Amid political and economic turmoil in recent years, and resulting shortcomings in healthcare budget, medical infrastructure, and drug access, the Ukraine government is championing the introduction of an unprecedented set of reforms, prompting a significant evolution in the country's healthcare system.
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Since the breakout of the 2013 Euromaidan Revolution which culminated in the ousting of Ukrainian President Viktor Yanukovych, Ukraine has made global headlines for geopolitical and military strife that includes the annexation of Crimea by the Russian Federation in March 2014 as well as the triggering of an armed confl ict in the east of the country. While the critical handling of this tense situation has monopolized a large share of the political agenda of President Petro Poroshenko since his election in May 2014, the country has also been hit by one of the deepest economic crises of its post-independence history. According to the State Service of Statistics, Ukraine's real GDP fell by 6.6 percent in 2014 and by 9.9 percent in 2015, before recovering modestly by 2.3 percent in 2016, while the exchange rate of the Ukrainian currency versus the US dollar has decreased more than threefold since 2014.
“The industry, more than anything, has been pulled down heavily by currency devaluation,” explains Filya Zhebrovska, chairman of the supervisory board of Farmak, Ukraine’s largest domestic company and the market leader in the country since 2010. Although it displayed a sustained growth when expressed in local currency and volume, “the value of the Ukrainian pharmaceutical retail market decreased from around USD 5 billion in 2013 to USD 2.3 billion in 2015,” documents Dmytro Spitsyn, general manager of TEVA. Although this challenging context led some international companies to leave Ukraine, many players – including both local and international companies – clearly refused to remain insensible to the deep crisis affecting the Ukrainian population. “Although the crisis entailed the loss of a third of our local revenues, we did not reconsider our commitment to Ukrainian patients or abandon the market – far from it! As a matter of fact, we provided substantial humanitarian aid in 2015 and 2016, and over 120 state medical institutions across the country freely received Wörwag’s high quality medical products,” explains the company’s country manager in Ukraine, Victoria Tarabanova.
Dmytro Spitsyn, general manager, TEVA Ukraine
“Over the last two years, Ukraine has faced serious defense and economic problems, which have moreover drawn a large share of the government’s resources – to the detriment of our healthcare sector,” relates Dr. Natalya Gudz, the head of the State Service on Medicines and Drugs Control (SMDC), a tricky situation which did not contribute to improving patient outcomes in a country where life expectancy remains ten years lower than the EU average. “Overall, the Ukrainian health system still displays dramatic shortcomings inherited from the Soviet era: a low state budget allocated to healthcare, a medical infrastructure that is not adapted to the management of chronic diseases, as well as an unsatisfactory access to pharmaceutical products because of the absence of a mandatory state medical insurance system,” adds Wörwag’s Tarabanova, “and we have now reached a critical point where deeply reforming our health system has become a vital necessity.”
Filya Zhebrovska, chairman of the supervisory board, Farmak
In this regard, President Poroshenko and the government of Prime Minister Volodymyr Groysman have championed the introduction of an unprecedented set of reforms, prompting many industry observers to highlight that Ukraine’s health system has evolved more significantly over the past 24 months than it did during the previous 24 years. This encouraging dynamic notably relates to a pioneering reimbursement mechanism covering 21 international nonproprietary names (INNs) in three therapeutic areas (diabetes, asthma, and cardiovascular diseases), which was implemented on April 1 2017. “Nevertheless, this first version of a reimbursement program only covers one percent of the total market value. We deeply hope that this coverage will be expanded year on year; but we need to acknowledge that Ukraine will remain a market mainly driven by private spending in the foreseeable future,” warns Liana Maksyoutova, country manager of Polpharma in Ukraine, where out-of-pocket expenses make up around 85 percent of all medicine spending.
