market prognosis russia q3 2010

IMS Market Prognosis Europe Russia Update 2010

© 2010 IMS Health Incorporated or its affiliates. All rights reserved.

IMS MARKET PROGNOSIS

EUROPE

2010-2014

Russia Update



IMS HEALTH

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Tel: +44 (0)20 3075 5888, Fax: +44 (0)20 3075 5999 [email protected]

http://www.imshealth.com

The Information Service contained herein is confidential and provided subject to the IMS Health Information Services Standard Terms and Conditions. This Information Service is

provided to the client on a personal basis under a non-exclusive and non-transferable licence for the Client’s own direct benefit and use only, and may not be copied or divulged to any other party. Whilst every possible care has been taken in the preparation of this information, the publishers do not hold themselves responsible for any expressions of

opinion or error or omission, or any action resulting therefrom.


Published: September 2010


© 2010 IMS Health Incorporated or its affiliates. All rights reserved. 1

RUSSIA 2010 UPDATE

PRICE LEVELS

The values in this report are based on the new enhanced data for Russia for the retail and hospital panels and the new Dopolnitel'noe Lekarstvennoe Obespechenie, DLO, panel. This is a state-run restricted drug reimbursement programme introduced in 2005 to provide subsidised pharmaceuticals in the out-patient sector for the disabled, war

veterans, children under three years of age and families with three or more children. Data for the retail and hospital panels are available from 2004 and the DLO from 2005.

Values in the hospital and retail sectors are shown at ex-manufacturer prices and in local currency. Values in the DLO sector are shown at contract prices and in local currency.

The total market forecast is compiled from the retail, hospital and DLO panels, which accounted for 92.7% of the total market in 2009.

The retail and hospital panels are based on all registered medicines and food

supplements and homeopathic products. The DLO panel is based on all registered medicines in the DLO programme including expensive drugs for the seven life threatening diseases.

Sales of the budget purchases are calculated historically using information from the federal government.

Market Coverage (2010)

Market Share

Retail Sector 61.2%

Hospital Sector 10.8%

DLO Sector 20.7%

Budget Purchases 7.3%

FORECAST METHODOLOGY

The IMS Market Prognosis projections are based upon ten years of volume and price quarterly sales data. Pharmaceutical volume and price data in each audited market

sector are independently analysed using both univariate time series models and multiple regression based models incorporating macroeconomic variables. The macroeconomic variables are provided to IMS Health by a third party, the Economist Intelligence Unit (EIU).

The best model – univariate or macroeconomic - is selected based on forecasting accuracy, modelling fit and robustness. Then demand (volume) and price equations are

developed and combined to give a baseline extrapolation of actual sales for each audited market sector. Where an econometric model is selected, the demand and price equations are used in combination with macroeconomic indicator forecasts provided by the EIU. The macroeconomic indicator forecasts are tabulated below.

After the baseline projection has been optimised, events are applied to obtain a final forecast for each audited market sector. This final forecast is also summarised below,

and the most important events described.



FORECAST 2010 UPDATE

The forecasts below represent an update of the forecasts published in the IMS Market Prognosis report in March 2010. Updated economic forecasts and IMS MIDAS data up to Qtr I 2010 have been used to develop a new baseline forecast for each audited market

sector. Each event has been re-evaluated and, where necessary, events have been added or deleted. The updated events have then been applied to the new baseline forecasts to obtain a new final forecast for each audited market sector.

BASELINE EXTRAPOLATIONS

The following table reports the macroeconomic indicator forecasts.

