Chairman of the Association "Manufactures of Medicines of Ukraine" (AMMU) Petro Bahriy told Interfax-Ukraine how the pharmaceutical industry operates and what manufacturers face in international markets

Interviewed by Anna Levchenko

 

- How do you assess the work of the pharmaceutical industry in 2023? Has the industry survived?

- The Ukrainian market of medicines amounted to UAH 130 billion in 2023. In money terms, this is an increase of 25%, year-over-year in the Ukrainian currency (UAH) or an increase of 9.4% in U.S. dollars. Thus, the pharmaceutical market in 2023 was $3.5 billion more than in 2022. In physical terms (packages), market indicators in 2023 increased by 0.5%, year-over-year, to 848 million, that is, both in packages and in money, we did not reach the pre-war level. But an annual growth of 25% in hryvnia is a significant increase in sales.

In terms of domestic medicines and imports, 63.1% of the market in packages are domestically manufactured medicines. This trend remains almost unchanged. In monetary terms, some 37.9% of the market in dollars is domestic medicines. This trend also remains unchanged and at almost the same level as in the pre-war period.

It is worth noting that in 2023 the market has relatively stabilized, the population has more or less returned, and demand has stabilized.

- What about the assortment? Has it changed?

- It the relation to the assortment, in 2023 the increase occurred in all groups of medicines and in all nosology forms. The top sellers are primarily analgesics and non-steroidal anti-inflammatory medicines, including Nimesulide and Nurofen.

Among companies, domestic ones occupy the first place in the market. This is pleasing to me both as AMMU chairman and as a citizen.

As a result of the war, of brutal bombing, the pharmaceutical industry definitely suffered enough, but everyone works, even factories situated close to the frontlines, operate under daily shelling. It is difficult for me to predict how the situation will develop further; it all depends on the situation at the frontline. However, the companies operate and fulfil their contractual obligations.

- Are Ukrainian factories able to fulfil export contracts?

- Exports are doing well. Last year, they totaled $278 million, a 19% increase over 2022. This was achieved despite the war and logistical challenges.

- How do companies solve logistics problems? We know what problems there were, particularly on the border with Poland.

- Frankly speaking, pharmaceutical companies did not suffer as much as, for instance farmers, because there were no restrictions on the export of medicines from Ukraine. But, of course there was a tense situation and queues at the borders. In addition, not all foreign carriers wish to go to Ukraine, this complicates the work of pharmaceutical companies. Moreover, we are faced with the fact that our importing counterparties do not want to supply to a warring country, they require more guarantees for themselves, they do not want to bear risks, insurance companies do not insure deliveries to the territory of Ukraine. We feel this pressure.

- How much has the price of logistics increased?

- According to our estimates, two to three times. Let us imagine today, for example the delivery of Ukrainian goods to Uzbekistan: if previously the goods were delivered through Russia, today the shipment times and distance are completely different, the goods go through Turkey or other routes.

In addition, if previously foreign suppliers, for instance equipment, agreed to a deferred payment, today, as a rule, everyone wants to receive an advance payment for the goods, because there are risks. This has a significant impact on the development of domestic companies.

- Do domestic producers agree to such conditions or postpone the implementation of their investment plans?

- Companies continue to develop, I cannot say that no one is investing. Market leaders, but not only they, are expanding their production programs and product range. We notice this, in particular in the registration of medicines: companies register a new medicine. Despite the war, companies actually restored pre-war manufacturing volumes.

- How has demand changed compared to the pre-war period? What was the trend for 2023? What do we see in 6 months of 2024?

- The manufacturing range is developing, but I would not say that there are any priorities and everyone has switched to the manufacture of one thing. Certainly, in the general nomenclature, the share of analgesics and painkillers has increased, for which there is now the greatest need, particularly in the hospital segment, drugs used for anaesthesia, and for surgical interventions. The manufacture of sedatives to improve sleep has increased. But this increase is not significant, some increased by 25%, some by 40%. Let me emphasize that Ukrainian pharmaceutical manufacturing is generic production. Therefore, if for one reason or another there is less of a medicine or a delay occurs, then there is always an appropriate replacement.

- How has the share of government, budget procurement changed in the total sales volume of Ukrainian pharmaceutical manufacturers?

- The share of budget procurement has increased, but in my opinion, this share is insignificant. Hospital sales currently account for about 12%. In particular, over the last year, centralized government procurement amounted to about UAH 13-14 billion, with a total market volume of UAH 130 billion. That is, it's not much. We can add the share of medicines participating in the Affordable Medicines reimbursement program, but this share is quite stable, since those who use medicines under the program use them constantly. In particular, last year UAH 3.7 billion were reimbursed under this program. The program is developing mainly due to the expansion of the range of medicines included in it.

- How interested are manufacturers in this budget story?

- The government always tries and should try to procure medicines at the optimal price, but there are medicines that the government is ready to procure so cheaply that it becomes uninteresting to manufacturers which need to pay salaries, invest in production, and maintain quality. Thus, such products may finally disappear from the market. This happens not only in Ukraine. Particularly, today in Germany they are interested in purchasing Ukrainian medicines for government programs, namely children's syrups, since local manufacturers have abandoned their production as unprofitable. So today, for example Borschahivsky Chemical Pharmaceutical Plant supplies children's syrup with paracetamol to Germany, because it is not available there due to government pressure on the price.

- Does Ukraine currently support a domestic manufacturer? Does it contribute to the entry of Ukrainian manufacturer into foreign markets?