Natalya Gudz, head, State Service of Ukraine on Medicines and Drugs Control
“Furthermore, as a result of regulations implemented in 2015, approximately half of the Ministry of Health’s USD 151 million drug procurement budget was transferred to the United Nations Children’s Fund (UNICEF), the United Nations Development Program (UNDP), and UK-based procurement expert Crown Agents, in an attempt to tackle corruption and rationalize public procurements”, explains Volodymyr Redko, the executive director of APRaD, the association gathering 16 international, R&D-driven companies. This temporary reform – a newly created governmental procurement agency is set to take over procurement by 2019 – has drawn a relatively high level of criticism among both international and local companies, notably because it still displays significant technical frailties. “Our European partners in Brussels were particularly surprised to see that our government did not choose to immediately set up an independent national procurement agency instead of transferring a large share of its procurement budget to these NGOs,” explains APRaD’s Redko, while local players regret that VAT rulings have created an unfair playing field between domestic and international companies. “The laws state that drugs imported to Ukraine are VAT free, while drugs produced in Ukraine are imposed with a seven percent rate. Therefore, domestic companies, which moreover pay all their taxes to the Ukrainian State, are tendering with elevated prices and cannot compete fairly,” explains Petro Bagriy, the president of the Association of Manufacturers of Medicines of Ukraine (AMMU), which gathers seven leading domestic pharmaceutical companies. “As Ukraine already holds a mature domestic pharmaceutical industry, it would be more cost effective for the government to construct agreements with local producers,” considers Filya Zhebrovska, chairman of the supervisory board of Farmak, the largest domestic company and Ukraine’s market leader, before warning that “if the aforementioned international agencies look to work more often with foreign pharmaceutical companies than with local companies, the latter will be less focused on advancing certain critical areas, like vaccines and oncology, as there will be less return on investment.”
Liana Maksyoutova, country manager, Polpharma
In this regard, a third axis of reforms chosen by Ukraine’s government aims to further open up Ukraine’s pharmaceutical market to international products. “A new law was approved in August 2016 to ease the registration of pharmaceutical products already approved by competent authorities in the US, Switzerland, Japan, Australia, Canada, and the European Union,” explains Tetyana Dumenko, director of the State Expert Center (SEC), the regulatory agency responsible for product registration, pre-clinical studies and clinical trials approval, about a regulation which also stipulates that the final decision of the Ministry of Health will be issued within only 17 business days. “This reform stands as great news for Ukrainian patients, as we expect it will incite foreign companies to bring a larger number of their products in the country. We have already registered several EMA-approved products via this updated regulatory pathway, and we can testify that stipulated timelines were respected,” highlights Victoria Bandyk, COO of Bioscience, a comprehensive group of healthcare-focused companies which notably includes a branch specialized in product registration and promotion in Ukraine, before adding that “in 2015, Ukraine’s Government and Parliament moreover approved the set up of a simplified market access procedure for medicines that are critical for public health (cancer, orphan diseases, HIV/AIDS, tuberculosis, vaccines, and others).” SEC’s goal for 2017 is to implement a one-off registration procedure, in place of Ukraine’s historical model which implied to re-register products every five years, as well as setting up an electronic application form, while the head of the State Service on Medicines and Drugs Control, Natalya Gudz, confirms that “ensuring Ukrainian patients can access an increasing number of foreign, high quality products without lowering quality standards stands as a fundamental objective of the SMDC – and we recently released several regulatory amendments that will contribute to the fulfillment of this objective.”
Dr. Volodymyr Redko, executive director, Association of Pharmaceutical Research and Development (APRaD)
This promising reform momentum has undoubtedly provided international companies with both a unique opportunity and a heightened responsibility to propel Ukraine’s historical dynamic. “As we hold deep roots in the most advanced health systems, we leveraged this network and invited international KOLs to Ukraine to ensure local stakeholders can benefit from their expertise, while partnering closely with other Wörwag affiliates to bring into Ukraine the best practices already implemented in other health systems,” details Wörwag’s Tarabanova.
Tetyana Dumenko, director, The State Expert Center (SEC)
In parallel to this expertise-oriented contribution, going through these extremely challenging times also entailed pharmaceutical executives turning themselves into crisis management experts. “When such a deep crisis occurs, there is no margin for error and a company’s ability to quickly adapt is absolutely critical,” relates Taras Velgosh, country manager of Adamed, a leading Polish company. “The deep economic crisis led us to concentrate our efforts on a single but critical objective: rapidly increasing our competitiveness in order to survive this crisis,” he adds, before elaborating on Adamed’s strategy to cope with this crisis: “We successfully introduced a substantial number of new products and – in the meantime - conducted a diligent assessment of our portfolio and got rid of all products that were either non-profitable or not aligned with our affiliate’s recently implemented focus on prescription drugs, a field where we can directly work with doctors.” This strategy has undoubtedly paid off, as Adamed entered the market’s top 100 and increased its sales force by 60 percent, while many international companies have been restructuring their affiliates over the past few years.
In the same vein, international players, including France’s Théa and Biocodex, as well as generics-focused Alvogen, took advantage of the deep changes reshaping the Ukrainian market to set up their local affiliates. One of the most eye-catching moves undoubtedly was the acquisition of PharmaStart - Ukraine’s ninth largest domestic company at the time – by Switzerland-headquartered Acino Group in October 2015. “At first, industry observers were extremely sceptical – to say the least – about Acino’s decision, but thanks to the cultural and operational transformation we have been fostering since the acquisition, we became in 2016 the fastest growing domestic company among the industry’s top 20,” explains Eugene Zaika, a seasoned pharmaceutical executive who was appointed general director Ukraine and CIS of Pharma Start upon this acquisition.