Table 1: Key Macroeconomic Indicators

2010 2011 2012 2013 2014

Real GDP 2000 RUB (billion) 11673 12137 12668 13229 13792

Annual Growth 4.8% 4.0% 4.4% 4.4% 4.3%

Nominal GDP RUB (billion) 47006 51506 57186 63115 69628

Annual Growth 20.5% 9.6% 11.0% 10.4% 10.3%

Consumer Price Index 2000 = 100 323.8 344.8 366.9 389.6 413.1

Annual Growth 6.4% 6.5% 6.4% 6.2% 6.0%

Real Private Consumption 2000 RUB

(billion) 7124 7431 7751 8077 8400

Annual Growth 4.1% 4.3% 4.3% 4.2% 4.0%

Real Government Consumption 2000 RUB

(billion) 1347 1381 1417 1456 1500

Annual Growth 2.0% 2.5% 2.6% 2.8% 3.0%

Exchange Rate RUB : US$ 30.00 30.50 30.70 30.50 30.00

Annual Growth -5.5% 1.7% 0.7% -0.7% -1.6%

Source: Economist Intelligence Unit, Qtr II 2010



RETAIL PHARMACY SECTOR BASELINE EXTRAPOLATIONS

Table 2: Baseline Retail Sector (2009-2014)

Year

Sales at Constant Prices*

Price Index** Sales at Actual Prices

RUB

(million)

Annual

Growth

Laspeyres

Index

Annual

Growth

RUB

(million)

Annual

Growth

2009† 237148 7.7% 98.7 13.4% 231780 30.4%

2010 249464 5.2% 105.3 6.7% 255138 10.1%

2011 266592 6.9% 114.3 8.6% 298696 17.1%

2012 282205 5.9% 120.8 5.7% 334452 12.0%

2013 298365 5.7% 127.9 5.8% 374037 11.8%

2014 314660 5.5% 134.9 5.5% 416455 11.3%

†The retail audit was improved and enhanced during 2009 with revised data made available from

January 2010. As the changes were made during 2009 this leads to a trend break between 2008

and 2009. The real growth for the retail panel in 2009 at trade prices was 17%. *Qtr I 2010 Prices **Qtr I 2010 = 100 Source: IMS Health

DLO SECTOR BASELINE EXTRAPOLATIONS

Table 3: Baseline DLO Sector (2009-2014)

Year

Sales at Constant

Prices* Price Index** Sales at Actual Prices

RUB (million)

Annual Growth

Laspeyres Index

Annual Growth

RUB (million)

Annual Growth

2009 81384 6.0% 101.6 9.8% 80873 15.6%

2010 86148 5.9% 101.7 0.0% 87060 7.7%

2011 86147 0.0% 101.6 -0.1% 87542 0.6%

2012 86147 0.0% 101.5 0.0% 87492 -0.1%

2013 86147 0.0% 101.5 -0.1% 87442 -0.1%

2014 86147 0.0% 101.4 -0.1% 87390 -0.1%

*Qtr I 2010 Prices **Qtr I 2010 = 100 Source: IMS Health



HOSPITAL SECTOR BASELINE EXTRAPOLATIONS

Table 4: Baseline Hospital Sector (2009-2014)

Year



RUB

(million)

Annual

Growth

Laspeyres

Index

Annual

Growth

RUB

(million)

Annual

Growth

2009 45780 -8.3% 98.5 18.5% 43654 12.1%

2010 47452 3.7% 103.4 5.0% 47870 9.7%

2011 50168 5.7% 110.7 7.0% 54142 13.1%

2012 52698 5.0% 118.2 6.8% 60813 12.3%

2013 55348 5.0% 126.4 6.9% 68370 12.4%

2014 58258 5.3% 134.5 6.4% 76679 12.2%

*Qtr I 2010 Prices **Qtr I 2010 = 100

Source: IMS Health



EVENTED FORECAST

EVENT ANALYSIS

This section contains an analysis of each of the events applied to the baseline forecasts, based on IMS Health research.

Changes to prices of products not on the EDL: The new pricing mechanism on the EDL will subject approximately 40% of the retail market to pricing controls. This is expected to lead to, on average, a 10% reduction in price of the EDL products. Industry

analysts expect that this will result in an increase in prices for the remaining products on the market as manufacturers seek to compensate from the loss of revenues from the EDL products. See also: Pricing and Reimbursement

UPDATED EVENT: Upturn in OTC market: The OTC market experienced a slowdown in growth from late 2008 to mid 2009 due to the financial crisis. The trend is similar to that of the financial crisis at the end of the 1990s and the sector is expected to bounce

back again as the economy recovers. UPDATE: Economic recovery in the first quarter of 2010 was driven mainly by exports. Economic recovery is expected to continue throughout 2010 and 2011 but consumer confidence is expected to lag behind and an increase in spending in the OTC sector is now expected to begin in 2012. See also:

