The Impact of Russian-Ukrainian Conflict on Pharma Business

Russian-Ukraine is one of the biggest military conflicts since the end of the cold war. It had a polarizing effect on the world. However, this conflict has abruptly changed the business environment in the region. It would have a significant impact on how the pharma business is done in the ex-Soviet region.

Here, it is vital to understand that although impact of this conflict on the region involved would be largely negative, it may also offer specific opportunities.

In the short term, its impact is relatively easy to guess. It means a significant decline in the GDP of Ukraine, Russia, Belarus, and some other ex-soviet countries (and thus a decline in the pharma market). Moreover, it is likely to lead to prolonged stagnation in the business in the region.

Impact of economic and other sanctions on Russia on pharma business

The severe economic sanctions would significantly impact Russia, Belarus, and perhaps certain regions of Ukraine (separated territories). Some are already describing these sanctions carried out by the US and EU as one of the harshest ever.

However, it would have a broader negative impact on the regions. Countries that are significantly aligned with Russia, like Central Asian nations, may also experience economic hardships.

Although these sanctions do not include the pharmaceutical industry of healthcare products, at least at the time of writing of this article, but the industry would be affected due to other economic sanctions.

Although Russia produces 70% of drugs locally by volume, value-wise, it is just the opposite. It means Russia imports 70% of drugs in terms of value.

In 2021, EU and US pharma companies (Russia and neighboring states) dominated the market in value terms. Some of the leading companies were Johnson & Johnson, Bayer Healthcare, Sanofi-Aventis, Roche, Novartis, Pfizer, Merck, GlaxoSmithKline, Sevier, Takeda, and so on.

As one can see, the EU and US dominated the pharma sector, and most of the top 10 companies in Russia are from the nations that have implemented the most stringent economic sanctions.

As already mentioned, these sanctions do not cover the pharma sector. Thus, these companies are expected to continue operating in the country. However, they would inevitably be affected by sanctions like those on the banking sector, transfer of technology, and others. This may have a considerable negative impact on their business.

It is worth understanding that most Russian banks have been sanctioned by the west, removed from Swift, and their assets were frozen. Thus, Russian banks are not likely to deal with many banks in the west. Of course, there are exceptions. Nevertheless, it is clear that EU and US-based pharma multinationals that traditionally dominated the market would see their turnovers and profits shrinking.

Moreover, they would also be influenced by changing public attitudes towards some of these companies in the region.

This impact would be significantly felt in Russia and Belarus. However, these companies may experience a decline in their business in Ukraine and Central Asia.

On the other hand, it may mean low competition for small to midcap companies. This may also pose a business opportunity for some.

Changes in patent laws and future regulatory changes, and their impact on pharma business

The Pharma industry is one of the most regulated industries. One of the ways in which big pharma multinationals from the EU and the US would be hit hard is due to changes in the Russian intellectual property laws.

Russia has already created a list of so-called non-friendly nations in response to Western sanctions, covering mainly the US and EU. As per this law, Russia may not respect any patent filings for companies from these nations. This means that suddenly, numerous drugs may become off-patent in Russia.

It may significantly open opportunities for some API sellers, traders, small pharmaceutical companies. Moreover, it means that Russian pharma companies may start manufacturing generic versions of patent-protected drugs in the coming months.

Some countries that have not ratified these treaties regarding patent protection like Bangladesh or Pakistan may start exploring the Russian pharma market. Of course, any such business comes with risk, as any business with Russia risks being sanctioned. However, for some smaller manufacturers, or those without any significant international footprint, that may not essentially be a barrier.

Additionally, it still remains to be seen if this conflict also results in regulatory changes in the country. However, considering the severity of the conflict, it is quite likely that Russia will implement significant regulatory changes in the pharma sector in the coming months.

Additionally, it is worth understanding that Russia has an economic union with Belarus, Kazakhstan, Kyrgyzstan, and Armenia (Eurasian Economic Union). Therefore, it means any changes in the patent laws and regulatory norms in Russia would directly impact these markets.

Impact of conflict on the local pharma industry of the region

For the local medical supplies manufacturers of Russia and Eurasian Economic Union (EEU) at large, these sanctions may not have much negative impact. It is because they do not source much from Europe. Instead, it may mean an opportunity to expand their business for them.

The local pharma producers in Russia are also quite likely to receive some additional support. Thus, the market share of local pharma manufacturers in Russia is expected to rise. Moreover, they would benefit from the lifting of specific patent protection for multinationals.

Additionally, it is worth understanding that many of the local manufacturing units have investments from multinational pharma companies. However, disinvestment by pharma giants from these units might not have any significant impact on the working of these units.

Ukraine also has significant local manufacturing of pharmaceuticals. In the short run, most companies may experience a substantial decline in business due to the economic impact of the conflict and outflow of the population. However, the long-term impacts of the war on the local pharma industry of Ukraine are more challenging to predict.

What business opportunities could this conflict create?

Any conflict or war results in significant human tragedy. Nevertheless, resulting changes in the legal framework in the region, changes in the regulatory environment, economic changes may also pose certain business opportunities for specific players of the industry.

Generally, it may provide business opportunities for the smaller companies in the midterm. And these opportunities will come due to many reasons like the exit of multinationals from the regions, reduced competition in the market, changes in patent laws, and other regulatory changes.

Generally, in the coming years, the market is expected to become more favorable for small-cap and mid-cap companies with a limited presence in the international market. It is because such pharma companies adapt faster to changing market conditions, they are more ready to find new ways of doing business. However, more importantly, such companies are less likely to be affected by economic sanctions against Russia.

Similarly, the market for pharma APIs, intermediates, excipients may fall in the coming year. However, it may show robust growth in the near future due to increased local production of generics.

To conclude, the Russian-Ukrainian conflict would have a significant negative impact on the business environment in the region. GDP of most nations, especially those of Russia and Ukraine, would shrink considerably. This conflict would also have an adverse economic impact on other EEU countries. All this means a significant recession in the industry in the near future. Nonetheless, significant regulatory changes in the region may also provide opportunities for certain businesses.

About the Author:

Dr. Preet Pal S.B.

Dr. Preet Pal S.B. is a physician (M.D. Medicine, Kazakh National Medical University) specializing in diabetes (Fellowship in diabetes), a lifetime member of the Indian Medical Association. Dr. Preet has vast business development experience in the ex-soviet republics/CIS region (Ukraine, Kazakhstan, Uzbekistan, Russia, Kyrgyzstan, Azerbaijan, and so on). Dr. Preet is a  multilinguistic. He has held senior management posts in various healthcare/pharmaceutical companies like SEARLE – central Asia (now a subdivision of Pfizer), Shreya life sciences, AGIO pharma, Indian Immunological Limited (Human and veterinary biologicals). 
Dr. Preet is also a prolific writer and loves sharing my experiences. He firmly believe that an approach towards emerging markets differs considerably from developed markets. The bigger part of the global population resides in emerging markets. Yet, regretfully, most market reports remain focused on the developed markets. Even if they focus on emerging markets, they often use insights gained from developed markets.