The Ukrainian pharmaceutical market has lived through difficult times, which made its players evolve to survive the crisis. Nevertheless, there were exceptions: those who were not ready to make strategic decisions – dropped out of the game. Or, on the contrary, he used crisis excitements for a new round of business development. The LDaily journalist met with Stanislav Dyachenko, the director of the STADA Representative Office in Ukraine to get to know the pharmaceutical industry from the inside and discuss how the pharmaceutical companies managed to overcome the difficult times for the industry.
On tight regulation of the industry by the state, competition between pharmaceutical companies and the formation of the cost of medicines in an interview with Stanislav Dyachenko.
LDaily: Stanislav, please tell us about the impact of the economic crisis on STADA company?
S. Dyachenko: Of course, business in Ukraine can not function in isolation from the economic processes taking place in the country, so companies should take into account the unrest of the “elements” in order not to lose the course. The pharmaceutical industry is no exception. And the companies in this business had to “consult the compass” more than once to assess the correctness of the chosen course. It’s not a secret that the crisis led to a significant decrease in the consumer and pharmacy basket. The volume of the pharmaceutical market in monetary terms and in kind decreased significantly in 2014-2015. At the same time, the crisis is a time for changes and strategic decisions, a period for revising values and strengthening their positions.Thanks to timely strategic decisions, STADA in Ukraine adequately emerged from the crisis. We managed to increase sales in the retail segment by 33.2% in national currency, and by 14.34% in Euros, which is significantly higher than the average market growth rate of 1.8%. With some bitter irony, we can say that the crisis has become a kind of springboard for our company and allowed us to increase the efficiency of our activities. We are confident in our own strengths and this confidence is reflected in the results: according to the results of 2016, STADA managed to take an honorable 7th place in the TOP-20 ranking of foreign pharmaceutical manufacturers, demonstrating the best result in terms of the increase in sales volumes, and also to take a worthy 16th place in the TOP- 30 of all marketing organizations in the pharmaceutical market of Ukraine, where are represented more than 150 companies.
LDaily: It is believed that the year 2016 was a fairly successful period for the development of business in Ukraine. What do you think about it?
S. Dyachenko: I can say, for the pharmaceutical companies the 2016 became some kind of respite after a serious crisis marathon and a period of moderate though growth, after a 2-year recession. This became possible due to the stabilization of macroeconomic indicators, which created the ground for temporary monetary stabilization. As a result, in 2016, the exchange rate of the national currency against the US dollar remained relatively stable, fluctuating in a narrow corridor.
Stabilization of the hryvnia exchange rate against the US dollar helped to stabilize the retail prices for the medicines. In 2016, the impact of the inflationary component was significantly reduced. An important fact is the increase in the real income of the population. Undoubtedly, these factors had a favorable effect on the development of the retail pharma market of Ukraine in terms of money, but in physical terms the market of medicines did not even reach the pre-crisis level.
As Steve Jobs said, “It’s better to invent tomorrow instead of worrying about what happened yesterday”, so in general, 2016 was a successful period for the development of those companies that were flexible and dynamic in making strategically important decisions. Almost all pharmaceutical companies reduced their spending on promotional activities, conducted an audit of product portfolios, many of them optimized their organizational structure.
LDaily: How does the government control the pharmaceutical market?
S. Dyachenko: The pharmaceutical sector of the economy serves as a classic example of a regulated market economy sector. In Ukraine, as well as all over the world, the pharmaceutical market is a subject to strict state regulation and is in a rigid framework. However, excessive regulation of the market without adequate compensation mechanisms, for example, reimbursement and compulsory health insurance, the excessive competence of state bodies, the lack of effective state forms of medical care for certain diseases leads to unjustified costs for both the pharmaceutical business and the state itself. In addition, it leads to a delay in the period of obtaining permits and unjustified overstatement of regulatory requirements, which in Ukraine is much stricter than in the former CIS countries and even some EU countries. As a result, all this negatively affects the manufacturers’ interest in introducing new medicines to the Ukrainian market, and also affects the patient’s pocket, as it leads to an increase in their price.
The influence of the state on the pharma market of Ukraine is also realized through state price regulation. Today in Ukraine there is a National List of Essential Medicines, which are partially funded from the state or local budget. The margin for the drugs on this list is limited to 10% in the producer-distributor chain. In the STADA product portfolio there are a number of drugs included in the National List, the price of which is a subject of the government regulation.
