BMI View: The Ukrainian pharmaceutical market will continue to feel the impact of the country's parlous economic state in 2015 . Local currency growth in the Ukrainian pharmaceutical market during the year will be driven by price inflation rather than actual volume demand growth. Ukrainian consumers will see their incomes squeezed from every direction and we expect pharmaceutical market share to shift towards domestic drugmakers as imported medicines become even more unaffordable. As a result, Ukraine's attractiveness to multinational drugmakers will decline significantly in the short- term.
Headline Expenditure Projections
Pharmaceuticals: UAH40.24bn (USD3.35bn) in 2014 to UAH46.84bn (USD1.95bn) in 2015; +16.4% in local currency terms and -41.8% in US dollar terms.
Healthcare: UAH114.62bn (USD9.54bn) in 2014 to UAH122.08bn (USD5.09bn) in 2015; +6.5% in local currency terms and -46.7% in US dollar terms.
In Q315, Ukraine is ranked as the 19th most attractive market in the Central and Eastern Europe region (scoring 37.4 out of 100). Ukraine's score has collapsed over the previous quarter due to the perilous condition of the country's economy, the depreciation of the local currency against the dollar and the bleak short-term outlook.
Key Trends & Developments
In Q1 2015, according to data from primary data provider Apteka.ua, Ukrainian pharmacy sales grew 25% year-on-year (y-o-y) in local currency terms to UAH11.06bn (USD528mn). However, volumes of pharmaceuticals sold declined by almost 16% y-o-y to 280mn packages of medicines. Furthermore, data show squeezed Ukrainian consumers substituting purchasing of imported medicines for cheaper Ukrainian substitutes. We expect market share of domestically-manufactured medicines to continue to grow at the expense of imported medicines.
In March 2015, the Ukrainian government stated it would allocate funds to help low-income citizens buy drugs and medical devices. Due to an unfavourable exchange rate and ongoing difficulties within the country, people with low incomes were struggling to afford the medicines they needed. Prime Minister Arseniy Yatsenyuk has urged the Minister of Health Alexander Kvitashvili and the social policy ministry to develop a compensation programme for low-income citizens. The prime minister also called on Ukrainian pharmaceutical companies to help the cause by lowering the prices of some vital drugs
In March 2015, the Ukrainian parliament approved amendments to legislation No. 2150 'On Amendments to Certain Legislative Acts of Ukraine (regarding timely access to necessary medicines and medical products through the implementation of government procurement)' at the first reading. The proposed changes aim to offer timely patient access to life-saving, high-quality and effective drugs, fight corruption in public procurement and ensure the efficient use of state budget funds allocated for the implementation of government programmes in healthcare.
In March 2015, Ukraine's Accounting Chamber reviewed a subsidy pilot project, under which the state budget offered partial reimbursement for the cost of drugs to treat people with hypertension in the Kiev region, and deemed it to be ineffective. The review found the management of subsidies to be inefficient and the social impact of the pilot project was also lower than initially aimed, as 700,000 out of the 1.2mn patients who opted for the scheme failed to receive benefits.
In February 2015, it was reported that health services in east Ukraine were running out of essential drugs and the region was facing a severe shortage of doctors due to the ongoing conflict between the Ukraine and separatist rebels. In a report by The Lancet, large numbers of healthcare professionals had migrated from the war-torn region, and the supply of medicines, including life-saving drugs, had been cut-off completely to the eastern parts of the country.
BMI Economic View
Ukraine's economy will experience another deep contraction in 2015. There is a non-negligible risk of economic collapse as the authorities struggle to stabilise the hryvnia. While IMF funding should help to reduce this risk, damage to banking sector balance sheets and the threat of resumed fighting in eastern Ukraine pose significant downside risks to the growth outlook.
BMI Political View
The conflict in Eastern Ukraine faces a high risk of escalation in early 2015, as Kiev and Moscow seek to strengthen their positions. However, a territorial deadlock between the two sides remains the most likely long-term outcome.