Pharmaceutical Business Environment

UPDATED EVENT: Purchasing power increases: Purchasing power is expected to

increase as the economy recovers from the financial crisis. Out-of-pocket payments for pharmaceutical drugs are common and accounted for 83% of private expenditure in 2007. As drug prices experienced rapid growth in the early part of 2009 as a result of high inflation and exchange rate fluctuations the trend of switching to more expensive

drugs slowed, especially in the retail sector. As the economy begins to recover from 2010 a return to previous purchasing patterns is expected, but this is expected to lag behind the economy due to the high unemployment levels. Patients will switch back to

more expensive products driving volume and price growth in the retail market. UPDATE: The Russian economy is expected to continue recovery throughout 2010 and 2011 with GDP forecast at 4.8% and 4.0% respectively. The return to previous purchasing patterns is now expected to commence from 2012. See also: Healthcare Provision,


UPDATED EVENT: Healthcare reform: Reform of the healthcare system began in

2005 with the national health project, Zdorovie, with the aim of boosting primary care and developing disease awareness initiatives and broadening access to high-tech medical care. In 2008, the government announced the Health Development Concept 2020 plan which built on the original plans and included concrete reform goals and targeted

outcomes. One of the main goals of the 2020 programme is to increase average life expectancy to 75 within the next ten years. It is an ambitious goal, but as long as key parts of the reform continue to progress, life expectancy will increase. The economic crisis in 2009 impacted the building of new high-tech centres, with only three facilities up

and running by the beginning of 2010, instead of the planned 12. A national network of health centres was established as planned in 2009, and by upgrading existing facilities is due to consist of 1500 centres by the end of 2010, which are targeting disease

prevention and diagnosis. An improved primary care sector, combined with disease prevention initiatives has the potential to significantly improve the health status of many patients in Russia. Early detection of diseases will lead to an increase in the number of patients being treated and this will also ease the burden on the hospital sector as more

patients are treated in the primary care setting. UPDATE: In April 2010 Prime Minister Putin announced that investment in the national project, Zdorovie, would continue. The aims of the project are to increase life expectancy, reduce mortality, high blood



pressure, cholesterol, smoking and traffic injuries and to promote a healthy lifestyle. See also: Healthcare Provision

Innovative new products: The launch of innovative drugs will drive growth in the market. See also: Pharmaceutical Business Environment

Expansion of indications on the DLO: Introduced in 2005, the DLO system provides a formal scheme for the reimbursement of outpatient drugs. The DLO system barely survived the first couple of years due to mismanagement and corruption across the

board. Its finances have stabilised in recent years due to tighter administrative controls and a restructuring in 2008 when the scheme was split into two. The current programme comprises the expensive drugs for the treatment of seven rare, life threatening diseases and a broader range of essential drugs (the ONLS). Expansion of the DLO remains a

possibility, including the incorporation of diabetes drugs in the seven diseases sector. However, this is not expected until at least 2012 as the government finances recover following the crisis. See also: Healthcare Provision.

UPDATED EVENT: Introduction of health insurance: The Health Development Concept 2020 calls for the development of a health insurance scheme which would offer patients a free choice of both payer and provider and which would be capable of

financing a universal outpatient drug benefit programme. A pilot version of a new health insurance system was due to commence in 2010, but this looks unlikely in the wake of the financial crisis. President Medvedev has signed off budgets for a three-fold increase

in spending on the FFOMS by 2012, reflecting his commitment to continue with the original plan. Original plans for the scheme were to use the DLO programme as a starting point and then expand to the wider population. It is now thought that the EDL will form the basis of a new reimbursement list and that reimbursement will be extended

on a gradual basis, although this is not expected in the short to medium term. It is thought that patient co-payments would be introduced, and introduction of a reference pricing mechanism is widely anticipated, which would limit government spending whilst at the same time offering patients access to more expensive branded versions of multi-

