Ukraine Pharmaceuticals and Healthcare Report Q3 2009

Ukraine's pharmaceutical market will not recover its 2008 US dollar value until 2013 according to BMI's current forecast, as the country weathers the effects of currency devaluation and its worst recession in over a decade during 2009. With Ukraine enduring a perfect storm of the global financial crisis and the fallout of domestic political infighting and policy paralysis, 2009 will be particularly tough for foreign pharmaceutical manufacturers. Indeed, the US dollar value of the market is expected to tumble by 38.2%.

We still see slight growth over the forecast period, with a 0.89% average compound annual growth rate (CAGR), with total market value expected to reach US$2.857bn by the end of the forecast period, roughly where the market stood on the eve of the current crisis.

However, the current forecast relies on certain relatively optimistic assumptions, namely that the hyrvnia has largely completed its depreciation against the US dollar and euro and has established a new floor of between UAH 8 and 9 for 2009. It is hoped that the disbursement of a second tranche of International Monetary Fund (IMF) aid will help stave off a graver crisis and collapse of the country's tottering financial system. That said, the country's economy will be the worst performing in the world in 2009, with BMI forecasting a wrenching 14.7% decline in GDP in 2009. The Rada (parliament), government and presidential administration are tending to the crisis, yet infighting continues to stymie a decisive response to the crisis, with new clashes over the prospects of early presidential elections in October.

The healthcare and pharmaceutical industry are meanwhile in a state approaching chaos. Margin caps on wholesale and retail prices - vetoed last year by President Viktor Yuschenko but restored by a February Supreme Court decision - came into effect in April. New rules also call for local producers to use domestically produced, active pharmaceutical ingredients (APIs) within one year - an apparent (and evidently self-destructive) move against contract manufacturing. One rare bit of good news was the promulgation of legislation mandating Good Manufacturing Practice (GMP) compliance for producers obtaining or renewing licenses - a move which if enforced should see the gradual but inexorable move to full compliance.

In all, the present situation is chaotic and the government's instincts appear populist and short-term. A March symposium on the introduction of a new health insurance system - an election pledge of Prime Minister Yulia Tymoshenko's party - appears wildly optimistic under current circumstances. Notably, the Prime Minister has called for the creation of 'two or three' large domestic pharmaceutical companies and she said in April that the government was in negotiations with foreign governments and companies to establish new plants in Ukraine with the long-term aim of import substitution. It is undoubtedly necessary - but for the near term, protectionism and price controls will be the norm, to the detriment of the marketplace.