LDaily: What influences at the pricing of domestic and imported drugs in Ukraine?
S. Dyachenko: Price processes occurring in the pharmaceutical market are extremely complex and diverse. On the one hand, pricing policy is an integral part of the state’s economic policy, on the other hand, in determining the cost of a medicinal product, a number of social, legal and moral aspects must be taken into account. As already discussed, drug pricing is highly dependent on government regulation. If we compare the pricing mechanisms for medicines of domestic and foreign production, they are quite similar. The main components that are included in the cost of the products are the costs of raw materials, basic and auxiliary materials, production and labor costs, product promotion costs, taxes, registration costs and invoices and logistics costs.
The cost of production price is largely influenced by the exchange rate, as well as production volumes. Moreover, the cost of both domestic and foreign drugs depends on the fluctuation of the currency rate, as in most cases the Ukrainian companies buy raw materials for the production of products abroad. It should be taken into account that manufacturers of drugs that produce large quantities of preparations have more opportunities to optimize operating and logistics costs. This, in it`s turn, allows setting democratic prices for medicines even to foreign companies.
Today, the worldwide trend is the dominance of generic drugs, the proportion of which is steadily increasing. This trend is typical for both developed and developing countries, and Ukraine is not an exception. Modern high-tech generics offer patients the optimal solution of health problems with a rational ratio of efficiency and cost of treatment.
STADA is a generic company and our product portfolio is overwhelmingly composed of branded generics. At the same time, STADA adheres to a loyal policy regarding the pricing of its products.
When imported drugs began rapidly rise in price, Ukrainian pharmaceutical companies seized the temporary price advantage, which helped them to gain market share. But I dare say that some of them overdid the price increase for their products, in many respects even exceeding the standards, which even import companies did not allow themselves. Already during the last year the tendency to increase the share of domestic producers has not only been suspended, but has reverse development. Because the temptation to make more money was insurmountable. Nevertheless, foreign companies catch up and are now ready to offer patients interesting price offers for medicines. Quite often a foreign product can be bought cheaper than a domestic analogue. Thus, foreign pharmaceutical companies are beginning to win back the profit lost during the crisis.
In a difficult market environment, STADA focuses its efforts on providing all categories of the Ukrainian population with quality medicines at affordable prices.
LDaily: How do the pharmaceutical companies compete among themselves and how do you think such competition affects the formation of the business climate in the country?
S. Dyachenko: It is obvious that the Ukrainian pharma market has entered the era of maturity and social responsibility. If before the pharmaceutical companies were aimed solely at increasing the sales of their products, now, in a highly competitive environment, they are more focused on optimizing their expenses. As a result, not all competed against the background of a decline in sales revenue and were forced to cut/close their business in Ukraine.
Recently formed trends and the climate in the market require companies to review their strategies for promoting drugs, changing approaches to promotional activities aimed at health professionals. It is absolutely obvious to all players of the pharmaceutical market today that it is more useful to build partnership relations with business colleagues than to compete hard. The role of pharmacy retail chains has grown substantially, and they have clearly articulated their requirements to manufacturers. Many companies, including STADA, are actively building partnerships and successfully cooperating with wholesale and retail segments.
The approaches to working with health professionals have also changed significantly. Doctors and pharmacists are increasingly interested in obtaining reliable, objective information about the efficacy, safety and benefits of medicines. Reporting this information in the modern world is hard to imagine without smart gadgets and new channels of communication. Pharmbusiness actively introduces new IT technologies into its work. In the promotion, digital marketing becomes increasingly important, in the “field” work of medical representatives, e-detailing technologies are widely used, when information is adapted and personalized to the needs of the client.
I want to note that the promotion in the pharmaceutical market is increasingly becoming civilized and ethical, gradually moving away from unscrupulous methods of promotion. On the pharmaceutical market, several Associations cooperate closely, which have developed and strictly adhere to the approved the Rules of Ethical Promotion.
Speaking about the competition between pharmaceutical companies, I would like to quote a successful American entrepreneur and founder of the popular Internet company Amazon.com, Jeff Bezos: “Business can come to a standstill if you focus not on customers but on competitors.” Therefore, STADA primarily focuses on meeting the needs of patients, while setting the tone for business development for its competitors.