source products. The introduction of an insurance system would lead to an increased demand in drugs and tighter control on prices. A full scale roll-out of a new insurance system does however remain a distant prospect and this is reflected in the starting date

and probabilities assigned to the event. UPDATE: The draft Compulsory Medical Insurance bill outlines the government’s intention to introduce health insurance across Russia entitling policy holders to free healthcare. Key initiatives in the bill include: citizens will be able to choose healthcare organisations and doctors and will have the

right to receive healthcare in any healthcare organisation that operates within the compulsory health insurance; policy holders will be able to seek compensation as a result of non-fulfilment or improper fulfilment of the provision of medical existence; and

the insurance fund will be funded by increased contributions by employers and by the executive administrative regions. The new system will be funded by an increase in the insurance contribution from employers, increasing from 3.1% to 5.1% from 2011. The Compulsory Health Insurance bill will fund investment in healthcare with funding of RUB

136 billion allocated to provision of medicines, finance diagnostic services and pay healthcare personnel wages, RUB 24 billion will be allocated to IT in healthcare and patient records and RUB 300 billion dedicated to the modernisation of equipment in hospitals and polyclinics. Under the new insurance bill emergency medical assistance will

be included from 2013 and high tech assistance from beginning of 2015 providing a boost to healthcare coverage. The introduction of health insurance could have a significant impact on healthcare across Russia, especially if it is combined with a

reimbursement system. As of mid-2010 the bill had passed the first reading in the State Duma. See also: Healthcare Provision

Demographic event: The population growth over the 2010-2014 period will increase

compared to the previous five-year period. See also: Economic Environment



NEW EVENT: Implementation of Drug Circulation Law: The Drug Circulation Law came into force on 1 September 2010. The new law builds on the existing law and

makes recent market developments official. The key components of the law are as follows. Drug registration will be harmonised with the EU and full registration will take a maximum of 210 days. The law will allow for drugs to be sold in out-patient clinics, by GPs and medical assistance offices if no drugstore is in place. It also provides for drug

safety monitoring and will standardise the state regulation of the EDL. Orphan drug regulation will be defined to allow access for treatment for rare diseases and a new regulatory agency will be set up comprising a merger between Roszdravnadzor and Rospotrebnadzor. The date for implementation of GMP has been set to 1 January 2014.

Inspections of plants will be made up to the deadline and a decision will be made as to whether the factory will close or be modernised. If some plants comply with Russian GMP and not international GMP they will most probably be allowed to remain open. Clinical

trials will not be required in Russia if the country of the drug of origin has mutually recognised results of trials or if Russia took part in multi-centre trials. If trials are conducted outside of Russia then the manufacturer will have to produce phase II/III trials which can be combined. This should lead to an increase in trials in Russia and

should also help boost access to new medicines. The new law marks an important step in the development of the Russian pharmaceutical market. It should lead to improved drug registration and to a more transparent system. As the new law builds on existing market

rules it will have a limited impact on the pharmaceutical market. Access to medicines for patients living in the rural areas will improve and could provide a small increase in volume growth.

UPDATED EVENT: Revision of the Essential Drug List: The revised Essential Drug List was much anticipated throughout 2009 and a draft for consultation was finally released and finalised at the end of that year. The final list contains 500 international

non-proprietary names (INN) of which 75 are old ‘Soviet’ drugs that are not manufactured elsewhere, 261 are available as generics and the remainder are supplied exclusively in imported form. Some multinationals were unhappy with the revised list and will lobby the government in an attempt to add more products, such as cancer and

cardiovascular drugs, to the list. The list will be at the heart of cost-containment efforts over the prognosis period due to the new maximum price calculation and control on mark-ups (see Introduction of pricing controls on the EDL event). The EDL provides the basis for hospital purchasing and could be extended to the outpatient and primary care

sector if the mandatory health insurance system develops. In the short term the revised list will have serious implications for manufacturers which have seen their key products removed from the list. However, in the longer term, lower prices could lead to an

increase in demand for pharmaceutical products, and if the EDL is used as a starting point for a reimbursement programme then this could significantly impact growth in the market, although such a development is not expected until late in the prognosis period (see Introduction of health insurance event). UPDATE: Revision of the EDL has had a

minimal impact at the total market level, but some manufacturers have been more impacted than others as they revised their product portfolios as a result of the changes. Some manufacturers chose not to register their products following the introduction of the