- No, absolutely not. The entire development of Ukrainian exports occurs solely thanks to the efforts of domestic companies. They are truly remarkable companies, because they were able to increase exports by 20% during the war. There is no support at the governmental level for Ukrainian exports. Our manufacturers independently take part in exhibitions, master, contact local regulators and achieve results. There is absolutely no government support, and this is quite regrettable. In particular, because as we know, for a foreign manufacturer, especially a manufacturer from countries with a strict regulatory system, there is a simplified marketing authorization process (registration), a simplified system for confirming production of good manufacturing practice (GMP). And Ukrainian companies in foreign markets independently pass all possible and impossible regulatory barriers. It is clear that countries must develop their economies first of all, but if for a Ukrainian company the period for marketing authorization (registration of medicines) in Germany is at least three years, then a German manufacturer in Ukraine can register its products in three months. The government today must create certain conditions for the development of its own economy, especially a belligerent state. Perhaps it would be possible to talk, and most importantly, agree on simplifying procedures for domestic manufacturers in foreign markets. In a certain way, these things should be mirrored, but for now it turns out that we have simplified in one direction, but for us there is no simplification. Certainly, pharma export is still only $280 million, which is not much, in general – less than 1% of total Ukrainian exports, but if the issue of regulatory barriers were resolved, pharma export could grow significantly.

- Let us return to the operation of pharmaceutical companies. As it is known, blackouts have returned recently. How do companies solve electricity issues?

- The company solved these issues in 2022, when severe attacks on the energy infrastructure of Ukraine started. Almost all companies, without exception, have equipped themselves with generators, so we can say that the "arrivals" (attacks) do not cause a noticeable impact on the production capacities of our companies. But given the shortage of electricity and unflattering forecasts for the situation in the autumn and winter, I think that manufacturers will look for some new ways to solve this problem, attracting, in particular alternative energy sources, because generators are not designed to operate 24/7.

- Is AMMU considering approaching government authorities with a proposal or request to assist in developing a financial support program for pharmaceutical manufacturers?

- Currently, there is practically no government support for certain industries. Pharmaceutical manufacturers and we as an association, of course can appeal, but I am not sure that this will receive support, especially in a country at war. Obtaining a loan, finally is a commercial issue for each individual enterprise.

- Let us return to the retail market. Recently, the Antimonopoly Committee of Ukraine conducted an investigation, during which it noticed signs of collusion between distributors and pharmacies. How do you assess the distribution situation?

- To date, there are two large operator-distributors on the Ukrainian market: BaDM and Optima-Pharm, which in my opinion, work professionally and reliably. Today, the vast majority of medicine manufacturers work with these two operators. The emergence of someone else is certainly welcome, but in order for someone else to appear, funds are needed. We remember how certain fluctuations in the market led to the disappearance of entire companies and huge losses, we remember the story of Alba Ukraine, the story of the BBC distributor. I do not really believe that another distribution company will be able to appear in a country at war, particularly because distribution primarily means warehouses, trained staff, and a fleet of special vehicles. These are very expensive things. I do not think that anyone new would be interested in business, especially in times of war.

- But, in your opinion, is there concentration of the distribution market in the hands of BaDM and Optima-Pharm and does it lead to higher retail prices?

- It seems to me that manufacturers are closely monitoring to ensure that there is no monopoly position and excessive increase in mark-ups for distributors. The market today is very competitive, generic and, as a rule, each medicine has several competitors. If someone today decides to raise the price of a medicine, the buyer will go and buy a generic equivalent from a competitor. Therefore, it is still difficult to raise prices.

- How relevant is the topic of counterfeiting today?

- Nobody really knows how much counterfeit items we have. We see that today a pharmacy sells a product and knows that no one can come and check what it sells. So, accordingly this is a "klondike" for dealers and counterfeiters who can negotiate with a chain of pharmacies or with a specific pharmacist. Since the beginning of the war, particularly the issue of humanitarian aid and uncontrolled supplies of such humanitarian medicines has arisen. In the end, I understand that in the first days of the war there was some kind of problem with the supply of medicines. But now these problems have been solved, the market has established the supply of medicines to pharmacies and everything is working.

The situation is relatively stable now. We have learned to work under martial law, and we would like, when we come to the pharmacy, to be sure that the state control is applied.

- Currently in Ukraine, work is underway to create a unified state control agency in the pharmaceutical sector and the attitude towards this idea, as I understand it, is not very good. How do you think this agency will impact the market?

- Well, look, we said that when the new version of the law On medicines was adopted, the authorities prescribed and adopted a provision for the creation of a single regulatory agency (state control agency), which will have all the functions of control, state registration and post-registration supervision. That is, a single regulator is being created that will regulate the market of medicines from the moment of their marketing authorization (registration) and manufacturing to the moment of sale. For instance, this approach exists in the United States, where the FDA operates, which deals with the market in a similar way. In this sense, I support this idea, and we as an association also support it.

- Is it appropriate to do this now, amidst the war?

- Why not? The sooner, the better. Why do we trust, for example German or U.S. medicines? Since we believe they are high quality. Why are they high quality? Since there is a strong regulator that can control them. The Ukrainian pharmaceutical industry must also have a powerful regulator, which would be recognized in the same way as the FDA or the regulator of any country with a strict regulatory system. And if we had such a powerful regulator, it would be much easier for us to promote Ukrainian medicines on foreign markets. Therefore, we must create a regulator that would be recognized worldwide, just as we in Ukraine recognize inspections or findings of regulators in the United States or in the European countries.

- What are your forecasts for 2024?

- We have not observed any significant growth yet. There is only a slight increase in package consumption. If the situation at the frontline does not significantly worsen, I believe the pharmaceutical market will grow by 20% in monetary terms. Additionally, I am confident that Ukrainian exports will rise by the end of the year, and I tentatively estimate this increase at 20%.