Gearing up to its co-hosting of the 2012 EUFA European Soccer Championship in June/July, the vibrancy of Ukraine's burgeoning wealth is patent throughout the streets of its capital city, Kiev. Amidst scintillating fashion house boutiques and copious black tinted luxury cars lining the main streets, it is hard to grasp that this country gained its independence from the Soviet Union a mere 21 years ago. Surely, such ostentations are a reflection of Ukraine's solid economic performance since 2000, with an average annual growth of more than 7%, up until 2008 when the global economic crisis hit the country's finances hard, demonstrated by a 15% contraction of GDP in 2009. Despite the severe blow to its economy, Ukraine has been recovering at a faster rate than its Western European counterparts with growth rates upwards of 4% in 2010 and 2011, partly boosted by the country's accession to the WTO in 2008. But what has such rapid development done for the country's healthcare? The blunt and disheartening answer is: close to nothing. This reality is even more distressing when you consider that Ukraine was once the scientific and manufacturing nucleus for all of the Soviet Union's pharmaceutical needs. Yet, the situation has perhaps become so dire that a wave of change seems to be in motion and promise of a new healthcare ecosystem could soon become a reality. Welcome to the fallow pharmaceutical nation.
HEALTH AT YOUR OWN RISK
When compared to the rest of the world's life expectancy statistics, Ukraine ranks 116th, akin to some of the poorest African countries, with a dismal average life expectancy of 62 for men and 74 for women. This is exactly 100 positions lower than the country's ranking in 1960 when, under the Soviet Union, healthcare in Ukraine was universal and annual medical check-ups were mandatory for the entire population. Today, "Ukraine's public healthcare is very limited and only supports five programs for major diseases, such as oncology, HIV, tuberculosis, diabetes, transplantology, and rare children's diseases. Treatment of any other health condition must be paid entirely by the patient and this is something that they have gotten used to already," explains Irina Gorlova, CEO of Support in Market Development (SMD), one of Ukraine's leading data research providers. In light of this, the government has been mulling over the idea of introducing a reimbursement system for more than 15 years.Ironically, the reason behind such poor health indicators lies in Ukraine's pharmaceutical expertise and manufacturing prowess during Soviet times. Oleksiy Solovyov, head of the State Administration of Ukraine for Medicinal Products (SAUMP), the country's regulatory authority, recounts that "in the Soviet times many sectors of the economy, particularly the pharmaceutical industry, were concentrated in Ukraine. Most academic institutions, which developed drugs, as well as manufacturing facilities, were located in Kiev and Kharkov. In that time the main purpose was to provide a wide range of products for the treatment of all major diseases, and increase the number of units produced. The objective of the USSR's healthcare system was to provide a certain level of health." Indeed, it was that legacy that led to the powerful group of private Ukrainian pharmaceutical producers that today account for almost 70% of all the units sold in the market, however in terms of value, the generic medicines manufactured by these companies only add up to 30%. Nevertheless, Ukraine's top 10 pharmaceutical companies in terms of value still counts four national producers, including Farmak at the No. 1 spot with a total market share of 3.8%. Farmak's market share is also illustrative of the sector's high fragmentation with more than 100 companies marketing their products in Ukraine.
Vladimir Ignatov, executive director of the Association of International Pharmaceutical Manufacturers (AIPM), explains that "the national healthcare system has not changed much since the days of the Soviet Union, under which the state was expected to pay for all national healthcare expenses. However, the reality of the situation is that today patients are paying for the vast majority of their treatment out of pocket (85-90%) because the government has ignored their role in regulating and streamlining the system, assuming that the private interests of the pharmaceutical industry would automatically do that. What has happened is that a large gap has been created between the performance of the pharmaceutical industry and the healthcare system, and this has caused some tensions between the two." Essentially, this has led to the stunting of the pharmaceutical sector in Ukraine, which today is valued at US $3 billion (SMD estimates) for a population of nearly 46 million, bringing the average annual per capita expenditure on medicines to a meager US $65 million. Under such conditions, Ukraine has amongst the lowest average prices for medicines in all of Europe, driven mostly by a robust local generic industry that only began conforming to international standards of production about seven years ago.
Viktor Poushkarev, head of the CIS Region for Finnish Orion Pharma, elaborates that "Ukraine holds the status of a branded generics market. An important difference between the Western European and Ukrainian branded generics market is the level of production control. We have very specific generic competition, in which products containing the same API can come from production facilities with very different levels. This can influence the finished product severely, with a tablet from one company containing 40mg, a tablet from another producer containing 30mg, and the tablet of a third will contain nothing. Control on production facilities is still weak, even though Ukraine recently joined PIC/S in January 2011." Orion has a clear understanding of the evolution of Ukraine's pharmaceutical market due to Finland's historical trade agreement with the Soviet Union, which allowed the company to be one of the first entrants into the market back in 1993. Poushkarev further explains that "healthcare expenditures from the state budget increase by 10-20% annually. Nevertheless, the quality of the healthcare has not changed in a positive way. This means that the main problems are still part of the system, which is understandable as it is a tax-financed system."
While the government does allocate about 10% of its budget to healthcare, SMD's Gorlova explains that "public healthcare institutions in the country are antiquated and extremely inefficient, and this is represented by the fact that only 7% of the country's healthcare budget is used to pay for the treatment of patients, while the remaining 93% is related to administrative costs." Gorlova used to head the operations of IMS Health in Ukraine before the company decided to leave the market in 2003 due to a lack of access to quality data. In response to this, SMD has resourcefully struck partnerships with pharmacies that today willingly provide them with market data. "This kind of data was a necessity to develop the full potential of Ukraine's pharmaceutical sector. In particular, multinational pharmaceutical companies were demanding such data in order to make their forecasts and report back to their headquarters. Our aim was to support them in this endeavor by providing the same quality data and services that they are used to in other markets. In doing this, SMD also serves to promote Ukraine and the region as a great opportunity for investment," she concludes.
One final hurdle that companies experience in Ukraine is the prevalence of corruption stemming from the fact that the pharmaceutical industry is a highly regulated sector with countless layers of bureaucracy. Furthermore, state employee wages are unbearably low and therefore the temptation for them to make extra money through covert means is rather high. In fact, the circumstances were so blatant that the regulatory authority today contains an anti-corruption branch that employs former secret service investigators to weed out tainted officials.