EDL, but they have the choice of doing so in 2011 as the products have to be re-registered each year. The impact of this event has been reduced to zero as the expected impact was not seen at the total market level. This event does however remain an issue at manufacturer level as products have to be registered each year for inclusion in the

EDL. See also: Prescribing and Dispensing, Pricing and Reimbursement

NEW EVENT: New packaging requirements: The Drug Circulation Law that came into

force on 1 September 2010 changes the drug packaging requirements in Russia. From 1 September 2010 the internal packaging must show the form of packaging whilst the box must show the registered certificate number - both of which are currently provided on the patient information leaflet. If a product is produced in Russia or imported before the

1 September with the old packaging it can be sold on the market until stock run out; any



products (domestic and imported) entering the market after this date will have to have the new packaging. Most manufacturers do not have time to make the changes to the

packing before the September deadline and so wholesalers and distributors are stocking up on products in order to maintain delivery until manufacturers are able to revise the packaging. IMS Health anticipates that this will result in a short-term decrease in sales of some products until the end of 2010.

NEW EVENT: Government investigation into hospital expenditure: The government has set up a special investigation into how the government budget is spent

in hospitals. During the investigation the government will review the amount of expenditure on pharmaceuticals and it is expected that this will lead to a decrease in the purchasing price of medicines in the hospital tenders.

UPDATED EVENT: Drive in increase domestic production: The government produced a health development concept paper in 2008 which called for the proportion of demand met by local production to reach 50% by 2020, and policies are being framed in

such a way as to encourage more widespread purchasing of domestic products. The government is in the process of developing regulations that will govern preferential purchasing of locally manufactured goods for supply to the public sector. Regional purchasing organisations have already been encouraged to substitute imported drugs

with locally produced equivalents. The definition of locally produced products still has to be confirmed by the government and this is causing some companies to postpone investment in Russia. Alongside this the government has produced a list of 15 molecules for which local companies are to start manufacturing, but only when the product patent

expires. To support this, the government has handed out grants to local industry to help manufacturers service interest payments on loans taken out to upgrade plants. Boosting production of locally-manufactured generics will eventually lead to cost savings for the

government, but progress will be slow as the industry adjusts to the new regulations and the local industry restructures in the wake of the financial crisis. Domestic production is unlikely to reach 50% by 2020, but the use of cheap locally-manufactured generics will increase in a bid to limit future spending on more substantive reimbursement schemes.

UPDATE: In July 2010 it was reported that medicines manufactured abroad but packaged locally would not be considered locally produced. The Health and Social Development Ministry, the FAS and the Economic Development Ministry ruled that

stavudine, packaged at the Russian pharmaceutical company Makiz Pharma belonging to Stada, a foreign firm, and distributed by Alliance Healthcare Russia, was an import and reduced the contract price by 15%. However, although the decision was made in this case, the definition of a domestic product still needs to be made. Multinationals are

continuing their investment in Russia by building local production facilities. Discussions are still ongoing but it is anticipated that multinationals will be allowed to package pharmaceuticals (that are made abroad) in Russia for up to three years and the products will be considered as domestic. After the initial three-year period the government will

expect the multinationals to then manufacture the medicines in Russia for them to maintain their domestic classification. In order to boost production in Russia the government has identified 57 strategically important drugs that it wants to have

produced locally by 2015. By increasing domestic production the government wants the ratio of innovative drugs in local producers portfolio to be 60% and would like to increase exports eight-fold over their 2008 level. The list of products covers oncology drugs, cardiovascular drugs, hepatitis B and C, Gaucher’s disease and multiple sclerosis.

