Pharmaceutical market of Ukraine: realities and perspectives

Pharmaceutical market of Ukraine: realities and perspectives

19.06.2017 Analytics

In 2013, which experts call the reference, the volume of the pharmaceutical market of Ukraine was about 3.3 billion US dollars. The Pharmaceutical market at that time was one of the fastest growing and took the second place among the CIS countries. According to the consulting company BakerTilly, on average, the market growth rate was 15-20%.

Despite the fact that the past, 2016, gradually returns positions, it is not possible to repeat record in dollar equivalent yet. Nevertheless, the market continue to grow confidently in UAH terms. There is a lion’s share of medicines in the pharmacy basket of retail sales. According to the results of 2016 (data of the apteka.ua portal), the volume of sales of medicines was UAH 50.5 billion per 1 billion of packs. There is a 1.98 billion in dollar equivalent. It is 21.9% more than in previous year in monetary equivalent and 5.7% in real terms. Experts point out that in 2016 the influence of the inflationary component has decreased significantly.

In January- April 2017, according to the report of “Business Credit” company, pharmacy sales in Ukraine have already increased by 16% in monetary terms (to UAH 21,335 billion) compared to the same period in 2016. The report notes that in physical terms, the volume of pharmacy sales for the same period increased by 9% (to 497, 665 million packs). The average weighted price of goods of the pharmacy basket in April this year was 43 UAH, for medicines there was 56.3 UAH per package.

On what to earn?

According to the statistical indicators of the pharmaceutical market in the national currency of Ukraine, we observe a gradual stable growth. But there is only from one side. The market volume in dollar shows that the situation looks somewhat different.

In recent years, taking into account the crisis phenomes and rising cost of life in general, there is a reduction in the purchasing power of consumers. And although the State Committee of Commerce tells us that nominal and real incomes of the population are growing, we understand that in conjunction with other factors that affect purchasing power of consumers, they can not afford more than, for example in 2013. Several years in a row, the consumer prefers cheap drugs or even tries to do without them. Only at the end of the last year and at the beginning of this year there has resumed tendency when consumer began to return to medicines of the middle and highest price categories.

Manufacturers of pharmaceutical products also do not receive excess profits lately, as it was before. In spite of the advantage of Ukrainian manufacturers to foreigners in the percentage of units of products that Ukrainians buy, most of the raw material base is imported. And it has a significant influence on price. In order to increase the sales of its products in such market, the manufacturer is forced to spend large funds on the advertising of medicines. Significant advertising costs, as market profile shows, is the most effective engine sales for today. Those who have enough money for expensive advertising and effective work with pharmacy network, “own” the market.

As for pharmacies, they are also waiting for hard times. Taking into account the low purchasing power of citizens, the state began actively regulate commercial markups. According to the latest Government initiative, a new regulation of commercial markups is set at 5% and 15%. In addition, the reference pricing is introduced. The Ministry of Health establishes reference prices for medicines, within the limits of which the selling-off price for certain medicines is determined.

Pharmacy networks respond that instead, citizens’ expenses on medicines in Ukraine are the smallest among neighbor countries, and the average weighted retail markup decreases under the pressure of market mechanisms. They indicate that the final cost of drugs depends not on pharmacy markup, but on the exchange rate. The state respond that it understands the rigidity of its steps, but emphasizes that all the steps are aimed primarily at patients, because today the market of medicines is 86% financed from the patient’s pocket.

In addition, the Ministry of Health actively promotes reimbursement of the cost of medicines for a limited list determined by international non-proprietary names. It is planed to allocate budget funds to this item. But in the market of medicines, the amount of funds allocated for reimbursement is less than 1% of consumption. In addition, manufacturers note that the principles and rules for such reimbursement have not approved yet.

Foreign competition

Despite the tendency of recent years, when domestic pharmaceutical manufacturers win positions from foreign ones, the situation may change again with the beginning of 2017. The new procedure for registration of foreign medicines came into force: producers of drugs already certified in other countries will be able to obtain permission for their importation and sale under a rather shortened procedure. In fact, it will be in verifying the registration data in the country of its receipt. Earlier manufacturers spent up to two years on it. It is expected that this will reduce prices for imported medicines and increase competition in this area with domestic producers. In addition, there are medicines that are simply not produced in Ukraine. In response, Ukrainian pharmaceutical companies initiated the consideration by the Antimonopoly Committee of Ukraine of the following question: how will updating of these registration procedures affect the competition in the Ukrainian pharmaceutical market.

According to Proxima Research data, the last year the percentage ratio in monetary equivalent of domestic and foreign producers was from 37% to 63% in favor of foreign, with a tendency of stable growth in the percentage of domestic producers. On the other hand, the shares in sales by packaging were distributed differently: 27% for imported, 73% for domestic. Here is an undoubted significant advantage on the side of Ukrainian medicines.

Cinsumer re-orientes 

As noted before, the tendency to a decrease in the proportion of drugs in the consumer’s shopping basket is gradually changing. The economy is growing, purchasing power is increasing and the consumer is confidently returning the opportunity to increase expenditures on medicines. The average price of a pharmacy basket, which is already the smallest among neighbor countries, is gradually begins to increase. In addition, the domestic consumer during the crisis has already got used to the fact that Ukrainian medicines are also qualitative and competitive. The tendency to shift the center of consumer confidence to the drugs of large domestic producers is beginning.

Forecast or the market

Pharmaceutical experts are optimistic about the future, predicting its growth in monetary terms by 14-18% in 2017. In packages, the growth is forecasted at 2.9%. Exactly the increase in consumption in physical terms and the continuation of the redistribution of consumption patterns towards more expensive medicines will be the tendency of the following periods.

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