Filya Zhebrovska , the CEO of Ukraine’s leading pharmaceuticals producer Farmak, speaks to the Kyiv Post in her Kyiv office on June 6. Zhebrovska thinks the newly introduced compensation program for prescription drugs is a move in the right direction.
Photo by Kostyantyn Chernichkin
The pharmaceuticals sector didn’t escape the general economic slump that hit Ukraine in 2014–2015, but the industry now appears to be turning a corner.
Valued at its peak in 2013 at over $4 billion, its worth — like the rest of the economy — has tumbled by half.
But analysts say it is on the rise once again, with far-reaching proposed healthcare reforms potentially making the market much more attractive for investment.
Acting Health Minister Ulana Suprun is seeking to end once and for all Ukraine’s creaking old Soviet-style healthcare system, often described as one of the worst in Europe.
The country’s poor healthcare system has taken its toll on average life expectancy at birth, which is only 71 years in Ukraine — 10 years less than in the European Union.
There are a lot of reasons why Ukrainians tend to lead short, unhealthy lives. Ukraine has never focused on preventative health care, or adopted policies that would remove preventable diseases — such as higher taxes on tobacco and alcohol. Additionally, poor environmental regulations likely contribute to the spread of disease and illness.
On the treatment side, the system is a mess — limited financial resources are allocated to hospitals based on numbers of beds, irrespective of the quality or quantity of treatment. Also, while the constitution guarantees free medical care to Ukrainians, this never happens in practice: effectively, all healthcare is paid for in the form of “voluntary contributions” by patients.
But the changes now planned envision the creation of a nation health service similar to the one now operating in the United Kingdom.
Under the scheme, more market-orientated principles would be introduced, meaning doctors and clinics that perform well will receive greater financial rewards, while patients will be able to choose where and by whom they are treated.
Big changes
One major part of the new initiative already operating is a system under which patients with a doctor’s prescription receive medicines for free from pharmacies, with the pharmacies then being reimbursed for the cost of the medicines by the government.
The arrangement has been operational since April 1, with 157 products for treating cardiovascular diseases, type two diabetes and asthma currently available under the scheme.
Since the system has only been in place for a short time, it is too early to judge if it has been a success, say experts at Support in Market Development, a market research firm for the pharmaceuticals industry.
But they told the Kyiv Post that a previous project based on the same principles that ran in 2012 went well, and it is hoped that by introducing a similar system across the country, big changes in public health will soon start to appear.
“This reform will be a driver for the market,” said Irina Gorlova, the CEO at Support in Market Development. “People will visit the doctor more often. The money they will save by receiving products through prescriptions will be spent on buying other products. Pharmacies reported that when they participated in the previous pilot project, sales of other, parallel products increased.”
Far from ideal
For drug producers, greater government involvement in the market also presents an opportunity to diversify revenue streams.
Until now, the manufacturers’ business has largely been dependent on the income levels of the general population because, although Ukrainians are constitutionally guaranteed free health care, in practice more than 80 percent of the purchases of medicines are made by patients themselves.
With patients now receiving drugs free-of-charge, manufacturers can look to join the government reimbursement program to boost sales. But doing so will mean their products will need to make it on the list of “essential medicines” drawn up by the Health Ministry.
Filya Zhebrovska, the CEO of Farmak, Ukraine’s leading pharmaceuticals producer, says her company supports the reforms being undertaken by the ministry and is ready to take steps to fit in with the ministry’s plans. She believes the compensation program is a move in the right direction to establish effective national health insurance, but would like the list of products defined as “essential” to change with time in order to reflect usage elsewhere in Europe.
“If we look at what medicines European countries use compared to what people in Ukraine buy, we see that in Ukraine we’re in far from the ideal situation,” she told the Kyiv Post.
“We’d like to bring in more modern drugs against venereal diseases, which today ought to be accessible to everyone. But the health ministry first has to provide the fundamental medicines. We agree with this because if we don’t have this solid base, we won’t be able to move forward.”
Zhebrovska adds that if Ukraine can reduce out-of-pocket costs for patients and reach a point where the government is paying for 20 to 25 percent of medicines, that would represent great progress toward establishing a better universal healthcare system.
Tetiana Pechaieva, the CEO of Lekhim, a smaller Ukrainian pharmaceutical company, fully supports Suprun’s reform plans too, but says that when it comes to launching them, there could have been better organization.
“If you do something like this, it has to work from day one. When such things are done retroactively or in a rush, there will always be certain consequences and misunderstandings, even in things as good as this. Instead, the Ministry of Health implements the reform, and we have to try to get the hang of it, while attempting to change things at the same time,” she said.
Impact of war
Market players say that more time is needed to assess how all the changes now under way in public health will play out, and see whether they will ultimately make the pharmaceuticals market more attractive for investment.
“Everything is happening fast,” said Gorlova, the CEO of Support in Market Development. “The previous government talked a lot, but didn’t do that much. The government now isn’t saying much, but is doing a lot. It’s all very new, and there hasn’t been enough advertisement.”
Historically, Ukraine has been strong in pharmaceuticals manufacturing, with the country being the source of many of the medicines that were commonly used throughout the Soviet Union.
“We have one of the strongest pharmaceutical sectors among all of the post-Soviet countries,” Pechaieva agrees.
Today, more than 100 firms still exist on the market, with many of them having worked to obtain certificates of Good Manufacturing Practice, widely seen internationally as the highest benchmark of quality.
But investment in achieving such standards has largely come from domestic sources, with the industry seeing few inflows of foreign capital.
“There are perhaps one or two companies, but in general I don’t see any pharmaceutical companies which are likely to receive foreign investment,” Zhebrovska told the Kyiv Post. “We’re all developing through our own money.”
Pechiaeva said Russia’s war on Ukraine is also having an impact on the sector’s development.
“Today the problem is that we don’t have a good vaccine production. We also have problems in the production of anti-tumor and anti-cancer drugs, which used to be produced in parts of Donbas that are now occupied by Russia.”
Keeping balance
Farmak CEO Zhebrovska said investor interest from abroad in Ukrainian pharmaceuticals would likely increase when problems with the general investment climate in the country — such as its weak judicial system — are resolved.
Meanwhile, efforts to transform public health care will continue, with the government having drawn up reform plans that will run until 2020. Analysts say the success of the project depends to a great extent on how well the government can strike a balance between the goals of public health and the goals of the pharmaceutical industry.
“For pharmaceutical companies, this is a business,” said Olga Shelest of Support in Market Development. “For the government this is not just a business — this is the business of keeping people alive and healthy. At the end of the day, they are the workforce, and the workforce has to be retained.”