A special programme will provide incentives for Russian manufacturers to produce these drugs and it also aims to bring investment, including foreign investors who are ready to manufacture in Russia. See also: Healthcare Provision, Regulatory Environment,


UPDATED EVENT: Introduction of pricing controls on the EDL: Following a year of economic uncertainty and increasing drug prices the government published a new pricing

system in December 2009, which is due to come into effect in April 2010. The



government intends to create a more stable pricing environment and remove the uncertainty caused by exchange rate fluctuations. Once the pricing system is stabilised,

Roszdravnadzor, the federal agency for healthcare surveillance, will develop and maintain a pricing database and could use this as a means of introducing price controls. The new price controls differ for multinational and domestic products and apply to drugs on the Essential Drug List. The maximum price for an imported product will be based on

the custom price declared by importing countries. These must be in line with the minimum price of the product in the country of origin, and the average price under which the medicines were imported into Russia previously. From January 2011 all imported products maximum sales prices will be registered in roubles. All products on the EDL

have to be re-registered with Roszdravnadzor by the end of March 2010, after which they will trade at their new prices. In addition to the price controls, the government has introduced a new method to standardise the calculation of pharmacy and wholesaler

mark ups across Russia in order to control price growth at the pharmacy level. The main intention of the new pricing controls is to stabilise prices across the Russian pharmaceutical market. During the first three months of 2010 companies were in the process of re-registering their products and the full effect of the changes will be seen on

the market during the second quarter. Although the intention is to stabilise prices, IMS Health estimates that this will lead to a reduction in price for products on the EDL across all sectors. Local producers will also revise their product portfolios and remove cheap

and unprofitable products and review their API providers in order to reduce costs. Foreign manufacturers will also review their investment strategies in Russia. UPDATE: According to Roszdravnadzor, by 12 May 2010, 6778 essential medicines had applied for price registration and 6379 medicines had had their prices registered. IMS Health data

show that the pricing controls have been effective in reducing inflation in trade prices for EDL products, with a small effect at the total retail market level. At the retail price level, price inflation increased for the non-EDL products in Q1 2010 and declined by 4% for EDL products. Although the EDL has had the desired effect on prices the government is

investigating claims that some companies have put in higher prices than they should have done whilst registering the drugs. The next stage of the plan is to transfer responsibility to the regions which will then supervise the prices of products on the EDL

and ensure that the medicines are provided in the pharmacies. From 1 September 2010 prices of products not on the EDL will no longer be controlled by the regions, but the FAS is expected to monitor the prices and review any increases. Roszdravnadzor will maintain a supervisory role. See also: Healthcare Provision, Pricing and Reimbursement



Table 5: Events Impacting the Market (2010-2014)

Event Title

Start Month

Start Year

Probability (short term)

Probability (medium term)

Probability (long term)

Time to impact (months)

Retail Market Impact (volume)

DLO Market Impact (volume)

Hospital Market Impact (volume)

Retail Market Impact (price)

DLO Market Impact (price)

Hospital Market Impact (price)

Changes to prices of products not on the EDL

4 2010 90% 90% 90% 2 1.0% 0.0% 0.0% 5.0% 0.0% 0.0%

UPDATED EVENT: Upturn in OTC market

1 2012 55% 75% 95% 12 5.0% 0.0% 0.0% 1.5% 0.0% 0.0%

UPDATED EVENT: Purchasing power increases

1 2012 75% 85% 95% 24 3.0% 0.0% 0.0% 1.5% 0.0% 0.0%

UPDATED EVENT: Healthcare reform

4 2010 35% 55% 75% 57 5.0% 0.0% 2.0% 0.0% 0.0% 0.0%

Innovative new products

4 2010 95% 95% 95% 57 0.2% 0.2% 0.2% 0.5% 0.5% 0.5%

Expansion of indications on the DLO

1 2013 50% 50% 50% 24 0.0% 10.0% 0.0% 0.0% 5.0% 0.0%

UPDATED EVENT: Introduction of health insurance

1 2013 25% 45% 55% 24 5.0% 0.0% 5.0% -2.0% 0.0% -2.0%

Demographic event

4 2010 90% 90% 90% 57 0.2% 0.2% 0.2% 0.0% 0.0% 0.0%

NEW EVENT: Implementation of Drug Circulation Law

9 2010 65% 85% 95% 52 0.1% 0.0% 0.1% 0.0% 0.0% 0.0%

UPDATED EVENT: Revision of the Essential Drug List

4 2010 99% 99% 99% 9 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

NEW EVENT: New packaging requirements

7 2010 90% 90% 90% 3 -0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

NEW EVENT: Government investigation into hospital expenditure

4 2010 75% 85% 95% 57 0.0% 0.0% 0.0% 0.0% 0.0% -2.0%

UPDATED EVENT: Drive in increase domestic

1 2011 25% 35% 45% 48 0.0% 0.0% 0.0% -2.0% -2.0% -2.0%



Event Title Start Month

Start Year

Probability (short term)

