best practices and success stories towards effective growth strategies for the soaring russian...

Best Practices and Success Stories towards Effective Growth Strategies for the Soaring

Russian Healthcare Market

Key lessons and best practices vital to reap rewards from the hidden opportunity in Russia

HealthcareSeptember 4, 2013

© 2013 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

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Today’s Presenters

25 years of healthcare marketing consulting expertise, which includes engaging with global clients to develop and implement growth strategies. Extensive expertise in product launches, repositioning studies, pricing, due diligence and corporate strategy working with global top 25 companies across healthcare segments.

Reenita Das, PartnerHealthcare & Life Sciences

USA

Siddharth Saha, Research DirectorHealthcare

United Kingdom

Vitaliy Lehkvyy,

Senior ConsultantMoscow

Dmitry Raspopov,

Healthcare AnalystMoscow

15 years tracking healthcare industry trends in Europe and the emerging markets. Providing thought

leadership and big picture business implications of research conclusions to commercial and executive teams within client organizations in the healthcare industry.

3 years of experience in market research and consulting in the healthcare markets.

The core competencies include - industry strategic analysis, competitive analysis and benchmarking, country economy and policy analysis among other aspects of the healthcare industry.

5 years of research and consulting experience, with expertise in market assessment, competitive and policy analysis, product benchmarking.

Experience base covering broad range of sectors: Healthcare, financial services, ICT, power generation and environment among others.

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Focus Points Covered in Today’s Briefing

An Outlook on the Russian Healthcare Markets

• Fundamentals of the Russian Healthcare Industry

• Continued Growth Across Healthcare Segments

• Top Opportunities in Life Sciences and Medical Technologies

• Notable Business Models in Russia

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Fundamentals of the Russian Healthcare Industry

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Why Does Russia Continue to be an Attractive Market?The Metrics are Improving

• Expenditure on healthcare – as a segment of overall household consumption – has nearly doubled in the past five years

• Quantum leap in public sector expenditure to improve infrastructure

The Russian economy is forecasted to expand at a CAGR of 3.6% in 2012-2017, however, healthcare expenditure as a % of GDP is below the OECD average of 9.6%

• Healthcare Development Program 2020 with budget allocated for specific programs

• Strategy for Drug Provision

• Technology Transfer and Commercialization Support

Total Pharmaceuticals market ~ $25 billion, growing at 9.5%

Medical Technologies segment valued at ~ $9 billion, growing at 13.9%

Nearly 1 million more surgical procedures conducted as compared to 2000

Retail sales of drugs by ATC groups increased by 120 million packages for Cardiovascular, 79 million for rheumatology

Source: Frost & Sullivan analysis.

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Why Does Russia Continue to be an Attractive Market?The Policies are Changing

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Strategy for Drugs Provision until 2025Looking to address the demand supply imbalance, distribution and access and reimbursement and last but not the least awareness and education

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Strategy for Medical Science DevelopmentLooking to enable the transfer of innovation and technology to applied medicine – right trough from infrastructure development to commercialization of products

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Healthcare Development Program 202011 sub-programs with an outlay of $200 bn, addressing morbidity, mortality, education, health service provision, diagnostics and therapy and quality of human capital

4Development of Pharma and Medical Devices Industry 2013-2020Creation of competitive and innovative Russian Pharma and Devices Industry sub sectors in the long term

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Perseverance Needed to Deal with the Headwinds Timing, Positioning and Strategy are Key


Leveraging on the opportunity does not come easy, with the complexities introduced due to mandates for localization & import restrictions as well as the rigid perceptions of clinicians and consumers alike

• Import restrictions on finished goods

• Mandate to increase the localisation content

• Restrictions on import of drugs

• Lengthy registration processes

• Will the 2020 plan actually pan out?

• Will the far flung areas in the Country realise the benefits of funding

• Will policy be consistent?

