Investing in the pharmaceutical sector: what is the formula for success?

What is the current situation with investment in the pharmaceutical and medical sector of Ukraine? Can we expect the prosperity? If yes, then when? If no, then why? What may attract, and what may prevent?

Investments background

Investments in the medical sector of Ukraine are considered to be one of the most promising according to the statement of the investment experts. Foreign investors consider Ukraine to be potentially attractive. It is about the possibility of setting up production facilities for the most leading drugs for an attractive cost, a strong state support of the pharmaceutical business (both at the general and local levels) and the wide-ranging reform of the medical sector, which would result the state to be an actual monopolist in the field of health care; and private health institutions will have equal with the state institutions opportunities.

In addition, medical reform should become an engine for the introduction of compulsory health insurance, but there are already great opportunities for representatives
of insurance companies. And, finally, there is a huge demand for high-quality medical services and a comfortable infrastructure in Ukraine which the state is not able to satisfy at the moment. It is expected that large areas of communal and state hospitals will be released during the reform, which in turn will stimulate the arrival of investors. The population is accustomed to the location of hospitals in their districts, so the investor will not even need to spend extra money on specialized construction and promotion of the institution. And on the equal terms of the state and private sector, the latter needs to attract the client by quality.

Today one of the largest investors in the medical sector of Ukraine is international organizations, including the World Bank and the EBRD.

From 2015, a common project of the World Bank and the Ministry of Health “Improvement of health of people”, aimed at supporting the reform of the health care system. Within the project, both technical assistance and actual purchases in the field of health care are considered. Among the recent activities of the project are the purchase of 18 new ambulances in the Rivne region, followed by the reconstruction of outpatient clinics and the creation of a cardiovascular center on the basis of the regional hospital.

On the other hand, the EBRD is lending to pharmaceutical projects of Ukrainian companies that carry out research and development of highly effective medicines.

In December 2016 a loan agreement was signed between the Ukrainian pharmaceutical manufacturer Pharma Start and the EBRD for a loan of EUR 3 million.

Kyiv City State Administration, more precisely, the Department of Economics and Investments has developed a number of investment projects for medical institutions in Kyiv and successfully attracts investors at various stages of the projects. On the KYIV INVESTMENT AGENCY website, you can file an official application and become an investor for existing projects or share an
idea in this direction. Among the projects of the City in the medical section there are currently 4 projects, two of which are preparing for the competition, and two are already in the process of implementation. In particular, it is the construction or reconstruction of medical centers.

The Ministry of Health has also developed and implemented a portal with a roadmap of investment projects of the Ministry of Health in Ukraine. Among them are the projects with international donors (including the United States Agency for International Development (hereinafter — USAID) and executives (World Health Care Organization (hereinafter = WHCO).

World pharmaceutical giants are also working and developing in Ukraine. Among them are Takeda Corporation (Japan), world leader in the field of medical solutions for life — Sanofi (France) and ACINO (Switzerland).

The key subject of the system

The reform is above all, however, the face of medicine is certainly clinics and specialists. Over the past decade, the “generation” of private clinics network has grown in Ukraine, which have been associated for a long time with the quality of medical services by the population, by state – with the competitive subjects of medical reform, and by insurance companies – with a reliable partner.

In May of this year, the edition of “Business” ranked the rating of the most successful private clinics in the country. In the first five ratings are: “Welfare”, “Medikom”, EUROLAB, “Boris”, DoctorSam.

The medical network “Dobrobut” has been operating since 2001 and provides a wide range of services: from out-patient to emergency care and in-patient care. And the children’s clinics “Dobrobut” is the undisputed leader in providing professional pediatric services of any level. Specialists of the network work in accordance with the standard of quality of services, taking into account the feedback of the patients. Investments to the project amounted to UAH 216 mln. Medical and diagnostic center of the network can serve up to 300 thousand patients, including 3600 places for permanent establishments.

The Medikom clinic has nearly 25 years of experience and is the first private clinic of independent Ukraine. Over the years, the clinic has served more than 100 thousand patients and provided more than one million services. Clinics doctors are undergoing a multilevel selection and are constantly undergoing advanced training programs.

