In contrast to the sickly Ukrainian economy, many of the country’s pharmaceutical companies are making healthy profits.
Ukraine’s top pharmaceutical producer, Farmak, recently reported that it had almost doubled profits in 2015 compared to 2014, and in March the company announced a 61-percent increase in dividend payments to shareholders.
Likewise, Darnytsa – Ukraine’s second biggest drug manufacturer – announced on April 25 that it had increased its revenues by 34 percent in the first quarter, and had earned a total of Hr 519 million ($20 million) thus far in 2016. According to the Ukrainian State Statistics Service, the overall output of the domestic drug industry was 32 percent up in January compared to December.
And this is happening despite the requirement that state procurement of drugs be done through international organizations, disqualifying many Ukrainian producers that do not meet the requirements.
So how is it that the country’s pharmaceuticals business is making more money?
The steep devaluation of the Ukrainian hryvnia means that domestic pharmaceutical companies now pay less for labor and production costs, such as electricity and water. Although they still have to use raw materials imported from abroad, some of their products are thus cheaper to make. A significant factor, however, is that their monopoly, as well as their influence over doctors and retailers, remains in place.
But this could soon change.
On April 20, Ukraine’s new Cabinet of Ministers, led by Prime Minister Volodymyr Groysman, approved a resolution to cancel Ukrainian registration of medicines that have already been certified by regulatory bodies in the United States, the European Union, Switzerland, Japan, Canada and Australia. That would potentially open up the market to more foreign drugs.
However, parliament still needs to approve the law.
“Demonopolization and deregulation of the pharmaceutical market will expand access to quality medicines on the Ukrainian market, increase competition and eliminate abuses, which will, consequently, lower prices,” Groysman wrote on April 20.
The pharmaceutical industry in Ukraine developed through backroom deals between officials and companies. Foreign companies have struggled to register their products – even ones that are more effective and cheaper. Registration could take 160 days, was expensive or didn’t succeed.
The lack of competition allowed top Ukrainian companies to inflate prices and block competitors, according to Dmytro Sherembey, a patient activist and the head of the All-Ukrainian Network of People Living with HIV.
“Over 60 percent of the drugs available to Europeans aren’t available here,” Sherembey told te Kyiv Post.
Alexander Kvitashvili, who served as Ukraine’s minister of health between December 2014 and April 2016, told the Kyiv Post that “monopoly isn’t the right word – it’s more of an oligopoly, which means that you have business deals going on between the players on the market. But in this, Ukraine is not unique.”
While in office, Kvitashvili lobbied to scrap the registration of drugs already approved by foreign regulators.
“A very high percentage are produced in Ukraine for the local market and for export,” Kvitashvili said. “If you don’t have a competitive advantage, your industry doesn’t develop… (and) by protecting the local market artificially you’re protecting business interests over people.”
Opening up the market is one step toward better quality and consumer prices.
But the government also badly needs to regulate the drugs that patients buy. The current market situation in the industry leads to pharmaceutical companies going to all lengths to promote their products: including bribing doctors and cutting deals with pharmacists, experts say.
“We have what is known as an out-of-the-pocket market, a free market, which is wild, and where there are no guarantees for the pharmaceutical companies,” Lana Sinichkina, a partner at Arzinger law firm, told the Kyiv Post. “They sell as much as the consumer can afford to buy. In developed countries, the government has enough state funds to provide subsidies, under the condition that the price stays at a certain level. In return, pharmaceutical companies are guaranteed a certain volume of sales based on demand.”
But in Ukraine there is no electronic patient registry and so statistics about use. Prescriptions are also not required to be issued on official documents or even to be written down. It’s enough for a customer just to know the name of a drug to buy it.
However, as Sinichkina put it, restrictions cannot be easily imposed in a free market without industry resistance: “There has to be a health care policy first.”
Kvitashvili told the Kyiv Post that lawmakers “wouldn’t pass” a policy while he was health minister and that a draft had substantially weakened his proposal for an overhaul.
He wants Ukraine to duplicate his success as health minister in Georgia, which managed to change its regulations and laws, and that translated into a decrease in prices of medicines by 30 to 40 percent.”
