Ukraine’s pharmaceutical market is afflicted with monopolies and oligopolies, leading to lack of choice and high prices.
“In Ukraine, the pharmaceutical market has some problems – in particular, it has a small range of effective medicines: in Germany, there are 45,000 medicines, and we have 13,000,” Acting Minister of Health Ulana Suprun said in December. “So first there’s little choice and competition, and second there’s overpricing: some of our drugs are 20 times more expensive than in (other) European countries.”
Suprun’s prescription for the market’s ills is her health sector reform bill, which was passed by parliament on Oct. 19 and which started to take effect in January. New programs for the procurement of drugs abroad and state reimbursements for the costs of palliative care have already brought some improvement.
But with the health sector’s legislative base still weak, and health reforms only just starting to kick in, experts say better regulation and a systematic approach to reform are still needed to nurse the sector back to health.
A pharmacist stacks shelves with medicine ordered as a part of the state procurement program of the National Institute of Cancer on Oct. 19, 2016. (Kostyantyn Chernichkin) (Volodymyr Petrov)
The producers
At least 50 companies in Ukraine produce drugs, with the top five in terms of sales being Farmak, Arterium, Darnytsa, Kyiv Vitamin Plant and Yuria-Pharm. Because of Ukraine’s complex and bureaucratic drug-registration system, there are few low-cost generic drugs available – most are either produced domestically or imported.
Where there is competition, it is between domestic producers and importers, said Lana Sinichkina, a lawyer at law firm Arzinger who specializes in the healthcare sector. But in many cases, the various big drugs companies corner the market for a particular drug that treats a particular illness, or claim they have updated a drug that has gone out of patent, reregistering a patent for the “new” drug. That keeps low-cost generic drugs out of the market, reducing competition and forcing up prices.
The health reform bill aims to inject a dose of competition into the market through measures like its Dostypni Liky (Available Medicine) reimbursement program. The program allows patients with cardiovascular disease, type 2 diabetes, and bronchial asthma to obtain prescription drugs for free or for a small payment in participating pharmacies – some 6,180 pharmacies have signed up for the program already.
Another way of getting more, cheaper drugs into circulation is Suprun’s new international medicines procurement system, introduced in 2017, which delegates the purchase of 11 drugs ordered by the state to international organizations, namely the United Nations Development Program, UNICEF Children’s Fund and British procurement agency Crown Agents. The idea is to cut out intermediaries in the procurement system who formerly would buy drugs cheaply for the state abroad, and then jack the price up hugely when selling them in Ukraine.
And there’s another positive side effect of the program: “If an international company whose drugs are not registered in Ukraine wins the tender, then its drugs can be registered under a simplified system,” Sinichkina said, adding that this has already led to a growth in the number of international brands on the market.
The program has also increased the availability of vaccines: UNICEF in 2017 managed to procure six out of the eight vaccines it required, but that were not previously registered in Ukraine.
As self-treatment is popular in Ukraine, pharmacy chains conspire with distributors of expensive drugs so that pharmacists advise consumers to purchase expensive drugs. This, in turn, blocks cheaper products from entering the market.
Patenting
While international procurement has resolved some issues at the state level, some monopolies on specific drugs still exist, Oleksandra Ustinova, a board member of the Anti-Corruption Action Center think tank said.
Local producers produce plenty of remedies for colds and flu, but not medicines that require research and development, like cancer drugs or vaccines, she said.
In other cases, a Ukrainian company buys pills from an international brand in bulk, repacks them and sells them under its own brand. The international brand then competes with its own drug, but in local packaging.
Re-patenting drugs also limits competition, and results in there being large numbers of registered drugs in Ukraine that aren’t present anywhere else, Ustinova said.
“In fact, we have a range of drugs here, for which the patent on them expired abroad a long time ago,” she said. Ukrainian producers update the patents, saying that they have upgraded the drug, and then sell it under their own brand. In many cases the changes made to the drug formula have little or no effect.
One example is Aluvia, a drug to treat HIV, originally developed by Germany’s Abbott pharmaceutical company and now patented in Ukraine. Ustinova said that even the most expensive generic produced in India would be cheaper than the Aluvia sold in Ukraine.
“You can buy Aluvia in Ukraine, but you can’t buy generics because they aren’t registered,” she said. “If we got rid of patents, we would decrease (expenses) on treatment… and cure a lot more people.”
Swollen costs
Lack of competition is just one of the factors forcing up the price of drugs in Ukraine. The devaluation of the domestic currency, the hryvnia, to a third of its value after the EuroMaidan Revolution and ensuing economic crisis made prices in hryvnia shoot up – in many cases higher than the change in the exchange rate would justify.
Another factor is the distribution business. Distributors sometimes add markups that double the price charged by the manufacturer – especially if the medicine is imported. According to Oleg Klimov, the head of non-government All-Ukrainian Chamber of Pharmacy organization, the Health Ministry should oblige producers to declare their prices so the size of the distributors’ markups can been calculated.
The problem is that the distributor market itself has a limited number of players, Sinichkina said.
“In this segment of the market, competition is not as high as at the level of producers, but this is actually a normal phenomenon for the market,” she said. “We can say there’s an oligopoly here.”
Distributors have to meet international standards, which requires investment, and the market is dominated by about 10 big players. It’s hard for new players to break into the market, and Sinichkina recalls several distributors declaring bankruptcy and dropping out.
“It’s not that we have a unique situation, but there’s a risk that the market might have an even more limited number of participants,” Sinichkina said.
Pharmacy chains
Meanwhile, the reimposition of regulatory controls on pharmacies could help bring prices down.
For over three years, Ukraine’s pharmacies operated without being checked by the State Administration on Medicinal Products. But in February the moratorium on checks of small businesses (which includes most pharmacies) was canceled. “Systematic and planned inspections of pharmacy establishments,” will resume, according to a Health Ministry report.
Deputy Health Minister Roman Ilyk said the moratorium had allowed not only the sale of counterfeit drugs, but also cases of overpricing.
About 40 pharmacies opened in 2017, adding to the total of 20,500 drugstores operating nationwide. The drugs retail market has also been consolidating, Klimov said, as pharmacy chains can offer better prices and displace state or private stores that are not only retailers but producers as well.
On the other hand, the large, low-cost pharmacy chains can only thrive in big population centers, where turnover is high due to people having more disposable income.
“You won’t find any network pharmacies in villages – salaries are low there, and people don’t have a lot of money,” Klimov said.
Nevertheless, although most customers don’t have much money, they will still often opt for more expensive branded, European-produced imported drugs, due to a lack of trust in generic and locally produced medicines, Ustinova said. Understanding this, pharmacists often recommend the more expensive options as well.
Sinichkina hopes that Suprun’s reforms, which aim to introduce market forces throughout Ukraine’s health sector, will also have a beneficial effect on the pharmaceuticals market. With the reforms, patients won’t just be patients, but clients as well. That should result in more efficiency, lower prices, and better service.
“The laws of a market economy will work there, and the entire sphere will be developing,” Sinichkina said.
“And that means there will be healthy competition.”