Distribution challenges

Budgets for procurement

Switch criteria for end users

Ideal local partner selection

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Poll Question

Healthcare Development Program 2020

The State has outlined an ambitious program to incentivize the development of the local medical devices and pharmaceuticals industry in Russia, improve infrastructure, skills, funding and access to care in the medium term.

Qs. What in your opinion is the continuing challenge for medtech and pharma suppliers in Russia? Rank in decreasing order of impact:

1. Transparency with regard to rules of the road for international players

2. Ability of this program to influence medical care quality in far flung areas

3. Resources, both financial and human skills to support a self sustainable local industry

4. Opportunity for local Russian suppliers/ manufacturers to flourish

5. Realistic budgetary outlays under Federal or Regional quotas to enable care

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Growth Across Healthcare Segments

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Pharmaceutical Sector in Russia – I7th Largest Pharma Market Globally

The total pharmaceutical market in Russia was valued at $24.9 billion in 2012 and is forecasted to expand at a CAGR of 9.5% till 2017. This in spite of mandates on prescription guidelines. Key

therapeutic areas act as engines for this growth.

5.4 5.5 5.6 5.7 5.8 5.9 6 6.1 6.2 6.3 6.40

2

4

6

8

10

12

14

16

18

Attractiveness

Russia

Brazil

India China

Gro

wth

rat

e

Size of the bubble represents relative pharma market size Source: Frost & Sullivan Analysis

Can Russia replicate the success of China and India in the pharma sector?

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Pharmaceutical Sector in Russia - II

The 2020 Pharmaceutical Development Program’s major goal is to secure at least 50 per cent of drugs (in value terms) through domestic sources. Another notable milestone is the mandate that all domestic manufacturers comply with GMP standards by January 2014

20%

80%

50%50%2009 2020

Pharmaceuticals Market: Strategy Pharma 2020 Timeline

2018-2020: Development of export potential of the pharmaceutical industry

2013-2017: Development of domestic pharmaceutical market

2009-2012: Localization of manufacturing and development of drugs in Russia

Growing Importance of Generics

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Pharmaceutical Sector in Russia – IIICost-cutting measures being implemented in the pharma industry will favour generics penetration

PricingPricing

Current price controls apply to approx. one third of drugs sold.

The Russian government has regulated the prices for essential medical products, and monitors (maximum) margins for all transactions throughout the supply chain. Separate regulations for factory price, wholesaler and pharmacy mark-ups.

Current price controls apply to approx. one third of drugs sold.

The Russian government has regulated the prices for essential medical products, and monitors (maximum) margins for all transactions throughout the supply chain. Separate regulations for factory price, wholesaler and pharmacy mark-ups.

ReimbursementReimbursement

• 2 National Reimbursement Programs:• 7 Diseases: covers drugs for expensive

treatments.• ONLS (state reimbursement) provides

necessary drugs to socially vulnerable groups

• MoH regulates the reimbursement process.

• High level of patient co-payment.

• 2 National Reimbursement Programs:• 7 Diseases: covers drugs for expensive

treatments.• ONLS (state reimbursement) provides

necessary drugs to socially vulnerable groups

• MoH regulates the reimbursement process.

• High level of patient co-payment.

ImpactImpact

• Ministry of Health is currently developing legislature to further link ZNVLS listed drugs with treatment standards, preferential drug provision and pharmaceutical procurement.

Drug pricing will be more controlled with price regulation for ZNVLS-listed drugs. Manufacturers will be obliged to perform annual registrations of the maximum factory price calculated according to the Ministry of Health’s methodology.

The maximum selling price of a Russian manufacturer will be based on prices for similar (according to INN, form and dosage) pharmaceuticals in Russia.

The maximum selling price of a foreign manufacturer will be based on the minimum price for a pharmaceutical drug applicable in the country of the manufacturer’s registration.

ZNVLS would be a double-edged sword for pharmaceutical manufacturers, both ensuring stable sales via governmental contracts and at the same time driving profits margins down , particularly for generics manufacturers.

