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Fresenius terminates deal with Russia's Binnopharm: A sign of what is to come?
The recent termination of a deal by Germany's Kabi with Russia's Sistema has been intensively covered by the media, not least because the German company cited "changing political and regulatory circumstances in the region" as the reason. The development refocused attention on the overall political, social and economic climate in Russia, as well as the specific legislative reforms pertaining to pharmaceuticals that are being considered.
Fresenius Kabi/Sistema deal
The deal between Fresenius and Sistema was entered into earlier this year, and involved the combining of Fresenius Kabi's Russian and Commonwealth of Independent States businesses with Sistema's Binnopharm. The joint venture- Fresenius Kabi Binnopharm- was to be formed in early 2015.
The termination of the deal has spurred questions over whether other foreign pharma companies would review their future investments in Russia. Apart from the economic environment, with the devaluation of the rouble, the regulatory climate faced by the foreign pharmaceutical manufacturers was brought back to focus.
The proposed changes, including the suggested restricting of the admission of products by foreign manufactures within the government procurement system when two or more Russian, Kazakh or Belarusian products are available, have received considerable attention. While there is no doubt that these are intended to support the domestic industry, it is very important to keep it in mind that many multinationals have been localising their production in Russia in anticipation of these changes. The subject was discussed in more detail in a previous IHS blog "No pharmaceuticals import ban in Russia, but restricted admission to government procurement system sends mixed messages".
Multinationals' response- what next?
The multinationals seem to have thus, unsurprisingly, implemented their investments and strategies with these intended changes in mind, and to maintain their positions in the country. These strategies may need to change again to accommodate the new definition of a 'domestic' product that Russia is introducing: simply doing packaging in Russia will no longer be enough to make a product 'domestic.'
And despite these challenges, Russia remains an attractive market. Considering the sheer size of Russia, the country still provides opportunities for revenue growth for pharma companies. The market according DSM Group report ranked seventh among the top ten pharma markets in 2013.
It remains to be seen to what extent the attraction of the Russian market will balance the economic and regulatory environment challenges, and whether future investments by multinationals in the country would be adversely affected.
Kavita Rainova is a life sciences analyst for IHS
Posted on November 24, 2014
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