Out of the Wood
The pharmaceutical market is taking off. Domestic manufacturers drive out Western competitors, ramp up production and pave the way to European and Asian consumers
Having recovered from the 2008–2009 crisis the Ukrainian pharmaceutical market shows growth again. Sales of pharmaceutical products in 2017 increased by 20% — up to UAH 70 billion. In physical terms, the growth was 7% — up to 1.224 billion packs.
Most of the pharmaceutical "pie" was shared by Ukrainian pharmaceutical companies. If in 2010, the largest domestic producers accounted for 54.5% of the market in physical terms, in 2014 the figure was 68%, and in 2017 their share rose to 73.5%. "Now Ukraine has got a historic chance to get rid of dependence on foreign medicines as much as possible and develop domestic production," says Svitlana Didenko, the CEO of Darnitsa.
Experts explain the surge in sales by both increased purchasing power and natural desire of Ukrainians to save money by purchasing more affordable domestic medicines.
The main advantage of Ukrainian medicines is their price. According to the study "Pharmaceuticals of Ukraine. Infographic Atlas" by Top Lead with the support of the BusinessViews project, the Ukrainian Chamber of Commerce and Industry, the law firm AEQUO, and Darnitsa, Ukrainian medicines are 4-16-fold cheaper than their foreign analogues.
At the same time, Ukrainian companies are not only driving out Western competitors from the market, but also coming out to play in their field, thereby also improving sales statistics. Currently, residents of 81 countries around the world know about Ukrainian pills and medicines. And, though domestic pharmacists still failed to return to pre-crisis indicators, in 2017 they clear another height — exported medicines for USD 192 million, 25% more than two years earlier.
In total for 10 years, 2007 to 2017, Ukrainian pharmaceutical companies have boosted sales by 9: UAH 3.3 billion to UAH 26 billion. "Think about it: the Ukrainian industry has nine-folded! I want to hear what other industry in Ukraine could have made such a breakthrough, while creating complex value added and attracting a large number of qualified talents," asked Dmytro Shymkiv, the Chairman of the Executive Board of the Management Company of Darnitsa, rhetorically.
Most of the pharmaceutical "pie" was shared by Ukrainian pharmaceutical companies. If in 2010, the largest domestic producers accounted for 54.5% of the market in physical terms, in 2014 the figure was 68%, and in 2017 their share rose to 73.5%. "Now Ukraine has got a historic chance to get rid of dependence on foreign medicines as much as possible and develop domestic production," says Svitlana Didenko, the CEO of Darnitsa.
Experts explain the surge in sales by both increased purchasing power and natural desire of Ukrainians to save money by purchasing more affordable domestic medicines.
The main advantage of Ukrainian medicines is their price. According to the study "Pharmaceuticals of Ukraine. Infographic Atlas" by Top Lead with the support of the BusinessViews project, the Ukrainian Chamber of Commerce and Industry, the law firm AEQUO, and Darnitsa, Ukrainian medicines are 4-16-fold cheaper than their foreign analogues.
At the same time, Ukrainian companies are not only driving out Western competitors from the market, but also coming out to play in their field, thereby also improving sales statistics. Currently, residents of 81 countries around the world know about Ukrainian pills and medicines. And, though domestic pharmacists still failed to return to pre-crisis indicators, in 2017 they clear another height — exported medicines for USD 192 million, 25% more than two years earlier.
In total for 10 years, 2007 to 2017, Ukrainian pharmaceutical companies have boosted sales by 9: UAH 3.3 billion to UAH 26 billion. "Think about it: the Ukrainian industry has nine-folded! I want to hear what other industry in Ukraine could have made such a breakthrough, while creating complex value added and attracting a large number of qualified talents," asked Dmytro Shymkiv, the Chairman of the Executive Board of the Management Company of Darnitsa, rhetorically.
Have Broken Through
Georgy Viktorov, the Head of the Health Committee of the European Business Association (EBA), looks into the industry's recent past. He says that in the 90s, the national pharmaceutical market was 80% filled with imported medicines, in physical terms, in packs. Domestic production was 20%.
Even some nine years ago, foreign manufacturers called the shots in the Ukrainian pharmaceutical market. The German company Berlin-Chemie stayed in the lead by sales, and only three domestic manufacturers were in the top ten.
However, in 2010, when the UAH devaluation hit the positions of foreign companies, players were changed. The 2014 currency exchange collapse only strengthened the position of Ukrainian pharmacists. The top five included four domestic manufacturers: Farmak, Arterium, Darnitsa, and Zdorovje Group. The only foreigner in the top five was French Sanofi.
Ukrainian manufacturers, however, strongly compete with each other. 115 companies — the lion's share of which (77%) are profitable — have the National Drug Manufacturing Licence. The pharmaceutical industry is almost the only one in the Ukrainian market with many players and no monopoly. No company can boast a market share of more than 6%, and the 10 largest manufacturers control only a third of the whole pharmaceutical "pie."
The Ukrainian pharmacists gained the upper hand due to the USD exchange rate fluctuations (imported medicines turned out to be unaffordable) and the access to new markets — Southeast Asia, the Middle and Far East, Africa, and Latin America.
