DAVOS, Switzerland (Reuters) - Swiss drugmaker Novartis NOVN.VX is eyeing Russia as the next big opportunity in emerging markets, after placing a major bet on China, its chairman said on Friday.
Daniel Vasella told Reuters that Russia’s science base and large population made it an exciting prospect for investment in marketing infrastructure, drug production and research and development.
“The potential, I believe, is substantial,” he said on the sidelines of annual meeting of the World Economic Forum.
“We will only do these investments once we have a fair understanding of the risks ... it is an aspiration to do it within two or three years.”
Right now, however, China is top of the target list for Novartis and every other pharmaceutical company. It has an annual growth rate for pharmaceutical sales of more than 20 percent, fueled by a growing middle class.
Novartis unveiled plans last November to invest $1 billion in the largest pharmaceutical research facility in China and many of its rivals have also stepped up investment in the last two years.
Now Vasella is looking around for the next big emerging markets play.
“I would like to do something similar in Russia because Russia has a lot of talent and great history of science but unfortunately has lost, to some degree in some areas, the edge. I think it can regain it,” he said.
Policy changes mean Russia’s drug market has been unpredictable in the past. But the government has now made the pharmaceutical sector a priority industry for development, which Vasella said could be an additional incentive for investment, provided local and international firms were treated equally.
Emerging markets are an increasing lure for Western drug companies selling both patented and generic medicines, as sales growth slows in the United States and Europe and many of the industry’s top selling products lose patent protection.
Forecaster IMS Health sees the drug market in a group of seven major emerging economies — Russia, China, Brazil, India, Mexico, South Korea and Turkey — growing at 12 to 14 percent in 2010 and even faster over the next five years.
That is significantly more than IMS’s predictions for the global drugs market, of 4 percent to 6 percent growth in 2010 and 4 percent to 7 percent through 2013.
Vasella — who announced on Tuesday he was handing over the job of chief executive to Novartis insider Joe Jimenez from February 1, while remaining chairman — said a move to scale-up Russian operations would likely be a phased in.
“Generally, when we get to a country we start by selling, then we back up with production and then, if everything works, we back up with R&D,” he said.
Novartis already has a good business selling its drugs into Russia, but Vasella said increased investment on the ground was needed to reach the full potential.
Editing by Sam Cage and Jon Boyle