The pharmaceutical business is growing fast in Russia, but the country remains very dependent on imports as the domestic pharmaceutical business remains underdeveloped.

The sector is growing fast as better healthcare is one of the key benefits from joining the international trade system. Soviet-era pharmaceuticals were of low quality and access to modern drugs through imports was an early business to spring up after the Berlin wall came down. On top of that is Russia’s 147mn-strong consumer market, making it one of the most significant in Europe.

But it is a very specific business. I talked to Andrey Osipov, CEO of Santnes, a specialist logistic company that helps big pharma to import and deliver their products to pharmacies across the country. The retail sector is consolidating and the need for quality medicine means even falling incomes and a string of economic crises have not really hurt the business, which continues to develop.

bne IntelliNews: The pharma business is growing but Russia remains very dependent on imports. However, working in Russia, particularly in a highly regulated business like medicines, remains difficult. That has created a niche for you.

Andrey Osipov: Yes, we help big pharma to bring their medicines into Russia, there are various regulatory measures to overcome. We don't register the medicines with Rospatent – the regulatory body – but we make them available for sales, we do customs clearance. However, that is a small part of what we do. The main turnover of the business is generated from warehousing and providing distributors with goods based on big pharma instructions.

How extensive is your network?

Up to the last year it was centralised and we have a serious hub of a few warehouses just 20km from Moscow, specifically five warehouses for pre-wholesale. We serve more than 40 big pharma firms, including foreign companies that have local production in Russia. As for the pre-wholesale business in Russia, we control up to 35-40% of the market.

Given the special storage conditions some drugs require, this is a warehouse-plus business. Why do big pharma companies come to you?

There are two main reasons: very specific regulation is a key consideration. We have to be very competent in all regulations in pharma. We are under permanent inspection by the regulator and also by big pharma firms themselves, as they have a different system of quality management and we have to be compliant with their requirements too.

For a newcomer to this business, there is a high barrier to entry because of these specific requirements. We have an audit from some company every week. They are responsible for the whole supply chain as they have to be sure that any particular drug is kept and distributed according to international best practice.

The second reason is the demand from the customer for a high quality service support.

The volume of business has been growing. We are the market leader and four out of ten medicines distributed in Russia go through our warehouses.

We have had a gradual development of our business from year to year for the last ten years and we continue grab market share despite the difficult economic situation.

Has the crisis impacted sales?

As regards to healthcare and the pharma industry the influence of the crisis was not so serious.

In terms of value we had some stagnation, but in the last few years we have still seen growth – not in double digits but about 6% every year in value terms. We also have a growing share of local production.

The Kremlin has been pushing import substitution and obviously pharma is one sector in which Russia would love to be self-sufficient but that is highly unlikely. But don't you expect imports to tail off over time?

Yes, we expect the share of import to go down, but not significantly. What is driving the process is big international pharma is substituting their own imports by setting up local production.

So we don't lose clients but we change to service not their imported volumes but their local production.

But, still it is not so simple. There are generics and original drugs. The most popular products that are supported by above the line marketing by the pharma companies are quite often the imported stuff. But they start to replace that with local production

If we talk about originals then still the most innovative products are not from Russia. They come through import.

We think that the share of import will go down, but not by that much. But we are not in danger as we grew last year at the expense of Russian producers, who have started to understand they have to outsource the logistic operations, as this is becoming a very highly specialised business.

Are the Russian producers concentrating more on generics?

The share of Russian innovative medicine is growing but not so fast versus imports. But there are some examples of Russian producers that have come with innovative products.

There is a government list of drugs covered by the budget, but there is talk about revising this list, and getting on the list is really important for the companies. Hasn't the list got caught up in politics?

The list is changing but there is no dramatic change. Imported drugs on the list will be less but there will be no dramatic changes.

Russia still heavily dependent on imports – and not just ready drugs, but also the substances for drug production.

What are your plans for the future? How will you continue to grow?

Every additional 1% of market share is twice as difficult to grab than the last one. We developed a new strategy a few years ago. We intend to keep our strong position on the market and we continue to grow in the pre-wholesale segment, but last year we launched a new service for manufacturers and big pharma. What we offer now is direct delivery to pharmacies.

It is extremely important, as there is a growing consolidation process in retail. We have a number of chains with quasi-national coverage. This process will continue. The demand for straight delivery to retail directly from the manufacturer is growing as the demand for pharmaceuticals is growing. And we have already started to play a role in this segment.

We will launch our first regional warehouse in April and in the first year we will have almost 20% of turnover from this new business.

This interview first appeared on bne IntelliNews's site as a podcast. Listen to the whole interview here. Sign up to receive notifcation of the latest the podcasts here.