Russia is now in 12th place globally by drug retail market capacity and many international drug makers, like Europe's Sanofi-Aventis and Berlin-Chemie/Menarini Group who are the market leaders in the country, are looking for ways to protect their market share from domestic manufacturers.
Although foreign companies hold 76 per cent of the Russian market in value, Russian firms are on the rise, with Pharmstandard coming third by sales value, up one place from 2004, and Nizhpharm up three places to twenty-third.
Foreign companies which have seen their sales decrease are responding by boosting their manufacturing sites in Russia; Hungary's Gedeon Richter and Slovenia's KRKA have built their factories near Moscow and Sebria's Hemopharm is finishing a plant in Obninsk in the Kaluga Region.
Indeed, an examination of the proportion of domestic and imported drugs on the Russian pharmacy market reveals that, although the share of domestic drugs in value terms is still significantly lower than that of imported drugs, in 2006 the share of domestic drugs increased by 2 per cent compared to that in the same period of 2005.
In addition, domestic drugs, which in general are significantly cheaper, prevail in pharmacy sales when represented in terms of sales volume.
Most of the domestic drugs are generics made from imported raw materials, with substances worth $97.7m brought into Russia in 2004 coming mostly from Germany, China, India, Switzerland and the Czech Republic.
Although the forthcoming introduction of the compulsory good manufacturing practice (GMP) for Russian pharmaceutical factories will pose challenges for many firms, Russia's entry to the World Trade Organisation (WTO) will help domestic manufacturers by attracting more foreign investment, the report predicts.
Driving growth is the government's Beneficiary Drug Provision (BDP) programme - without it market growth last year would have been only 15 per cent.
The scheme allows certain categories of people to collect free medication from state-run polyclinics, subsidising the market by $1.58bn.
Further contributing to growth is the parapharmacy sector, up 41 per cent in 2005, thanks to the development of pharmacy networks and implementation of open trade, while the share of parapharmaceutical products in pharmacy networks with open trade policies is also significantly higher compared with that in other pharmacies.
What is more, popularisation of the healthy life-style coupled with the growth of personal income has caused people to spend more money in pharmacies, buying more products contributing to their healthy lifestyle, particularly over-the-counter (OTC) drugs.
Long-term, based on the continued active involvement of the state in the sector, which the research firm finds most likely, the pharmaceutical market is expected to reach $17.2bn by 2010.
However, the report cautions the industry against overoptimism, pointing out that many possible government actions, like tightening prescription drugs sales rules and implementing fixed prices for all drug products, may have a negative effect on the market.
The impact of Russia's entry into the WTO will show itself gradually, and the first significant results can be expected by 2010, researchers conclude.