The EUROLAB Diagnostic Center has been operating since the 2000s and has not only a high-quality laboratory diagnosis, but also a modern Center for Genetic Research. The Center positions itself as a moderator of fashion for quality among the advanced clinics and builds its activities in accordance with international standards and targeting world leaders in the industry. In addition, EUROLAB cooperates with international insurance companies.

Another “old-timer” is Boris clinic. It works 24 hours a day, 365 days a year, starting in 1993. Everyone knows that an alternative to state emergency care for both adults and children is the multidisciplinary assistance of the brigades of this clinic. The team of the clinic calls itself the clinic of medical perfection.

The DoctorSam network, which includes pharmacies and clinics for adults and children, set itself up in terms of a new philosophy of medical care: proactive and preventive medicine. The website includes implemented innovative medical solutions for patient care. The client can use the “telemedicine” service and receive online consultation via the Internet and webcam. In addition,
the alternative “opinion” service introduced on the website of the clinic “allows the patient to obtain an alternative opinion of the specialist if the patient has some doubts about the opinion of the doctor.

But despite the availability of high-quality private clinics, the Ministry of Health Care notes that today even the largest private hospital is still smaller than the state one, and the “architects” of the reform expect that with the introduction of the new system in Ukraine large international medical networks will come.

Insurance medicine

In the new reform medical institutions follow the insurance companies. In general, the world practice is as follows: patient`s treatment is always associated with health insurance.

According to the National Commission for State Regulation in the Financial Services Markets of Ukraine from January till March, insurance premiums of insurance companies for health insurance amounted to UAH 534.5 million, exceeding 21.6 % of similar indicators of the previous year. Nevertheless, during the hryvnia devaluation, the IC’s income in dollars did not show significant growth and did not look so impressive. In general, voluntary health insurance in Ukraine is considered as one of the most unprofitable types of insurance for insurance companies. According to the same National Financial Services Commission, for the first quarter of 2017, the level of payments in this area amounted to 57.2 % (the ratio of collected premiums to insurance payments), in hryvnia terms – 327.2 million UAH. ( It is 11.2 % more than during the same period last year). The vast majority of clients of the insurance companies (95 %) under such agreements
are corporate clients, in which medical policies are part of the social package.

Nevertheless, the insurance companies continue to compete in this area as well. According to the newspaper Business, among the top five insurance market leaders in the field of health insurance for insurance premiums are the following companies: Providna, Alfa Insurance, Naftogazstrakh, AXA, and Unica. Most of them are companies with foreign capital.

Today, the owners of health insurance policies in Ukraine are, according to various sources, no more than 5 % of the population, and after the introduction of all medical reforms and the introduction of compulsory medical insurance, this segment will cover almost the entire population of Ukraine. Meanwhile, the Insurance Companies & Medical System algorithm works steadily
in the private sector of medicine. This demand is a consequence of the desire of companies and individuals to receive high-quality and prompt service, and most importantly – effective service.

When purchasing a health insurance policy, the client receives a list of healthcare facilities where he can get his treatment or laboratory treatment or ambulance treatment and choose where to go if necessary. Once you have purchased the policy, the client gets the opportunity to get those procedures and medications that are covered by the selected package.

Question in answers

So far, all members of the medical market are waiting in the same way as foreign investors. One of the most pressing questions is whether the state can “pull” the reform from a financial point of view. The other question is whether they can “pull” the reform of citizens.

Theoretically, the reform involves a co-payment with a health care provider at levels above emergency and primary care. In practice, the payment rate is not detailed, as there are no written subsidies and subventions for those who cannot make a co-payment or do not have a health insurance policy in the UK.

The principles of distribution of the state medical budget are planned to be fundamentally changed and transferred to the institution to be established: the National Health Service. Many experts see a new corrupt background in it.

On the other hand, it is clear to everyone: to leave medicine in its current state is the way to nowhere. The huge funds that are currently spent on medicine are mainly for the maintenance of old hospitals, where patients with declared free medicine receive services with shadow payment.

The reform has been started; the main administration bill has been passed in the first reading. Next is the question of its comprehensive improvement and a unified approach to the future of medical industry in Ukraine