Probability (medium term)

Probability (long term)

Time to impact (months)

Retail Market Impact (volume)

DLO Market Impact (volume)

Hospital Market Impact (volume)

Retail Market Impact (price)

DLO Market Impact (price)

Hospital Market Impact (price)

production

UPDATED EVENT: Introduction of pricing controls on the EDL

4 2010 99% 99% 99% 6 -4.0% -2.0% -5.0% -5.0% -2.0% -6.0%



RETAIL SECTOR EVENTED FORECAST

Table 6: Forecast Retail Sector (2009-2014)

Year



RUB

(million)

Annual

Growth

Laspeyres

Index

Annual

Growth

RUB

(million)

Annual

Growth

2009 237148 7.7% 98.7 13.4% 231780 30.4%

2010 245128 3.4% 104.9 6.3% 251315 8.4%

2011 259900 6.0% 113.8 8.5% 290066 15.4%

2012 283914 9.2% 122.0 7.1% 338150 16.6%

2013 311242 9.6% 129.7 6.3% 395065 16.8%

2014 337077 8.3% 136.5 5.2% 452001 14.4%

*Qtr I 2010 Prices **Qtr I 2010 = 100

Source: IMS Health

Forecast Retail Sector Sales at Constant Prices

0

50000

100000

150000

200000

250000

300000

350000

400000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



Forecast Retail Sector Price Index

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2009 2010 2011 2012 2013 2014

Baseline forecast

Evented forecast

Forecast Retail Sector Sales at Actual Prices

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



DLO SECTOR EVENTED FORECAST

Table 7: Forecast DLO Sector (2009-2014)

Year

Sales at Constant

Prices* Price Index** Sales at Actual Prices

RUB (million)

Annual Growth

Laspeyres Index

Annual Growth

RUB (million)

Annual Growth

2009 81384 6.0% 101.6 9.8% 80873 15.6%

2010 85223 4.7% 99.7 -1.9% 85204 5.4%

2011 84526 -0.8% 99.6 -0.1% 84246 -1.1%

2012 84590 0.1% 99.5 -0.1% 84233 0.0%

2013 85879 1.5% 100.7 1.1% 86028 2.1%

2014 88097 2.6% 101.7 1.1% 89222 3.7%

*Qtr I 2010 Prices **Qtr I 2010 = 100 Source: IMS Health

Forecast DLO Sector Sales at Constant Prices

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



Forecast DLO Sector Price Index

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2009 2010 2011 2012 2013 2014

Baseline forecast

Evented forecast

Forecast DLO Sector Sales at Actual Prices

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



HOSPITAL SECTOR EVENTED FORECAST

Table 8: Forecast Hospital Sector (2009-2014)

Year



RUB

(million)

Annual

Growth

Laspeyres

Index

Annual

Growth

RUB

(million)

Annual

Growth

2009 45780 -8.3% 98.5 18.5% 43654 12.1%

2010 45929 0.3% 97.1 -1.4% 44460 1.8%

2011 47847 4.2% 103.6 6.6% 48370 8.8%

2012 50418 5.4% 110.1 6.3% 54276 12.2%

2013 53372 5.9% 116.8 6.1% 61102 12.6%

2014 56833 6.5% 123.1 5.4% 68732 12.5%

*Qtr I 2010 Prices **Qtr I 2010 = 100

Source: IMS Health

Forecast Hospital Sector Sales at Constant Prices

0

10000

20000

30000

40000

50000

60000

70000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



Forecast Hospital Sector Price Index

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2009 2010 2011 2012 2013 2014

