Strategy calls for full localisation of so-called life essential drugs by 2020
Bayer HealthCare is exploring all options for meeting Russia's 2020 regulations for foreign pharma players, according to Country Division Head Viktor Geisler. These options could include entering into strategic partnerships or joint ventures (JVs) with local players, seeking acquisitions or building its own manufacturing plant, Geisler told the Merger Market news service at an investment forum in Russia.
The review is to comply with the Russian Pharma 2020 strategy, which among other things, stipulates a 2020 deadline for full localisation of 'life essential drugs' used in treating serious diseases. Bayer wants to continue supplying such drugs to the Russian market after 2020 and is evaluating its investment plans on how best to localise its operations.
In terms of acquisitions or JV partnerships, feasible potential candidates could include Veropharm, Valenta, Ozon and other similarly robust peers, according to a sector investment banker and sector analyst. These firms are attractive as potential targets because of their broad assortments of products, including over-the-counter medicines, they added.
Abbott Laboratories is considering taking an 81.1% stake in Veropharm, one of Russia's largest drugmakers, speculation that pushed Veropharm's stock price by 15% in April to RUB1,130 on MCX and its market cap to a record RUB11.15bn, the banker noted. The deal is expected to be worth about RUB8bn (US$240m). Veropharm posted sales of around US$140m in 2013.
The requirements for all the local players to be GMP-compliant by 2014 could force some of the local pharmaceutical companies to seek investments and consequently, be more 'pliable' to offers, the analyst said. Besides, one of the production platforms of Valenta needs capital-intensive modernisation, and hence, the company could listen to attractive offers, the analyst added.
Localisation options available to foreign pharma players also include contract manufacturing agreements with local firms, as short- and mid-term strategies.
The Pharma 2020 strategy will also have an impact on a select group of drugs, whose retail prices are significantly subsidised or fully bankrolled by the government, Geisler, the banker and the analyst explained.
According to Geisler, these include drugs for cardiovascular disorders, oncology and other critical states. Market researchers IMS and DSM Group estimate that Russia produces only about 20.8% and 22.6%, respectively, of these prescription drugs and life essential drugs, with the balance of almost 80% being imported.
The largest exporters of such essential drugs to Russia include Germany, the US, France, Switzerland, UK and India, which collectively account for about 40–50% of Russian imports, the analyst said.