Ukraine Pharmaceuticals and Healthcare Report Q2 2008

BMI forecasts that Ukraine's pharmaceutical market will grow by 12% in 2008, following 22% growth recorded in 2007. Our updated five-year forecast for the period 2007 to 2012 envisions an annual average growth rate of 8.7% reaching a total value of US$3.65bn, reflecting slowing growth towards the end of the forecast period. Much depends on the Ukrainian government's ability to deliver on promises to introduce major healthcare reform and a level of universal coverage. If successful, the market could see strong double-digit rates through the forecast period. But BMI remains deeply sceptical about the central government's ability to deliver reform.

From a regulatory perspective, Ukraine's accession to the World Trade Organisation (WTO) - agreed and due to be completed later this year - is a major boost for long-term improvements in the intellectual property (IP) environment and more immediately, an elimination of duties on pharmaceuticals for member countries. This should provide the biggest boost for generics makers in Central and Eastern Europe (CEE). While accession is a clear plus for patented drug makers, poor enforcement of IP laws and a lack of government and private-sector buying power will remain major barriers for some years to come.

Ukraine also looks set to introduce mandatory health insurance, more than a decade after similar moves in most other post-Soviet states. The introduction of a system of insurance funds was attempted in the 1990s but failed. A 'German-model' makes sense in a decentralised power structure such as Ukraine, although is hardly a panacea for the nearly collapsed healthcare system. The government has also discussed 'social pricing for medicines' - most likely consisting of a minimum basket of basic medicines offered at steep discounts through pricing and margin controls and some subsidies. Finally, the flurry of promised bills includes promises of a 'strategy' for the development of the domestic pharmaceutical industry, which is expected to be hard-hit by WTO membership and the phasing in of Good Manufacturing Practice (GMP) requirements early in the next decade.

All in all, this represents an ambitious healthcare agenda for the government of Prime Minister Yulia Tymoshenko, on top of current battles over gas pricing and delivery and a popular but costly US$4bn plan to compensate Soviet-era depositors who lost their savings in Oshchadbank. Expect much manoeuvring as the years wear on and the run-up to the 2009 presidential polls begin. Still, the industry would most like to see something done about corruption and uncertainty in the business climate. Poland's Bioton said in March that it would suspend plans for further share purchases in local insulin maker Indar after revelations that the state had 'lost' its majority share to a mysterious offshore entity - an apparent illicit share transfer and a deeply embarrassing one for the government. On a more positive note, the Ukrainian market continued to be a source of rapid growth and new market entry. Croatian player Pliva, owned by Barr Pharmaceuticals, indicated it would focus on expanding its presence there, while Bayer has boosted its OTC presence with its acquisition of US player Sagmel. But the Indar incident and other recent 'raider' activity on some local firms underline the continued and outsized level of risk.