Russia hopes to lure drugmakers with increase in buying power

Russia has a lot of purchasing muscle, but few sellers when it comes to pharmaceuticals, so the government has a plan to lure them with a vast increase in the products it buys from local makers.

The nation's officials are focusing on the foreign drugmakers to set up production plants in Russia as one way to emerge from a string of recessions. Drugs and other health products comprise one of the few industries not subject to international sanctions. As a result, the industry has been one of only a few that expanded during the current recession.

By using its social-welfare programs to purchase more drugs from Russia-based drug companies, the government hopes to demonstrate to pharmaceutical MNCs the nation has a lucrative market worth competing for.

A recent study by a British consulting company showed that drugmakers operating in Russia were the most optimistic, more so than companies in larger industries such as energy and finance.

The publication Russia Beyond the Headlines quoted the head of one of Russia's drugmaker associations as saying the increase in government purchases offers foreign investors a chance to turn a profit more quickly than in any other industry operating in the nation.

General Director Viktor Dmitriyev of the Association of Russian Pharmaceutical Manufacturers said, "It is an incentive to set up local production as soon as possible."

The recent experience of the MNCs already producing in Russia tends to confirm that, with AstraZeneca ($AZN) and Novartis ($NVS) reporting double-digit growth last year.

Bayer, Sanofi Pasteur and Abbott ($ABT) are more recent entrants in Russia production, each of them taking the route of working with a local manufacturer. Bayer tied with Medsintez and marketed their first drug this year, and Sanofi ($SNY) is collaborating with Nanolek.

Abbott, operating as Abbott Russia, chose to buy an existing company, Veropharm, Russia's second-largest drugmaker, for $495 million last year.

As Abbott attempts to fold Veropharm into its global operations, the two are laying plans to expand the Russian company's research-and-development and production into four new health segments: gastroenterology, gynecology, neurology and oncology. Those four sectors are considered particularly promising in Russia.

- here's the report from Russia Beyond the Headlines