Prospects in the Russian pharmaceutical industry for the Recordati Group

Giovanni Recordati is chairman and CEO of the Recordati Group, a European pharmaceutical group employing more than 2,800 workers in the research, development, manufacturing and marketing of pharmaceuticals. Headquartered in Milan, Italy, it operates throughout Western Europe and has a growing presence in the new markets of Central and Eastern Europe. Recordati sat down with Modern Russia to discuss the company’s interest in the Russian pharmaceutical industry.

What is the role played by Eastern European countries, especially Russia, in Recordati’s development strategy? 

The Eastern European market, particularly Russia and Turkey, plays an increasingly important role for our business. This region has been the main target of our strategy to increase our business internationally over the last few years, which has allowed us to extend our presence in Central and Eastern Europe. Currently we are present in countries in which pharmaceutical expenditures are steadily increasing, which includes Russia, the Commonwealth of Independent States (CIS), Turkey, the Czech Republic, Slovakia and Romania. 

In the first nine months of the year revenue generated in Russia and the CIS was up by 39 percent compared with the same period in 2010, thanks to the strong growth of all products and to initial sales of our products, fenticonazole and Urorec.

These positive results are likely to improve even further in the future. Eastern European countries are extremely important and characterized by strong growth rates despite the sharp slowdown in the global economy: the pharmaceutical sector’s performance is unequalled, so we are optimistic about its future prospects.  Eastern European markets represent growth and positive returns for the Recordati Group and we expect an increase in sales, estimating that they will make up 13 percent of total revenue in 2013.

Could you describe the features of the Russian market and explain why it is so interesting for new investments?  

For Recordati, Russia is the main market in the CIS with good prospects for the coming years. With a population of 145 million, it is the largest pharmaceutical market in Central and Eastern Europe.

This recent upward trend – which is likely to continue in line with the economic recovery – has been driven by government measures to provide health care to the most vulnerable citizens and to keep up-to-date with the most advanced therapeutic treatment.

The growth rate of the local economy, together with the general improvement of living conditions and the relatively stable political environment make the Russian pharmaceutical industry a target at which all players are aiming:  it is the seventh largest European pharmaceutical market with an average growth rate of more than 25 percent over the past five years.

We expect pharmaceutical spending to increase significantly in the coming years: currently the per capita spending on pharmaceuticals is about one tenth the average of Western European countries, and so there is substantial room for growth. The aim of the Recordati Group is to further increase its activities in emerging markets and particularly in Russia, in order to take part in this growth.

What kind of presence does the Recordati Group currently have in Russia?

In Russia we have a direct presence through RUSFIC and FIC Médical, acquired in 2008, which sell products in different therapeutic areas in Russia and the CIS.  The company's direct presence in the country has helped us to better understand the characteristics and needs of the business environment there and to better evaluate the possible risks. To gain a market share by deploying an extensive network of medical representatives is a strong point in Recordati’s strategy. We plan to launch new products starting this year while progressively enlarging our current portfolio by adding products sold in other markets.

What kind of investments are you planning for this area?

Recordati is interested in acquiring companies already operating in the market and we are looking into local product acquisition opportunities, corporate-wide acquisitions, or co-developments and marketing agreements.

With regard to acquisitions, we are looking for companies that have a good standing in their domestic markets and that have good prospects of expansion abroad through new investments and new products. The ideal size of the operation is in the range of $100-$130 million, with careful attention placed on our financial position, which must remain strong.

The main strategic drivers for the penetration of the pharmaceutical market in Eastern Europe for Recordati however remain the continuous enhancement of our product portfolio through new license agreements and partnerships for the development of innovative drugs.