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A one-way street: European risks for Ukrainian pharmaceutical market

During the first 11 months of 2015 Ukraine imported pharmaceutical products from the EU in the amount of $883 million. That’s more than 70% of the total supply rate. During the same period Ukrainian pharmaceutical firms exported their products to the EU countries in the amount of only $6.9 million and to the CIS countries – in the amount of $139 million.

The reason for such disproportion is not just in the more advanced technologies the European firms have. Even the firms specializing in the most recent developments sometimes have troubles accessing the EU market because of special factors regulating it.

How will a football match end if the weaker team has no goalkeeper? Its chances to win will obviously be close to zero. While this situation in sport is a sure sign of defeat, in economy the same situation is considered a reason for joy.

This idyllic idea of the free trade zone with Europe is not wavered by poor performance (absolute values of our exports to the EU decrease as well as of our exports to other countries. – Forbes). The reason this idea is doomed to failure is in considerable restrictions from the EU side and Ukraine’s inability to make important strategic decisions fast.

For all intents and purposes, Europeans are not to blame. They are well prepared and good at protecting their interests. And we have a lot to learn from them. At the same time Ukraine, while making some decisions that are de jure correct, is too slow to implement them. Patent system is a good example. Developing new medications requires major investments, so the issue of protecting intellectual property is crucial. European countries are working on consistently strengthening patent monopoly both on national levels and on the EU level.

Ukraine’s patent legislature does not take into account progress in manufacturing, new ways of product promotion and formation of the global pharmaceutical market.

Legislative regulation of this area in our country looks civilized enough. Ukraine has signed a number of basic international conventions in the sphere of intellectual property including the Paris convention on protection of industrial property. Ukraine is also a member of international agreements regulating basic principles of the countries’ participation in the World Trade Organization (GATT, GATS and TRIPS) and agreements obligating parties to create appropriate mechanism of patent rights protection and guarantee its functioning.

However practical implementation of these regulations in Ukraine and the EU is not the same. Ouf regulatory framework is defective, and these deficiencies are not being addressed properly. Judicial practice is divergent and contradictory, pharmaceutical manufacturers have no protective measures supporting them on a practical level. Most importantly, Ukraine’s patent legislature does not take into account progress in manufacturing, new ways of product promotion and formation of the global pharmaceutical market.

All these factors have an impact on Ukrainian manufacturers, their development potential and willingness to invest in creation of new medications. Against this background the inequality between western and national companies is especially acute. Giant multinational corporations investing money into science-driven technological processes outside Ukraine see our country as a selling market.

Today 65% of the money Ukrainians spend on medications end up in the bank accounts of these multinational corporations (According to the “Business-credit” company estimates, in 2015 volume of retail medications market amounted to 34.7 billion UAH. – Forbes). In our countries these companies enjoy absolute freedom while our domestic manufacturers are virtually unable to enter the EU markets.

The key players of Ukrainian pharmaceutical markets are currently not motivated to change the rules or to facilitate future harmonization of the sphere of medications circulation in accordance with the European laws. As a result we have problems with gradual introduction of the European medications licensing and import inspection model.

At present many importers are not ready to take responsibility for import and circulation of medications on the territory of Ukraine as is required by the European law. Their attitude is formed under the influence of certain specialized industry association representatives and is based exclusively on lobbying their own interests, having huge profits from medications imports and preserving the existing corrupt practices.

Our pharmaceutical industry is currently able to produce all the needed medications that have no legal manufacturing restrictions.

These practices include, for example, lobby of government quality control of the medications imported into Ukraine which contains risks of corruption-related offenses, lobby of leaving state market authorization under the jurisdiction of the Ministry of Health of Ukraine and the “State Expert Center” etc.

As a result we have a number of major problems of the pharmaceutical market of Ukraine:

– non-transparent pricing (prices on imported medications and medical products are incredibly high);

– imperfect and non-transparent procedures for state market authorization of medications and medical products;

– constant talks about the need for the “mythical deregulation” and sabotage of future harmonization of the sphere of medications circulation in accordance with the European laws;

– importers lobbying their own interests, having huge profits from medications imports and preserving the existing corrupt practices;

– problems concerning quality and safety of medications and medical products, counterfeit products etc.

Last year the implementation process of the European pharmaceutical legislation into the national legal system actually stopped. The regulations that were supposed to come into effect were focused on protecting both the patient and the manufacturer. On one side, they guaranteed availability of high-quality, safe and effective medications, and on the other side – equal conditions for domestic and foreign companies.

Among other things we were expecting unification of administrative procedures and a proper market authorization system. This important step would have allowed Ukraine to sign the agreement on mutual recognition of the manufacturing facilities and drug quality inspection results as a part of the association agreement with the EU.

For the moment this agreement is valid on a unilateral basis. It’s just like playing football without the goalkeeper: Ukraine is lifting all the regulatory restrictions for foreign companies while European countries are not doing so for Ukrainian manufacturers.

As a result we have 117 licensed companies (that’s the number of pharmaceutical manufacturers in Ukraine) being denied access to the EU markets. I do not have to explain the effects of this measure on our country’s economy if things were different: new job opportunities, boost of scientific development and the increase of budget contributions on all levels.

It’s just like playing football without the goalkeeper: Ukraine is lifting all the regulatory restrictions for foreign companies while European countries are not doing so for Ukrainian manufacturers

As for the domestic market, the rules here also tend to favour the foreign companies. No support is being shown for the domestic manufacturers, and import substitution is not even considered.

Letting this sector be completely dependent on the imports is literally a threat to the national security as the citizens’ health is at stake here. The argument that Ukraine does not have analogues of certain western medications just isn’t convincing any more.

Our pharmaceutical industry is currently able to produce all the needed medications that have no legal manufacturing restrictions. The state just has to act as a regulatory authority, for every manufacturer is now building its own strategy and determining the product range.

In these tough current economic conditions Ukraine needs to set some barriers for international manufacturers, at least temporary, and to adopt a transparent pricing pattern if it ever wants to be considered as an international market player. Europe is not eager to let our manufacturers enter its markets, and the tit-for-tat measures will allow us to give equal rights to national and foreign companies and to support the domestic manufacturer. The state needs to become the never failing goalkeeper who protects its business and its citizens.