Drugs and Pharmaceutical Market in Ukraine, 03/05

By Olena Stephanska

Summary

The Ukrainian pharmaceutical market shows stable growth for the past four years. In
2004, the
total Ukrainian pharmaceutical market reached USD 1 billion 63 million. This is a 22
percent growth over 2003 volume. This growth is due to increases of both imports and
local pharmaceutical production. The current economic situation in the country supports
the continued growth of the pharmaceutical market. Ups and downs of the market are
caused by seasonal and population income factors. The domestic and foreign market
segments are becoming more balanced.

Imported pharmaceuticals, 62 percent of the total market in 2004, still dominate the
market. The leading pharmaceutical exporter to Ukraine is Germany (19.7 percent of all
imported pharmaceuticals). India holds second place (14.7 percent share of imports),
and France is in third place with a 9.5 percent share. The U.S. share of imports in 2004
was 3 percent. Most of the multinational pharmaceutical manufacturers are present in
the Ukrainian market either with representative offices or through local distributors.

Market Overview

The Ukrainian pharmaceutical market demonstrates stable growth during the past four
years. This growth results from increases of both imports and local pharmaceutical
production.

In 2004 the best selling pharmacotherapeutic groups by ATC classification in Ukraine

included: digestion (24%), nervous system (13%), lungs and breathing (12.7%) and
cardio-vascular (11.9%). The best performances in the market have been by
companies, which possess strong Over The Counter (OTC) volume.

The local pharmaceutical industry is increasing production and exports (mostly to

Russia and CIS countries). There are 58 major pharmaceutical manufacturers in
Ukraine, most of them privatized. Domestic manufacturers operate in the lowest price
segment of the market, supplying predominantly generic drugs, branded generics and
vitamins. The largest local producers are: Darnytsia, Kyivmedpreparat, Pharmak,
Borshchahivsky Chemical and Pharmaceutical Plant (Kiev), Stryrol (Donetsk), Zdorovia
(Kharkiv), Halychpharm (Lviv), and Biostimulator (Odessa).

In late 2000, the Ukrainian government extended its deadline from 2002 to 2007 for
pharmaceutical producers to become good manufacturing practice (GMP) compliant.
This affects only manufacturing sites located in Ukraine. In the longer term, some
multinationals may look closely at potential acquisitions or joint ventures in Ukraine.
Access to the local manufacturing capacity would offer significant advantages in the
current regulatory climate, and it will become clear within the next several years which
domestic producers are likely to succeed in efforts to reach international GMP
standards.

Market Trends

According to official statistics, in 2004 personal income in Ukraine increased 22.5 %.

This growth is expected to continue in 2005 and should result in increased
pharmaceutical sales.

The implementation of direct government price controls on the pharmaceutical industry

is unlikely, but prices will remain low in a market that is dominated by generic products.
Retail price ceilings will be maintained, however, and monitoring of retail mark-ups may
be stepped-up by regional health authorities.

Licensing agreements are likely to be the best vehicles for investing in Ukraine’s
pharmaceutical sector. The development of local labeling and packaging capabilities for
generic drugs that can be quickly registered and produced faster than those under
patent is most promising. Investments are sought to continue the construction of new
manufacturing plants. Ukraine possesses a developed scientific culture, a skilled labor
force and an established distribution system for medical products. A large potential
domestic market for modern drugs and regional export markets (Moldova, Belarus,
Eastern Europe and Russia) are major factors to be considered by US companies
considering investments in Ukraine’s pharmaceutical industry.

Import Market

Ukrainian Pharmaceutical Market Size Data (in USD millions):

2002 2003 2004

Total Market Size 682 871 1063
Total Local Production 320 390 465
Total Exports 40 50 61
Total Imports 402 531 659
Imports from the U.S. 14 23.5 31.9
(Source: The Ministry of Health of Ukraine)

Competition

Imported pharmaceuticals, 62 percent of the total market in 2004, dominate the market.
The leading pharmaceutical exporter to Ukraine is Germany (19.7 percent of all
imported pharmaceuticals). India, an exporter of inexpensive pharmaceuticals,
increased its sales to Ukraine in 2004 and has held second place with a 14.7 percent
share of imports. France holds third place with a 9.5 percent share. The U.S. share in
2004 was 3 percent compared to 2.7 percent in 2003. U.S. firms that have Ukrainian
operations include: American Vitamin and Medical Supply, Bristol-Myers Squibb, Eli
Lilly, ICN, Johnson & Johnson, Merck, Sharp and Dohme, Schering-Plough, Pfizer, and
Walsh Pharmaceuticals.

Companies from Eastern Europe are active in the market and command a degree of
loyalty from both patient and doctor populations, who are familiar with their products as
a result of a long-term presence in the market which dates back to the Soviet era.

Most of the multinational pharmaceutical manufacturers are present in the Ukrainian

market either with representative offices or through local distributors.

Generics continue to dominate the market. Prices for newer multinational drugs are
retained at regional or global levels to prevent parallel imports, but some companies
operate more flexible pricing policies for older products in an effort to hold market share.