• Ministry of Health is currently developing legislature to further link ZNVLS listed drugs with treatment standards, preferential drug provision and pharmaceutical procurement.

Drug pricing will be more controlled with price regulation for ZNVLS-listed drugs. Manufacturers will be obliged to perform annual registrations of the maximum factory price calculated according to the Ministry of Health’s methodology.

The maximum selling price of a Russian manufacturer will be based on prices for similar (according to INN, form and dosage) pharmaceuticals in Russia.

The maximum selling price of a foreign manufacturer will be based on the minimum price for a pharmaceutical drug applicable in the country of the manufacturer’s registration.

ZNVLS would be a double-edged sword for pharmaceutical manufacturers, both ensuring stable sales via governmental contracts and at the same time driving profits margins down , particularly for generics manufacturers.

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Medical Devices Sector in Russia – IImmense Addressable Market that is Untapped due to Low Procedure Volumes

2012 2013 2014 2015 2016 20170.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

4.1 4.65.3

6.06.9

7.8

Total Medical Devices Market: Revenue Forecast Russia, 2012-2017

CAGR (13.9%)

Re

ve

nu

es

US

D b

illio

n

The Russian medical devices market was valued at $ 4.1 billion and is forecasted to grow at a CAGR 13.9% in the next 5 years


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Medical Devices Sector in Russia - II

Underlying morbidity levels in the population, and the predicted increase in procedure volumes is seen to influence opportunities across segments - cardiovascular devices

with 15% share, followed by ophthalmology (14%) and orthopedic devices (11%) are the largest segments among others.

Along with the aim of increasing the share of domestic production of medical devices from 18% to 40% by 2020, the Development Strategy for the Medical Industry 2020 aims to increase the export share of domestic production to 25%

Federal Quotas for the Following Specialities:

Oncology, Urology, Gynaecology, Neuro Surgery, Cardio Vascular Surgery etc.

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Medical Imaging Sector in Russia - I


The Medical Imaging market was valued at $ 1.2 billion and is forecasted to grow at a CAGR of 11.9% in the next 5 years. Technology transfer and localization requirements

is resulting in MNC’s partnering with local players and in some cases setting up manufacturing facilities as well.

2012 2013 2014 2015 2016 20170

500

1,000

1,500

2,000

2,500

1,138 1,273 1,4251,597

1,7882,001

Total Medical Imaging Market: Revenue Forecast Russia, 2012-2017

CAGR (11.9%)

Reve

nue,

USD

mill

ion

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Medical Imaging Sector in Russia - II


Below average per capita installed base, obsolete models and increasing utilization for diagnostics and therapy especially in oncology and cardiovascular specialties is

driving growth in the imaging equipment business sector

$1.2 billion Imaging Equipment market is driven by sales across Ultrasound, X-ray as well as high end modalities like CT, MRI and PET

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Private Healthcare Services Sector in RussiaDouble Digit Growth Driven by Govt. Stimulus


CAGR 2012-16: 14.7%

2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

11.8 13.511.2

13.916.5

19.021.8

24.928.6

32.8

Fee-for-service Healthcare Market Revenues

US

D b

illio

n

Stimulation of the private healthcare market by way of supportive regulatory measures – zero income tax, VAT exemptions, mandatory health insurance extension to

population; Increase in consumption by affluent segments of population and drive through general Govt. sponsored health initiatives; participation by private investors

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Top Opportunities Across Life Sciences and Medical Technologies

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Top Opportunities Across Life Sciences

Market Revenue

$36 bln(2016)

Top Growth Opportunities

Russia poised to benefit from Localized Manufacturing

Therapeutic drugs market showing significant upside for cardiovascular, oncology, rheumatology

Clinical Trials and Contract Research capabilities to continue to grow in Russia

Trends at a Glance:

• Increase in consumption of high end drugs, as income goes up

• Tier 1 MNC’s have partnership and / or manufacturing arrangements at local level – complying with domestic production guidelines

• General push towards prescribing generics and interchangeable drugs

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Top Opportunities Across Medical Technologies

Top Growth Opportunities

The addressable market for orthopaedics is immense, as procedure levels are low on a per capita basis

.

