Ukraine Pharmaceuticals and Healthcare Report Q3 2012

The Ukraine Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's pharmaceuticals and healthcare industry.

BMI View: Ukraine remains one of Central and Eastern Europe’s promising pharmaceutical markets, but its chronic lack of economic and political stability remains a critical impediment to fulfilling this potential. The country’s economy remains vulnerable to contagion from the European Union (EU)’s economic crisis as indicated by slowing economic growth in Q112. Continued lack of investment in the healthcare system translates into a pharmaceutical market driven by out-of-pocket purchasing and hence the market remains exposed to the country’s volatile economy and currency. Despite these major challenges, the market retains outsize promise due to the country’s favourable geographic position between the EU and the Commonwealth of Independent State (CIS), large population and pent-up demand for modern treatments.

Headline Expenditure Projections
- Pharmaceuticals: UAH26.75bn (US$3.35bn) in 2011 to UAH29.00 (US$3.54bn) in 2012; up 8.4% in local currency terms and 5.6% in US dollar terms. Forecast downgraded slightly from Q212 due to updated macroeconomic forecasts.

- Healthcare: UAH83.51bn (US$10.46bn) in 2011 to UAH93.57bn (US$11.41bn) in 2012; up 12.0% in local currency terms and 9.1% in US dollar terms. Forecast upgraded slightly due to updated 2011 data.

- Medical devices: UAH6.62bn (US$828mn) in 2011 to UAH7.24bn in 2012; up 9.5% in local currency terms and 6.6% in US dollar terms. Forecast virtually unchanged from Q212.

Risk/Reward Ratings: Ukraine ranks 13th in BMI’s Risk/Reward Ratings (RRRs) this quarter, down one place although its overall score remains unchanged. Ukraine continues to rank ahead of other CIS states, with the exception of Russia, due primarily to its market size and proximity to the EU. However, it continues to trail most other Central and Eastern European (CEE) markets due to continued political and economic instability as well as poor corruption indicators.

Key Trends & Developments
- In March, authorities announced that a working group had been established to come up with a plan for a transition to the reference price system and, separately, determine how Ukraine could implement procedures for partial reimbursement to cover the costs of medicines. According to sources in the Ministry of Health and local media the head of the State Drug Service, Alexey Soloviev, is heading the group, which is charged with making non-binding recommendations. In April, the prime minister called for a ‘20 to 50% reduction’ in the price of medicines and for increased domestic production. It appears the government believes a mix of price cuts through reference pricing and import substitution can achieve radical reducations in price, although BMI remains sceptical that the Ukrainian government is capable of stimulating domestic production sufficiently to achieve its aims.

- In March, reports indicated that the government was in preliminary discussions to introduce new regulations on margins for wholesalers and retailers when selling medicines on the national list of essential drugs. This would result in amendments to the Cabinet of Ministers’ decree of October 17 2008, number 955, which relates to ‘measures to stabilise the prices of medicines and medical products’. Such measures may achieve price reductions but could also lead to shortages. At the same time, as the prime minister noted in remarks reported by the government’s news service in April, a major element of inflated drug prices is not producer prices, but the fragmented nature of the marketplace in which there are ‘five to six companies’ in the chain of intermediaries. At the same time, the American Chamber of Commerce in Ukraine noted that government procedures for registering wholesale prices had left many healthcare institutions without access to medicines, reported Ukrainian News.

- In mid-February, President Viktor Yanukovych appointed Raisa Bogatyrova as the country’s latest health minister. She was previously the secretary of the National Security and Defence Council of Ukraine. Bogatyrova has worked as a doctor, including as the deputy chief physician of the Organisation of Medical Care for Children and Mothers. She graduated from Kharkiv Medical Institute in 1977 and was first elected to parliament in 1990. We do not expect to see substantive changes in policy under her watch, as it appears Prime Minister Mykola Azarov is driving key healthcare policies. She is third health minister appointed under the current government, underlining the lack of continuity in this key post.

- In April, according to Interfax news wire, Jordanian company Hikma Pharmaceuticals intends to invest more than US$100mn to acquire or build Ukrainian pharmaceutical production assets, citing remarks by the Ukrainian ambassador to Jordan. According to the report, the Jordanian company has already been in talks with Ukrainian officials although there are no reports of direct talks with any of the large Ukrainian producers. Foreign investment in the sector is badly needed but multinationals have been reluctant to invest due to high levels of political and economic risk. BMI Economic View: Ukraine’s slowing economic activity readings – which posted the slowest expansion since the 2009 recession in Q112 – affirms our bearish stance towards the pace of real GDP growth in 2012. We believe the government’s real GDP forecast of 3.9% in 2012 is overly optimistic, and maintain our expectation for economic activity to increase by just 2.5% instead.

BMI Political View: Ukraine’s political situation continues to experience both short-term and structural increases in political risk, with international condemnation over the Yulia Tymoshenko trial building and public faith in the political system dwindling. We do not expect to see a marked improvement in the country’s political risk profile over the near term despite parliamentary elections on the horizon. SHOW LESS READ MORE >

Executive Summary 5

SWOT Analysis 8

Ukraine Pharmaceutical And Healthcare Industry SWOT 8

Ukraine Political SWOT 9

Ukraine Economic SWOT 9

Ukraine Business Environment SWOT 10

Pharmaceutical Risk/Reward Ratings 11
Table: Emerging Europe – Regional Pharmaceutical Risk/Reward Ratings, Q312 11

Rewards 12

Risks 13

Ukraine – Market Summary 14

Regulatory Regime 16

Intellectual Property Issues 18

Pricing and Reimbursement Issues 20

Other Market Entry Barriers 26

Industry Developments 27

Medical Devices 29

Industry Forecast Scenario 30

Overall Market Forecast 30
Table: Pharmaceutical Sales Indicators 2008-2016 32

Key Growth Factors – Industry 33
Table: Healthcare Expenditure Indicators 2008-2016 37
Table: Healthcare Governmental Indicators 2008-2016 37
Table: Healthcare Private Indicators 2008-2016 38

Key Growth Factors – Macroeconomic 39

Prescription Drug Market Forecast 42
Table: Prescription Drug Sales Indicators 2008-2016 43

Patented Drug Market Forecast 44
Table: Patented Drug Market Indicators 2008-2016 45

Generic Drug Market Forecast 46
Table: Generic Drug Sales Indicators 2008-2016 47

OTC Medicine Market Forecast 48
Table: OTC Medicine Sales Indicators 2008-2016 49

Pharmaceutical Trade Forecast 50
Table: Exports and Imports Indicators 2009-2016 52

Medical Device Market Forecast 53
Table: Medical Device Sales Indicators 2008-2016 54

Competitive Landscape 55

Manufacturing Sector 55

Recent Company Activities 60

Wholesale 60

Retail 61

Company Profiles 63

Arterium 63

Gedeon Richter 65

Krka 67

Lek (Novartis/Sandoz) 69
Table: Ukraine’s Population By Age Group, 1990-2020 (‘000) 72
Table: Ukraine’s Population By Age Group, 1990-2020 (% of total) 73
Table: Ukraine’s Key Population Ratios, 1990-2020 74
Table: Ukraine’s Rural And Urban Population, 1990-2020 74

Glossary 75

BMI Methodology 77

How We Generate Our Pharmaceutical Industry Forecasts 77

Pharmaceuticals Risk/Reward Ratings Methodology 78

Ratings Overview 78
Table: Pharmaceutical Risk/Reward Ratings Indicators 79

Weighting 80
Table: Weighting Of Components 80

Sources 80