Even some nine years ago, foreign manufacturers called the shots in the Ukrainian pharmaceutical market. The German company Berlin-Chemie stayed in the lead by sales, and only three domestic manufacturers were in the top ten.
However, in 2010, when the UAH devaluation hit the positions of foreign companies, players were changed. The 2014 currency exchange collapse only strengthened the position of Ukrainian pharmacists. The top five included four domestic manufacturers: Farmak, Arterium, Darnitsa, and Zdorovje Group. The only foreigner in the top five was French Sanofi.
Ukrainian manufacturers, however, strongly compete with each other. 115 companies — the lion's share of which (77%) are profitable — have the National Drug Manufacturing Licence. The pharmaceutical industry is almost the only one in the Ukrainian market with many players and no monopoly. No company can boast a market share of more than 6%, and the 10 largest manufacturers control only a third of the whole pharmaceutical "pie."
The Ukrainian pharmacists gained the upper hand due to the USD exchange rate fluctuations (imported medicines turned out to be unaffordable) and the access to new markets — Southeast Asia, the Middle and Far East, Africa, and Latin America.
The director of Darnitsa Svitlana Didenko
Speaking about the industry breakthrough, the director of Darnitsa Svitlana Didenko specifies that it is especially difficult to make it in the regions of Southeast Asia, since everyone interested is given a long list of requirements for quality assurance. The export strategy for new markets is a step into the unknown: such projects last for 2-5 years. But it's worth the cost.
Mr. Viktorov from EBA emphasises that, though small, the Ukrainian market may be attractive for the markets in Eastern, Central, even Western Europe, and, of course, the post-Soviet markets if production facilities are able to exceed domestic consumption. "The potential is huge," Mr. Viktorov says. "This is a market of 280-300 million people. But unfortunately, this is a big market of poor people."
Ukrainians really spend little on medicines compared to Europeans and Americans. If a Ukrainian consumes medicines for an average of USD 62 per year, in Estonia this figure is USD 244, in the UK — USD 383, and in Canada — USD 587.
In addition to the foreign factor, the domestic pharmaceutical market development is driven by the emerging transparent rules of the game. For the past 20 years, the procurement of medicines to treat cancer, TB, HIV and hepatitis has passed as if in deep shadow — perfect environment for transactions with corruption margin.
43 manufacturers and more than 6,000 pharmacies have already joined the reimbursement programme (full or partial compensation of the cost of medicines by the state) since its launch. According to Susanna Khalilova, the Marketing Director of Farmak, the reimbursement programme has influenced the demand for diabetes and cardiac medications.
Indeed, Ukrainians, in contrast to the countries with insurance medicine developed, buy most medicines for their own money. In 2017, 87% of all medicines were sold by retail, and hospital purchases accounted for only 13%. To put it simply, this means that the lion's share of funds comes to pharmacists directly from the patients' pockets.
At the same time, Ukrainians spend billions of hryvnias on drugs with unproven efficacy, which Western medicine does not recognise or even strictly prohibits. The main adviser in this matter is not a doctor, but neighbours, relatives, or television. And we have the situation when despite the fact that most often deaths in Ukraine are caused by cardiovascular or oncological or respiratory diseases, the bestsellers are not drugs from these ailments, but those for digestive system and metabolism, anti-inflammatory drugs, painkillers, or cold-relief medicines.
In the economically developed countries heart disease and oncological drugs, as well as other infectious disease drugs are leading in the sales pattern, which corresponds to the local disease distribution.
Mr. Viktorov from EBA emphasises that, though small, the Ukrainian market may be attractive for the markets in Eastern, Central, even Western Europe, and, of course, the post-Soviet markets if production facilities are able to exceed domestic consumption. "The potential is huge," Mr. Viktorov says. "This is a market of 280-300 million people. But unfortunately, this is a big market of poor people."
Ukrainians really spend little on medicines compared to Europeans and Americans. If a Ukrainian consumes medicines for an average of USD 62 per year, in Estonia this figure is USD 244, in the UK — USD 383, and in Canada — USD 587.
In addition to the foreign factor, the domestic pharmaceutical market development is driven by the emerging transparent rules of the game. For the past 20 years, the procurement of medicines to treat cancer, TB, HIV and hepatitis has passed as if in deep shadow — perfect environment for transactions with corruption margin.
43 manufacturers and more than 6,000 pharmacies have already joined the reimbursement programme (full or partial compensation of the cost of medicines by the state) since its launch. According to Susanna Khalilova, the Marketing Director of Farmak, the reimbursement programme has influenced the demand for diabetes and cardiac medications.
Indeed, Ukrainians, in contrast to the countries with insurance medicine developed, buy most medicines for their own money. In 2017, 87% of all medicines were sold by retail, and hospital purchases accounted for only 13%. To put it simply, this means that the lion's share of funds comes to pharmacists directly from the patients' pockets.