Minimal invasive procedures, cardiovascular procedures set to drive devices consumption

Imaging equipment installed base is obsolete & due for up-gradation

Market Revenue

$9 bln(2016)

Trends at a Glance:

• Major impetus being provided by orthopedics, trauma, minimal invasive surgery, instrumentation, wound care and capital equipment in imaging diagnosis

• State investment body actively partnering with international investors to set up domestic capability

• The 2020 plan may result in better independence of regional budgets

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Notable Business Models in Russia

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Notable Business Models in RussiaPharmaceuticals Industry beginning to Reap Dividends

Pharmaceutical industry leading the way in complying with Pharma 2020 guidelines, International players do not want to miss out on the business opportunity

Local Manufacturing Capability:

• Novartis (new facility) - planned• Abbott Laboratories - planned

• Takeda - commenced• Novo Nordisk - commenced• GSK - partnership• Sanofi - ramping up• Merck & Co. (CM) - extension

Investment into New Entities:

• NovaMedica - Domain Associates and Rusnano collaboration(negotiating licensing rights from international drug and device developers)

These initiatives are in support of

Russia’s attempt to build out its domestic

drug and device manufacturing industry

by forcing participants / investors to

build manufacturing plants and transfer

technology

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Notable Business Models in Russia Devices Players Needing Perseverance

Leading supplier of advanced wound care products that is growing at 20+% annually in Russia, started operations in 1997. Russian operations one of the most profitable divisions in Europe.

Key to Success Included the Following Strategies:

Early development and nurturing of strong distribution channels to support a wide portfolio of 2,500 products

Enhancing local manufacturing capabilities and beefing up logistics operations near Moscow

Educational programmes for clinicians, nurses, social workers, patients and families CSR initiatives include programme of discounted products for the disabled

Devices companies also need to ride the wave of reform; Infrastructure improvement initiatives, specific investment programs in cardiovascular, oncology and surgery

provide the impetus for device and consumable usage

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Notable Business Models in Russia Healthcare Services Investors are Cautiously Increasing Exposure to Russia

Several international investment entities are now realizing the benefits of ever-growing private healthcare services market in Russia. The evolving mechanism of public-private

partnership in healthcare is likely to attract further investments in this field

Healthcare Service Businesses Created:• Euromedic International – chain of dialysis centers divested to Fresenius in 2011, plans to

build oncology diagnostics and treatment facility• Invitro – over 300 in-vitro Diagnostics Laboratories across the country, franchising model• MD Medical Group (Mat i Ditya) – maternity hospitals and pediatric care; successful

$300+ million IPO at London Stock Exchange in 2012• International Financial Corporation (the World Bank) - $35 million investment in JSC

Medicina (oncology)• Sberbank and John Hopkins International – an estimated $1.2-1.5 billion investment in

medical cluster outside Moscow (planned)

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Outlook for the Russian Healthcare Industry

Healthcare Development Program 2020

The State has outlined an ambitious program to incentivize the development of the local medical devices and pharmaceuticals industry in Russia, improve infrastructure, skills, funding and access to care in the medium term.

Possible Outcomes:

• Positive business outcomes will be experienced by market participants in the long term in spite of the execution plans being unpredictable

• Import restrictions will definitely help the local manufacturing industry, as technology transfer will help plug the local innovation gap

• R&D hubs and centers of innovation will be created over time

•

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For Additional Information

Jennifer CarsonCorporate CommunicationsHealthcare+1 (210) 247 [email protected]

Andrey UglovskyBusiness DevelopmentRussia+7 499 213 0273 [email protected]

Siddharth SahaDirector of ResearchHealthcare+44 (0) 207 343 8374 [email protected]

Reenita DasPartnerHealthcare & Life Sciences+1 (408) 857 [email protected]

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