Victoria Tarabanova, country manager, Wörwag Pharma
If these examples prove that gaining market shares in a plummeting market was feasible, one should not overlook the specificities of “Ukraine’s new reality.” “Since the deep economic crisis started, the Ukrainian market has been characterized by a soaring demand for low price products, which is totally logical considering the importance of out-of-pocket spending in our health system,” explains Vladimir Tkachenko, general manager of Amaxa Pharma, a UK-headquartered pharmaceutical company focused on life-threatening therapeutic areas such as oncology and neonatology in the CIS countries. “In this context, evaluating products to launch or in-license has become much more difficult than a few years ago, where the quality of the product, the brand reputation, or the product’s technology were considered the main differentiators,” he adds, before highlighting that Ukrainian patients’ decision-making power is probably heightened compared to those in countries where state reimbursement agencies or private insurers hold a tighter control on the patients’ healthcare pathway. “This new context also implies to subtly play on our margins to adjust the price of our products, as, in the case of too high pricing, the share of the Ukrainian population that can afford a given product becomes almost nil,” continues Tkachenko.
Taras Velgosh, country manager, Adamed
The crisis has moreover triggered substantial changes across the entire value chain, with its full impact for pharmaceutical companies still difficult to evaluate. “Ukraine still holds more than 20,000 points of sales and a very high number of points of sales per capita. Nevertheless, we see that this part of the value chain has been rapidly consolidating over the past two years, as independent pharmacies are steadily replaced by thriving pharmacy chains,” explains Adamed’s Taras Velgosh. “The latter are now looking to set up new standards and processes to further rationalize their activities and optimize their consolidation, as they still struggle to increase the profitability of their points of sales,” he continues, while Adamed has been closely partnering with Ukrainian distributors on the large-scale implementation of a Vendor Managed Inventory (VMI) system, a streamlined approach to inventory management and order fulfillment.
Tatyana Pechaeva, general director, Lekhim
In the meantime, the gap between foreign and local product prices has significantly increased during the crisis, which probably explains why domestic companies’ market share has increased from 63 to 78 percent (in volume) over the past three years. “In product categories where local companies hold a strong foothold, it is now particularly challenging for international companies to compete,” highlights Amaxa’s Tkachenko, while four domestic companies were ranked in the market’s top five in 2016. Commenting on the recent performance of the Lekhim Group, one the top ten domestic pharmaceutical companies, its managing director Tatyana Pechaeva indeed confirms that “the company has managed to display double-digit growth rates over the past few years, and we expect for 2017 to achieve at least the same results as over the last five years.”
Vladimir Tkachenko, general manager, AMAXA
“2013 marked a turning point in our company’s strategy, as we decided to allocate more resources than ever to our international development and opened several representative offices in Kazakhstan, Tajikistan, Vietnam and Russia, while building strategic partnerships to make our products available in high-potential Asian markets, such as Thailand, the Philippines, and Indonesia,” explains Mykola Gumenyuk, CEO of Yuria-Pharm, a leading manufacturer of infusion solutions and hospital supplier in Ukraine and CIS countries. “At present, we are not focused on any specific geography, as we are considering expansion opportunities all over the world. We do not hold substantial international experience, so entering multiple international markets at the same time appeared to us as the best way to test the waters and more precisely identify in which countries we hold the greater chances to be successful,” he adds, confirming an industry-wide trend among local players to overcome the limitations of the domestic market by expanding beyond Ukraine’s borders. “We have been implementing plans to increase our exports in Asian and African countries, while in 2016 we also set up a new subsidiary in Lithuania which will enable us to expand our business into the EU market, in addition to our current 25 export destinations,” explains Lekhim’s Pechaeva. This approach perfectly illustrates how many leading Ukrainian companies favour a two-fold strategy, which includes entering fast-growing emerging countries – where Ukraine’s pharmaceutical expertise is particularly recognized – as well as more mature markets, where they can leverage the country’s extremely competitive labour cost, its great scientific capacity, and its proximity to the EU market. “We already hold seven products registered in Poland, while we are positioning ourselves in Western Europe with three registered products in the Netherlands and two in Germany,” explains Filya Zhebrovska, the head of the domestic leader Farmak, which recently joined the Drug, Chemical & Associated Technologies Association (DCAT), a global business development association, with the idea to expand its commercial network in the US.