At the same time, Ukrainians spend billions of hryvnias on drugs with unproven efficacy, which Western medicine does not recognise or even strictly prohibits. The main adviser in this matter is not a doctor, but neighbours, relatives, or television. And we have the situation when despite the fact that most often deaths in Ukraine are caused by cardiovascular or oncological or respiratory diseases, the bestsellers are not drugs from these ailments, but those for digestive system and metabolism, anti-inflammatory drugs, painkillers, or cold-relief medicines.
In the economically developed countries heart disease and oncological drugs, as well as other infectious disease drugs are leading in the sales pattern, which corresponds to the local disease distribution.
Keep Up With the World
According to the authors of the study "Pharmaceuticals of Ukraine. Infographic Atlas", the growth of production and consumption of pharmaceutical products is a global trend. The international pharmaceutical market is growing annually by 5–6% and in 2017–2021 it will grow by 34% — to USD 1.5 trillion, according to forecasts. Almost a quarter of this increase will come from emerging pharmaceutical markets.
The valid patents for well-known world medicines are expiring — this trend is called "patent cliff." This means that countries are discovering new opportunities for competition, in particular, in the production of generics — copies of expensive imports.
This is good news for Ukrainian producers. Domestic manufacturers are focused primarily on generics, so the coming years offer tremendous opportunities for their development.
Market experts state that in recent years domestic pharmaceutical companies have grown to the international level and harmonised their production with the international standards. At the same time having the opportunity to save on costly development, labour force and energy resources, they get a leg-up in price. For example, if in 2017 one pack of imported medicine cost on average UAH 128, then Ukrainian one cost UAH 31.
Ukrainian pharmaceutical companies are able not only to compete with foreign companies, but also to cooperate with them. For example, Dmytro Shymkiv sees great prospects in establishing contract manufacturing — when a foreign patent owner for a product or technology places an order for the manufacture of this product at a Ukrainian enterprise.
Domestic pharmacists, however, can do better than just copy the imported technologies: currently, over 400 clinical studies are being conducted in Ukraine. Negotiations are being carried on for the joint development of innovative products. "The Ukrainian pharmaceutical business has opportunities, ambitions, and resources to become international," concludes Mr. Shymkiv who recently came to the pharmaceutical industry from the Presidential Administration of Ukraine.
"An additional factor affecting the market could be the state reimbursement programme "Available Medicines", if substantially expanded," Miss Didenko says. In 2017, the share of this programme in the overall market structure was about 1%, and the 2019 State Budget provides the same amount for the reimbursement programme that will not stir up the market.
Pharmacists also expect the Ministry of Health to supplement the National List of Essential Medicines, on which the "Available Medicines" programme is based, with modern and efficient medicines. Currently it includes outdated medicines; that is why pharmaceutical companies cannot discontinue "retro-pills", and patients have to be treated with them.
But the main condition for the sound development of the Ukrainian pharmaceutical market is the population's well-being growth. "GDP per capita should not be USD 2,300, as it's now, but USD 15,000," Mr. Viktorov says. "Then the landscape and the list of sought-after medicines will change."
The valid patents for well-known world medicines are expiring — this trend is called "patent cliff." This means that countries are discovering new opportunities for competition, in particular, in the production of generics — copies of expensive imports.
This is good news for Ukrainian producers. Domestic manufacturers are focused primarily on generics, so the coming years offer tremendous opportunities for their development.
Market experts state that in recent years domestic pharmaceutical companies have grown to the international level and harmonised their production with the international standards. At the same time having the opportunity to save on costly development, labour force and energy resources, they get a leg-up in price. For example, if in 2017 one pack of imported medicine cost on average UAH 128, then Ukrainian one cost UAH 31.
Ukrainian pharmaceutical companies are able not only to compete with foreign companies, but also to cooperate with them. For example, Dmytro Shymkiv sees great prospects in establishing contract manufacturing — when a foreign patent owner for a product or technology places an order for the manufacture of this product at a Ukrainian enterprise.
Domestic pharmacists, however, can do better than just copy the imported technologies: currently, over 400 clinical studies are being conducted in Ukraine. Negotiations are being carried on for the joint development of innovative products. "The Ukrainian pharmaceutical business has opportunities, ambitions, and resources to become international," concludes Mr. Shymkiv who recently came to the pharmaceutical industry from the Presidential Administration of Ukraine.
"An additional factor affecting the market could be the state reimbursement programme "Available Medicines", if substantially expanded," Miss Didenko says. In 2017, the share of this programme in the overall market structure was about 1%, and the 2019 State Budget provides the same amount for the reimbursement programme that will not stir up the market.
Pharmacists also expect the Ministry of Health to supplement the National List of Essential Medicines, on which the "Available Medicines" programme is based, with modern and efficient medicines. Currently it includes outdated medicines; that is why pharmaceutical companies cannot discontinue "retro-pills", and patients have to be treated with them.
But the main condition for the sound development of the Ukrainian pharmaceutical market is the population's well-being growth. "GDP per capita should not be USD 2,300, as it's now, but USD 15,000," Mr. Viktorov says. "Then the landscape and the list of sought-after medicines will change."