 ers themselves.
              FMCG products. However, many drugs have analogues; there-
              fore, they will have different price elasticity coefficients. That               Practical experience shows that even slight price fluctuations
              is why a similar price rise for two similar products may affect                  can drastically change customer behavior. Thus, in 2002 after
              their sales to different degrees. The above is true both for Rx                  the VAT on drugs was implemented, it was not local drugs but
              and OTC drugs (Table 1).                                                         cheap imported generics that the customers chose.

              The price elasticity coefficient is determined not also by con-                  That is why any changes in price policies must be thoroughly
              sumer properties of a trademark (e.g. curative effect) but also                  weighted as pricing mistakes may cost companies a lot in the
              by promotion efforts, public and professional brand image,                       long term.
              price rate for a given trademark vs. analogues etc. For example,
              Activated charcoal that has a relatively low retail price is char-               Conclusion: It would have been logical to forecast price trends
              acterized by non-elastic demand as prices for substitutes are                    for 2009 at this point; however, we cannot make forecasts
              much higher, and as long as the price gap remains big, the                       openly following the FAS resolution. Nonetheless, Pharmexpert
              consumer prefers the cheaper trademark. This factor provided                     has a proprietary methodology of tracking pricing and forecast-
              for raising prices for traditional drugs by some manufacturers                   ing drug price indices in different links of the distribution chain.
              during the year. Another example: such brands as Linex,                          We are ready to share this methodology by way of individual
              Detralex, Complivit boast non-elastic demand despite abundant                    consultations.

              Table 1. ТОР10 trademarks characterized by price elasticity and non-elasticity of demand, 2008

               ТОР10 ТМ: non-elastic demand*                                                       ТОР10 ТМ: elastic demand*

               Trademark                                        Price elasticity coefficient       Trademark                   Price elasticity coefficient

               Activated charcoal                               0.50                               Theraflu                    1.50
               Crataegus                                        0.52                               Amixin                      1.48
               Linex                                            0.62                               Cortexin                    1.48
               Detralex                                         0.69                               Diflucan                    1.46
               Terpincodum                                      0.75                               Ketorol                     1.44
               Complivit                                        0.77                               Theraflex                   1.35
               Corvalolum                                       0.78                               Otrivin                     1.33
               Ketanov                                          0.79                               Concor                      1.33
               Hylak forte                                      0.82                               Canephron N                 1.31
               Diane-35                                         0.83                               Betaserc                    1.29
              * Among ТОР1000 trademarks by sales in out-of-pocket market.
                                                                                 Source: Pharmexpert — Monitoring of retail drug sales in Russia (month-on-month)




GO_2009_ENG.indb 96                                                                                                                                           02.05.2009 8:29:13
GO_2009_ENG.indb 97   02.05.2009 8:29:13
              Authors
              Nickolay Bespalov, Alexandra Gnuskina, David Melik-Gusseynov,
              Nickolay Demidov, Ekaterina Zaychenko, Irina Katasonova,
              Tatiana Kublitskaya, Elena Oleynik, Elena Perminova

              Editorial and Coordination Board
              Tatiana Kublitskaya, David Melik-Gusseynov, Nickolay Demidov

              English version
              Tatiana Kublitskaya

              Pharmexpert Market Research Center
              Address: 57 Profsoyuznaya Str., Moscow 117420, Russia
              Tel: +7-495-786-2540 (multichannel)
              Fax: +7-495-330-8943
              E-mail: info@pharmexpert.ru
              Web site: www.pharmexpert.ru; www.sociola.ru




GO_2009_ENG.indb 98                                                           02.05.2009 8:29:13

								
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