Eugene Zaika, general director Ukraine & CIS, Pharma Start Acino Group
Nevertheless, entering mature markets is no easy task for thriving Ukrainian companies, which have developed themselves within a regulatory framework inherited from the Soviet era. More importantly, these standards, which are completely different than those in force in the EU or in the US, used to shape the entire Ukrainian pharmaceutical ecosystem, from clinical research to product registration. “Although Ukraine has however been rapidly catching up, changing our country’s overall regulatory system stands as an enormous task which cannot be completed overnight, and – in the meantime – ambitious Ukrainian companies still suffer from these structural and regulatory discrepancies,” points out InterChem’s Reder, while Petro Bagriy from AMMU highlights that “Ukrainian companies are however left with no choice but to adapt themselves to the rules of these new markets to fulfill their international ambitions”, as Ukraine’s government has explicitly chosen a market development approach, ruling out the option to directly support a specific part of the value chain. “In this context, I believe that the best way forward for our country is to strictly implement (unchanged) EU requirements – rather than setting up country-specific regulations which would not be automatically recognized by the most stringent regulatory agencies internationally,” states Lyubov Vyshnevska, chairman of the board of Indar, one of Ukraine’s most active pharmaceutical companies on the global stage.
“Common efforts of the Ukrainian business and the government to develop the pharmaceutical sector will not only promote the increase in exports, thus having positive effects on the economy, but also deliver higher-quality, timely healthcare to Ukrainian patients which conforms to modern standards,” highlights Lekhim’s Pechaeva, which moreover underscores her ambitions to “intensify Lekhim’s collaboration with multinational companies and fully leverage the company’s contract manufacturing capacity.” In this regard, cross-border partnerships have truly become a priority in all leading domestic companies’ agendas, ranging from CMO and distribution activities to new product development. “Overall, our R&D pipeline targets socially significant diseases, such as HIV/AIDS, malaria, tuberculosis, osteoarthritis, bronchial asthma, and mucoviscidosis, while we are also bolstering the development of several products in the critical care, anti-aging, and advanced antibacterial areas,” explains Yuria-Pharm’s Gumenyuk. “Although we hold the resources to advance these products’ development by ourselves, we are open to discussing with international partners the opportunity to jointly work on these products’ next steps, without forgetting potential collaborations for developing brand new products,” he concludes.
In parallel to the development of their international strategies, leading domestic companies will also have to consolidate the market shares they gained during the crisis, especially given that the purchasing power of the Ukrainian population is now picking up again, which could prompt patients to switch again from local to foreign products. In this regard, international agencies forecast that the country’s GDP will grow between two and four percent until 2020, and above four percent from 2020 onwards. “It is still too early to truly feel the positive impact that such modest economic growth could generate – although our economy is undoubtedly moving in the right direction,” highlights APRaD’s Redko, while Andy Hunder, president of AmCham Ukraine, also stresses that “we still have to assess the full potential of the recently signed Deep and Comprehensive Free Trade Agreement with the EU and tap into it, as a lot more can be done”. Looking at Ukraine’s pharmaceutical market, 2017 is also set to mark the long-awaited beginning of a new era of double-digit expansion, while the market’s growth rate (year to date) reached 17 percent (in US values) in June 2017, according to the data provider Morion. “Nevertheless, based on our projections, the Ukrainian market may struggle to reach its 2013 level until 2021,” cautions Farmak’s Zhebrovska, highlighting that the true factor to consider will be the pace at which the economy and the pharmaceutical market will recover.
After years of instability and a frenzy of regulatory updates, pharmaceutical companies are also looking for clear, long-lasting requirements and controls that are acceptable to both sides in order to confidently increase their investments in the country. “Pharmaceutical companies in Ukraine, be they local or multinational businesses, want to operate within a predictable regulatory framework that would allow them to control their operational costs,” acknowledges Natalya Gudz, the head of the SMDC, one of Ukraine’s key regulatory agencies.
Petro Bagriy, President, AMMU
Although most industry observers do not see radical changes happening overnight, they are utterly convinced that Ukraine’s situation and the overall healthcare ecosystem will continue to steadily improve in the upcoming years, while the country holds some of the most eye-catching investments opportunities across the continent – from M&A to contract manufacturing or more traditional marketing and sales prospects. “I definitely believe it is now the right time to invest in Ukraine,” confirms Bioscience’s Bandyk. “As a matter of fact, international companies are now showing a heightened interest in the country and its promising potential, and we truly feel that the number of pharmaceutical players that are eager to bring new products into Ukraine is continuously increasing,” she reveals.
Mykola Gumenyuk, CEO, Yuria-Pharm
Victoria Bandyk, chief operating officer, Bioscience
Andy Hunder, president, American Chamber of Commerce in Ukraine