Interview with Vladimir Nesterenko, General Director, Pharmacy Chain 36.6
Published on 26 May 2020 by Anna Andriyanova
Adam Smith Conferences: How has the coronavirus pandemic affected the Russian pharmaceutical market?
Vladimir Nesterenko: The coronavirus pandemic has amplified issues that have been brewing for a long time. A clear example of this is the online retail of medical products. The bill on online retail has been debated for two years but was passed very quickly after the crisis hit. At the moment it is not clear how drug storage and shipping conditions will be controlled. We think that the transition to an online format does not absolve sellers from responsibility for product quality and safety, and so drug delivery should only be conducted directly from a pharmacist to a consumer.
However, it’s possible that large online retail aggregators won’t agree with us. For them there is no fundamental difference between delivering a pizza and delivering pharmaceutical products. But there is a difference, and it is significant. Global experience shows that selling medicine online does pose risks. For example, the British National Healthcare System has in the last few years recorded 52 fatalities related to the consumption of medication bought online. The proponents of online retail often cite Europe, where online retail has been established for a long time, as an example. But they don’t take into the account that in Russia, in contrast to European countries, the market share of non-prescription drugs is very high, so patients can order and “prescribe” these drugs for themselves without a doctor’s involvement. The ratio of OTC and RX is 42.6% to 57.4%. Businesses should consider these aspects, act responsibly and not encourage people to self-medicate.
Adam Smith Conferences: What changes can we expect in the coming months? What challenges are pharmaceutical companies facing and what is being done to mitigate the risks?
Vladimir Nesterenko: The pharmaceutical market hasn’t been going through the best of times even before coronavirus. This is generally a low-margin business in which a net profit of 1% is considered a good result. Recent events, such as the rouble depreciation, the interruption of pharmaceutical substance supplies from India and China, various regulatory initiatives and the decrease in consumer spending during the crisis, have all, of course, hit the pharmaceutical industry. Distributors have tightened their terms: that includes a reduction in payment delays, shipment limitations, and an increase in wholesale prices. Some distributors prefer to work only on a pre-paid basis.
When it comes to forecasting, it is obvious that a decrease in consumer spending will lead to a reduction in turnover and revenue, pharmacies will be forced to close. Yes, we have observed a short-term boom in demand for a number of drugs, but it was followed by an inevitable decline. People have already stocked up on medicines and won’t be visiting pharmacies in the near future. We expect a 20-30% drop in sales.
Adam Smith Conferences: What measures is your organisation undertaking to secure uninterrupted supply of medication to patients and hospitals during the crisis?
Vladimir Nesterenko: The distributor GDP, a company that is a part of PJSC Pharmacy Chain 36.6, is working around the clock, supplying pharmacies and medical institutions with the necessary medicines. Fulfilment of our contractual obligations remains our absolute priority, and we have acquired additional stock in order to avoid drug shortages.
Of course, we need state guarantees, as well as support in the form of preferential loans, the abolition of VAT on medicines, income tax incentives. Acquisition is a major cost line for pharmacy chains. It comprises 1% of revenue, while in retail it only makes up 0.5%. Now, in a situation when people’s lives literally depend on pharmaceutical chains being operational, we are asking for bank commission on acquisition to be scrapped. Also, during this time of exchange rate growth and pandemic, one possible intervention could be to fix the Central Bank’s rate on 9 March 2020, applicable for drugs, medical devices and pharmaceutical substances imported into the Russian Federation, and to base calculations on the fixed rate until the exchange rate stabilises.
Adam Smith Conferences: The situation with the new coronavirus threatens standard business models of organisations around the world. Are there any opportunities for growth and development in the current crisis for the pharmaceutical industry?
Vladimir Nesterenko: It is difficult to make long-term forecasts in the current situation. We can say with confidence that the pharmaceutical market won’t be what it used to be, it will be transformed. A crisis isn’t just about losses, but also opportunities. Today gives a chance to those who are the fastest to adapt to the new circumstances, connect with the customer and make more personalised offers.
Adam Smith Conferences: What other questions would be relevant to discuss at the Russian Pharmaceutical Forum 2020?
Vladimir Nesterenko: The coronavirus has demonstrated how closely we are all interconnected in the modern world. I think that strategies for overcoming the crisis should be sought together. This would be a worthwhile subject to discuss at the Forum.