Red tape ties up pharmaceutical business
Sept. 2, 1999, 1 a.m. |
Economic collapse and bureaucratic bungling have shrunk Ukraine's pharmaceutical market by nearly half since 1997, forcing Western pharmaceutical companies to drastically cut back their operations in Ukraine, and potentially compromising the health of the Ukrainian population.
Current levels of public spending on healthcare per capita amounts to just $17 annually, almost 170 times less than in Germany, and 10 times less than in Poland, according to statistics cited in a report soon to be released by TACIS' European Commission on Ukraine's pharmaceutical market. Market analyst Dennis Oleinikov put that figure at a mere $6-7 in an article in the the Aug. 2 edition of Apteka magazine.
Of course, the public demands a lot more medicine than that. It just can't afford it.
As a result, Western companies, whose products cost more than local brands, simply can't afford to stick around. Most multinationals still in Ukraine are today either searching for an exit strategy or trying to carve out a future market niche.
The declining income of the Ukrainian population brought on by the financial crisis that began one year ago is largely blamed for the crisis in the industry. State-subsidized health care takes up some of the slack, but even the state is poor. Public pharmaceutical purchases will dwindle to a puny $20 million, in 1999, according to experts.
According to the TACIS report, pharmaceutical sales in 1999 will total a mere $290 million, down from $600 million just two years ago.
One might expect the Western pullout to be a boon to domestic producers, but that has not been the case. Although Ukrainian pharmaceutical companies increased their market share in 1998 and 1999, gross domestic sales of local producers are expected to reach only $140 million in 1999 - a decrease of 30 percent since 1997.
'No one is doing well,' said Vitaly Usenko, an expert for TACIS on Ukraine's pharmaceutical industry. 'Most suppliers and some wholesalers now insist on pre-payment in full before delivery. At first, Ukrainian pharmaceutical companies were pleased that multinational players were downsizing or leaving the market, but now they realize that their departure may trigger the bankruptcies of wholesalers and retail pharmacies alike. And that's not in anyone's interest.'
What medicine is getting bought by Ukrainian consumers is cheap and, most pharmaceutical experts say, inferior. Ukrainian pharmaceutical producers have yet to establish research and development facilities and are unlikely to meet Western Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP) standards until at least the year 2002.
If the poor economy fails to strangle the pharmaceutical structure, bureaucracy just might.
EU Ambassador Van Haeverbeke and U.S. Ambassador Steven Pifer have recently appealed to Deputy Prime Minister Serhy Tyhypko and Minister of Health Raisa Bohatyrova to sort out product-registration problems faced by European and American pharmaceutical companies operating in Ukraine.
Both ambassadors pointed to the lack of transparency in the Ministry of Health's registration process and, in particular, to a problem recently reported by the British - U.S. company SmithKline Beecham.
On April 16, 1999 the Ministry's Bureau for Registration of Medicinal Products arbitrarily cancelled the registration certificate for SmithKline Beecham's 'Aquafresh' toothpaste as a certified medicament, thereby subjecting all sales (approximately $6 million annually) of the company's best-selling product to mandatory value-added tax.
Customs authorities informed SmithKline Beecham of the cancellation of registration in May, and the case has subsequently wound up in Ukraine's higher court of arbitration, where Beacham hopes the judges will void the Bureau's cancellation. That case is scheduled to come before the court in early September.
Meanwhile, multinational pharmaceutical companies are still wading through paperwork and guessing which government regulatory organ is, or might be, responsible for certifying, registering, and re-registering prescription and over-the-counter drugs.
One of the main problems is that the Cabinet of Ministers and the Health Ministry have failed to define clearly grants of authority to a newly established National Agency on quality control and safety of food, medicinal and medical use products, which was created by Presidential decree No. 199/99 on Feb. 1, 1999. Ostensibly, the agency was created to replace the health ministry's Pharmacological Committee as the organ responsible for registration and certification of medical products.
But two months later, the Ministry of Health issued Order No. 69 'On the reorganization of the Pharmacological Committee of Ukraine,' which converted the committee into a state enterprise inheriting committee property rights and responsibilities.
'If the authorities wait until November to sort this out, the confusion may result in a serious disruption in the flow of pharmaceutical trade in Ukraine,' said Vitaly Usenko. He emphasized that when stocks of essential medicines run out, multinational pharmaceutical suppliers may no longer be inclined to replenish them.