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Ukraine Pharmaceuticals and Healthcare Report Q1 2011
Business Monitor International, Dec 2010, Pages: 74
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’s updated forecast for the Ukrainian pharmaceutical market foresees a robust recovery in market values, albeit from the low base of 2009 when the market suffered a 23.7% contraction in US dollar terms, underlining the volatility of this strategic but deeply risky market on the borders of the European Union. Adjusted for updated growth forecasts and currency valuations, a 20.2% compound annual growth rate
(CAGR) is now expected in US dollar terms (13.4% in local currency) through to 2014, with the market expected to reach a total value of UAH37.39bn (US$6.23bn).
Following gains in local elections at the end of October 2010 by the ruling Party of Regions against a demoralised opposition, President Viktor Yanukovych has established a grip on power not seen in Ukraine since the Orange Revolution. His closer relationship with Russia has eased tensions and should reduce (if not eliminate) unpredictable trade disputes and gas rows. He is also adhering to the harsh terms of the country’s IMF standby agreement, something flouted by the previous government.
From an overall business perspective, this provides a modicum of stability, although it is far from clear whether Yanukovych’s regime will be able or willing to tackle high-level corruption beyond the investigation of members of the previous government.
One high profile investigation is an audit of state expenditures approved by the previous government, headed by Yulia Tymoshenko, by a US law firm and other outside investigators. Among the reported findings were alleged ‘instances in which offshore shell companies and sham transactions were employed to sell pharmaceuticals to the government at highly inflated prices’ – a reference to state purchases of medicines, including influenza treatments. Such an investigation will be useful it if leads to steps to deter corrupt tenders for medicines under state programmes in the future.
For most foreign investors however, Ukraine’s absence of clear ‘rules of the game’ and enforcement of intellectual property rights remains a primary obstacle. In October 2010, US officials publicly complained about plans by the city council of Kiev to sell a 30% stake in Borshchagovsky Chemical and Pharmaceutical Plant (BXFZ), consisting of assets which a US investor claims had been expropriated from them. Such claims, are not uncommon in the Ukrainian pharmaceutical industry, although local investors have been primary victims. For this reason, multinational direct investment remains minimal despite the market’s large size, growing economy and ideal position vis-à-vis other large Central and Eastern European (CEE) markets. As such, most deals will involve packaging plants and contract production, keeping the foreign producer at arm’s length. Recent examples include GSK’s deal with local plant PharmaLife, whereby the latter will package bulk vaccines delivered by the multinational. Such deals are important for Ukraine, but the country would benefit far more from direct investment in new, high-technology facilities in the country. Until the government can demonstrate that rule of law will prevail, most will stay away.
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