End Users

The major end-users of pharmaceuticals are public sector hospitals and Ukrainian
patients, who usually pay for services and drugs themselves. These high out-of-pocket
expenses by Ukrainian patients have three consequences:

1. Pharmaceutical consumption is far below the real medical need and demand.
2. Most patients are obliged to decide what they can afford to pay for prescription
drugs.
3. Patients themselves often are required to supply their medicines for treatment at
hospitals.
4. The price of drugs is a sensitive and major political issue in Ukraine.

The drug distribution system in Ukraine consists of state-owned and private wholesale
companies. Private wholesalers dominate the market (80 percent of the total). The
sector is still overcrowded with over 2 000 licensed pharmaceutical wholesale dealers
and fewer than 50 wholesalers offering national coverage and selling direct imports.

The state-owned wholesale companies provide medicinal products to state-owned

pharmacies and hospitals. The private companies work with both state-owned and
private pharmacies and hospitals. Approximately 79% of total pharmaceutical sales are
through pharmacies and 21% are through hospitals.

There are 8,500 pharmacies in Ukraine. Almost 7,000 are located in cities and towns;
1,500 in rural areas. Also, there are 13,500 pharmaceutical kiosks, so the total number
of outlets is 20,500. Still, there are no pharmacy chains in Ukraine.

Prescription pharmaceuticals are free for clients in certain categories (i.e. World War II
veterans, Chornobyl victims, diabetics, oncologic patients, etc.). These pharmaceuticals
are paid for from funds of the regional budgets, but these funds are limited.
Many doctors (trained and with experience under the old system) continue to prescribe
the drugs that they are familiar with. Due to extensive programs of advanced training
for doctors and advertising of new medicines by representative offices of foreign
pharmaceutical companies in Ukraine, the situation is changing. Consumers have
become more informed and are requesting that new, effective drugs be prescribed for
them.

Market Access

Registration:

Pharmaceuticals may be imported into Ukraine only after their proper registration with
the Ukrainian state authorities. The specific regulatory authority for medicinal products,
the State Service for Medicinal Products and Medical Devices, is vested with the
Ministry of Health of Ukraine.

Official state registration is a three-step procedure that consists of pre-clinical research,

clinical trials and the filing of an application with the Ministry of Health.

Ukrainian legislation prescribes conducting pre-clinical research, including chemical,

physical, biological, microbiological, pharmacological, and other scientific studies by
specialized research establishments in order to identify the specific activity and safety of
a given pharmaceutical product prior to applying for its official state registration. After
the completion of such pre-clinical research, the report of the research institution must
be submitted to the State Pharmacological Center of the Ministry of Health. Provided
that the pre-clinical research brings positive results, the Center recommends the given
product for clinical trials.

Clinical trials are conducted by specialized medical institutions recommended by the

Ministry of Health. The program of trials is subject to the mandatory assessment of its
ethical, moral, and legal aspects by special ethics commissions.

The state registration of a pharmaceutical product requires filing an application with the
Ministry of Health. The application must be accompanied by the reports on the pre-
clinical research and clinical trials.

If the registration is granted, the Ministry of Health will issue a registration certificate
with a five-year term of validity.

The fees for the official registration are established by the Registration Resolution in
Euros and vary from a EUR 25 base to a EUR 1,000 base. In addition, applicants are
required to pay the examination costs incurred by expert organizations.

Certification:

According to Ukrainian legislation, a given pharmaceutical product may be admitted for

sale in Ukraine only if its quality is certified by its manufacturer. Such certificate
of quality confirms the compliance of each series of the pharmaceutical product
with the requirements set during its state registration.

Certain types of pharmaceutical products must be additionally certified by laboratories

authorized by the State Inspection for the Control of the Quality of Medicinal Products.
This requirement applies, among others, to narcotic and psychotropic substances and
precursors, radiographic contrast media, and medicinal products used for narcosis.

Labeling:

The labeling of pharmaceutical products is regulated by Article 12 of the Medicinal

Products Law, which requires that the following information appear on the label and the
outer and inner packaging: product name, name and address of the manufacturer,
registration number, series number, consumption method and term, dosage, storage
conditions, and possible restrictions on the product administration. As a rule, all labels
of medicinal products distributed in the territory of Ukraine must be in the Ukrainian
language, although, under certain circumstances, the Ministry of Health will accept
Russian language labels.

Market Entry

Distributors/wholesalers of pharmaceuticals (mostly private) are desirable contacts for

U.S. manufacturers entering the Ukrainian market, because of their contacts and ability
to identify buyers. Also, local consulting companies, experts in the field of
pharmaceutical market research and communications, can assist in pharmaceutical
product promotion programs,
product launch and development of sales channels.

Procurement of pharmaceutical products at State budget expense is conducted through

tenders. According to current regulations, government tenders are to be non-
discriminatory against foreign bidders, with some exceptions granted on a tender-by-
tender basis. These exceptions give priority to domestic suppliers. When applied, the
preferential exception adds 15 percent to the value of a foreign company’s bid.
Governmental agencies may also apply additional criteria to favor domestic suppliers.

Key Contacts

Ministry of Health of Ukraine: http://www.moz.gov.ua

State Pharmacological Expert Center: http://www.pharma-center.kiev.ua
Ministry of Finance of Ukraine: http://www.minfin.gov.ua (information on the State
Budget of Ukraine for 2005)
Government Procurement and Tenders: http://www.tender.com.ua
www.zakupivli.com
www.e-tenders.kiev.ua