Baseline forecast

Evented forecast

Forecast Hospital Sector Sales at Actual Prices

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2009 2010 2011 2012 2013 2014

RUB (million)

Baseline forecast

Evented forecast



TOTAL MARKET FORECASTS

Table 9: Total Audited Market Forecast (2009-2014)

Year



RUB

(million)

Annual

Growth

Laspeyres

Index

Annual

Growth

RUB

(million)

Annual

Growth

2009 364313 5.0% 99.3 13.2% 356307 24.3%

2010 376280 3.3% 102.8 3.5% 380978 6.9%

2011 392273 4.3% 109.5 6.6% 422682 10.9%

2012 418922 6.8% 116.0 5.9% 476660 12.8%

2013 450493 7.5% 122.6 5.7% 542195 13.7%

2014 482007 7.0% 128.6 4.8% 609955 12.5%

*Qtr I 2010 Prices **Qtr I 2010 = 100

Source: IMS Health

SUMMARY OF THE PROGNOSIS 2010-2014

The prognosis for the Russian Federation has been revised upwards. Forecasts for economic growth (GDP and consumer expenditure) have been revised upwards for 2010 and inflation and government consumption forecasts have been revised downwards. US$

exchange rate forecasts are lower in 2010 but higher for the medium term.

The outlook for 2010 remains relatively unchanged from the previous forecast; however recovery from 2011 is expected to be slightly lower than previously expected due to slow

recovery in the economy. The introduction of pricing controls on the EDL led to a 4% decline in price for these products in Q1 2010, whilst an increase was seen for products not on the EDL. The new pricing controls have led to a standardisation of drug prices

across Russia and from January 2011 all drug prices will be registered in roubles. Combined, these measures should result in a more stable pricing environment over the prognosis period.

Healthcare reform is expected to continue over the prognosis period and will boost volume in the retail and hospital sectors.

The government has taken the first step in introducing a mandatory health insurance scheme which will provide free healthcare to citizens across Russia. As of September 2010 the first draft of the bill had passed through the State Duma. The bill is expected to boost demand in the retail and hospital sectors, and if combined with a reimbursement

system, could lead to pressure on price growth, although this is not expected until the latter part of the prognosis period.

The final prognosis is based on the forecasts of Tables 6, 7 and 8. IMS Health captures 92.7% of the total pharmaceutical market.

The prognosis contains a projection of the DLO sector. The budget for the DLO in 2010 is estimated to be in the range of RUB 83-88 billion. The future of the DLO as it currently stands is uncertain. The forecast assumes that the government will continue funding the DLO and exert strict control over prices. The government may also add new indications

to the programme, such as diabetes or cancer.



The prognosis incorporates an estimate of the value of the Budget Purchases sector and assumes that this will grow in line with the rest of the market and hold a 7.3% share

during the forecast period.

The total pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 11.4% in terms of roubles and 12.6% in terms of US$ during the period

2009-2014.

Table 10: Total Market Sales at Actual Prices (2009-2014) RUB (million)

2009 2010 2011 2012 2013 2014

Retail Sector 231780 251315 290066 338150 395065 452001

DLO Sector* 80873 85204 84246 84233 86028 89222

Hospital Sector 43654 44460 48370 54276 61102 68732

Budget Purchases* 27923 29856 33125 37355 42491 47801

Total Market 384230 410835 455806 514015 584686 657756

Annual Growth 24.1% 6.9% 10.9% 12.8% 13.7% 12.5%

*Contract Prices Source: IMS Health

Table 11: Total Market Sales at Actual Prices (2009-2014) US$* (million)

2009 2010 2011 2012 2013 2014

Retail Sector 7302 8377 9510 11015 12953 15067

DLO Sector** 2548 2840 2762 2744 2821 2974

Hospital Sector 1375 1482 1586 1768 2003 2291

Budget Purchases** 880 995 1086 1217 1393 1593

Total Market 12105 13694 14944 16743 19170 21925

Annual Growth -2.8% 13.1% 9.1% 12.0% 14.5% 14.4%

*Using forecast exchange rates **Contract Prices Source: IMS Health

market prognosis russia q3 2010

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