Increase in prices of pharmaceuticals has led to a fall in demand

Photo: PHL

Pharmaceutical companies are finishing the year with mixed feelings. According to the results of January-November 2014, retail sales of medications grew 24% compared to the same period in 2013 to UAH 27.3 bn, statistics of the SMD research company show. The rising prices of medications scared off buyers: since the start of the year sales of medications fell 1.4% to 1 bn packages. “The domestic market based on the level of consumption is equal to that in 2007. It has basically gone backwards by seven years,” Director of the Takeda Ukraina pharmaceuticals company Yevheniya Zaika complains.

NBU helped out

Devaluation led to growth of the market in hryvnia terms. According to statistics of the National Bank of Ukraine, since the start of January to December 1 the U.S. dollar increased 84.8% in relation to the Ukrainian hryvnia to UAH 15.1/US $ 1. Retailers of pharmaceuticals, mainly importers, began raising their prices for medicines. In response, consumers began economizing on medicines either by refusing to buy them or seeking cheaper alternatives, which led to strengthening of the positions of Ukrainian manufacturers on the domestic market.

While last November the share of Ukrainian pharmaceutical plants was 29.1%, over this year grew by 0.9 percentage points to 30%. The sales of packaged medicines grew by 4.5 p.p. to 68.8%.

There are other reasons for the decline in the consumption of medicines. Modern medicines are more effective, which one only has to take three pills instead of 20 in order to get well. In addition to that, consumers are gradually refusing to take so-called convenience medicines (such as hepaprotectors, sorbents, those for overeating, etc.), says Director of the Medical Marketing Agency Yuriy Chertkov.

New Year’s present

Government officials may set new trends on the pharmaceuticals market. On December 22, the Cabinet of Ministers submitted to the Verkhovna Rada a bill that will have an impact on the business of importers.

One of the bills shortens the bureaucratic procedure of registration of medicines that are produced and registered in the U.S., Canada, Australia, Japan and Switzerland and are also produced in the EU and registered by the European Medicines Agency (EMA).

While at the moment the actual term of registration of medicines is up to one year, if this initiative is accepted the term could be reduced to five days, says Director of the Department of Foreign Relations of the STADA CIS pharmaceutical holding company Ivan Hlushkov. However, he adds that there is a “depth charge” in the document. In Ukraine there is a dispensatory (a vault of standard methods of control over the quality of medicines – Capital), which meets EU dispensatory standards, though it differs from those in the U.S., Japan and the UK.

In other words, if the initiative of the government is approved by the parliament, then the State Medicinal Service will face the problem that medicines made in the U.S., Japan and the UK do not correspond to the requirements of Ukrainian dispensatories and this could lead to a recall of medicines from the domestic market. “In plain language, controllers may deem Japanese and American medicines as not meeting the required quality standards,” Hlushkov explains.

The second initiative of the Cabinet proposes introduction of an additional 5% import duty on medicines. Hlushkov says this will lead to a 6-7% increase of the end price. He explains that importers will be forced to find additional floating capital to pay this duty.

Ukrainian manufacturers of pharmaceutical products that import ingredients for the production of their medicines will also have to pay this duty. General Director of the Ukrainian pharmaceuticals company Lekhim Tatyana Pachayeva noted that the imported content of medicines is approximately 20-30%. However, she refuse to give a prediction of by how much Ukrainian medicines will increase in price as it is not clear whether the hryvnia will continue to devalue and at what exchange rate importers will be forced to buy it. She complained that as of December 12 her company has been unable to buy hryvnia on the interbank market.

Three instead of one

According to year-end results, the retail pharmaceuticals market in terms of purchase prices will be UAH 30.2 bn, while in packages – 1.1 bn units, Assistant Director of SMD Yevhen Zhyvodernykov forecasts. In 2015 only a 3-5% decline of the market in hard currency terms can be forecast so far, he added. “The forecast will most likely have to be adjusted depending on whether the hryvnia continues to fall in value or not and at which level the exchange rate of the national currency will stabilize,” the expert pointed out.

Macroeconomic factors correlated with an increase in consumers’ purchasing power will have an impact on the volume of the market. Zhyvodernykov said the growth of the pharmaceuticals market in Ukraine is possible on the backdrop of the dynamics of GDP and an increase of real disposable incomes of the people.

The current crisis will persist longer than in 2008-2009, Zaika predicts. “Back then it took a year for the market indicators to return to the pre-crisis levels, while in today’s situation it will now take three year to recover,” the expert concluded.

A total of 1.14 mn packages of medicines were sold in 2013 for UAH 24.3 bn.