Ukrainians have been gripped by panic in the last few weeks after news surfaced that pharmacies and hospitals could be facing a shortage of most drugs as a result of the introduction of a new procedure for licensing imported drugs, which was supposed to come into effect on March 1. This is because most vital drugs, including those used to treat cancer and tuberculosis, and even regular nose sprays, are imported. According to Premier Mykola Azarov, Ukraine imports 80% and produces only 20% of all the drugs it consumes. The government received numerous warnings about the possible panic the initiative could cause, including from the European Business Association (EBA), of which all leading foreign pharmaceutical companies are members. The Cabinet of Ministers has been reminded of a possible “uproar surrounding the potential disaster on the market”, and that “no foreign producer will be able to guarantee medicine supplies after March 1”. Doctors also sounded the alarm in the face of a deficit of medicine.
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“We had a crazy flow of customers in the second half of February,” says Oleksandra, a pharmacist at a public pharmacy in one of Kyiv’s residential districts. “All pensioners, people on social subsidies, and simply old people buy their medicines here. They panicked once they heard of the new licensing procedure, fearing that they would run out of drugs or that the price will skyrocket. It was insane: people waiting in huge lines every day, fighting for every type of pills.”
A TEMPORARY TRUCE?
Parliament passed Law No 5038-VI “On Licensing Individual Types of Activities”, including the import of pharmaceuticals, on July 4, 2012. It came into effect on August 2. However, two weeks prior to implementation on March 1, not a single importer knew how it would work, since a clear list of licensing requirements was only published after the Health Care Ministry issued relevant Directive No 143 on February 20, 2013. The requirements are complex but not mandatory as yet, since officials had to introduce a simplified licensing procedure under pressure from producers and the public, although the law was never actually abolished. As a result, by March 3, 125 applications were filed and decisions taken to license 122 of the 150 companies currently operating on Ukraine’s pharmaceutical market. According to the State Pharmaceuticals Service of Ukraine, these include five top Ukrainian distributors (BaDM, Optima Pharm, Alba Ukraine, Venta and Phra-M) that supply to 90% of pharmacies and clinics in Ukraine; authorized importers of the world’s leading pharmaceutical companies in Ukraine, such as Sanofi-Ukraine, Teva Ukraine, Takeda Ukraine, Bayer, Servier Ukraine and GlaxoSmithKline Pharmaceuticals Ukraine; Ukraine’s biggest state-owned pharmaceutical company Liky Ukrayiny (Medicine of Ukraine), and so on. The license to import drugs officially costs UAH 1,147 or nearly USD 143. It would appear that the issue has been resolved, as officials backtracked in the last minute postponing implementation of the law. But it’s not that simple.
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The declared explanation as to why legislators wanted to pass the new law was out of concern for the people. “The main purpose is to have someone permanently responsible for the quality, efficiency and safety of drugs,” said Oleksiy Solovyov, Head of the State Pharmaceuticals Service of Ukraine. Thus, an importer must now be a resident of Ukraine, so that any conflicts regarding the quality of drugs can be solved within the country. This is supposed to improve consumer protection. One excuse for the new licensing procedure for imported pharmaceuticals is that all 27 EU member-states already have one and Ukraine needs a similar mechanism to keep fake or poor-quality drugs off its market. Moreover, the new procedure aims to reduce the number of intermediaries between producers and final consumers, which should lower the cost of medicines, both domestic and imported. It appears to be an honourable motive, but the devil is in the details. The licensing requirements approved by the Health Care Ministry Directive contain numerous small provisions to make decisions on licensing entirely dependent on officials. Moreover, the State Pharmaceuticals Service is authorized to inspect the applicant’s compliance with procedural requirements within 10 days of the filing of an application. In addition, importers will need individual licenses for every medicine they want to resume selling in Ukraine.
A slew of new requirements was added on December 1, 2013, for example, the necessity of conducting lab research in Ukraine, having a direct contract with the relevant producer for the import of drugs, and so on. “These are innovations approved by the Cabinet of Ministers’ Resolution No. 112 dated February 13, 2013. It was made available to the public in an approved form, without prior public discussions,” says Krzysztof Siedlecki, CEO of Astellas Pharma Europe BV. “Apparently, this signals the further plans of the government to introduce overlapping and other requirements that will once again create barriers in licensing importers at later stages.” “One provision in the procedure requires importers to have direct contact with producers,” says Borys Danevych, a Partner at the Danevych Law Firm. “However, some global producers have 50 production facilities, while their product is sold by just one company that owns the rights and registration certificate for the medicine. Importers don’t understand why they need extra approvals in Ukraine.” According to experts, the new rules will be impossible to comply with even for leading pharmaceutical companies. Moreover, representatives of several foreign producers have already announced that the changes will not affect average consumers. Apparently, the declarative goal of changes on the pharmaceutical market hides something other than concern for average Ukrainians.
LICENSE FOR A MONOPOLY
According to the State Pharmaceuticals Service, UAH 23bn worth of medicines was sold in Ukraine in 2012, of which UAH 21 was for imported drugs. So, the annual cash flow in this area is over USD 10bn, making the market very attractive for government officials who have the leverage to control it. Therefore, the declared license fee of UAH 1,147 is just window dressing, while the real price, including kickbacks, is much higher. According to The Ukrainian Week’s sources, until recently, the introduction of one medicine onto the Ukrainian market cost nearly USD 50,000. From now on, given the new law, this amount will triple.
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In fact, the new licensing procedure for imported drugs, coupled with an obsolete domestic pharmaceutical sector, which lags decades behind that in developed countries, could lead to the monopolization of the market by several players, assisted by the State Pharmaceuticals Service, giving its top management unrestricted power over the industry. The Ukrainian Week has learned from its sources at the Health Ministry that the procedure was lobbied by existing Ukrainian resident importers to prevent the import of drugs that bypass them and also to monopolize the market as much as possible.
“At one point, Mykhailo Chechetov (Party of Regions MP – Ed.) was personally responsible for the draft law in the Verkhovna Rada,” says Lesya Orobets. “Kostiantyn Hryshchenko also played an important role. The Health Ministry’s stance, as represented by Raisa Bohatyriova, also says a lot. She initially categorically opposed the draft law, but is now fine with it. It appears that these people failed to agree on how to divide this new, very lucrative scam among themselves.”
Indeed, judging by the number of public statements made by Vice Premier Kostiantyn Hryshchenko, who in his position supposedly has nothing to do with the pharmaceutical industry, it is clear that he is related to it after all. In February alone, Hryshchenko made ten statements about the positive impact of the licensing, how necessary it is and how it will not cause a shortage of drugs once in effect, etc. More tellingly, it was Premier Mykola Azarov who instructed him to “deal with delays in implementing the drug licensing procedure”. Translated from the language of bureaucracy, this means a green light for Hryshchenko’s version of the draft law over those of his influential “competitors”.
At one point, Raisa Bohatyriova opposed the law. Her son has interests in the pharmaceutical business and was involved in the recent public procurements scandal at the Health Ministry. Rumour has it that Bohatyriova desperately demanded for the law to be cancelled or postponed. The contentious issue was the license issuing body. Naturally, Bohatyriova wanted it to be the Health Ministry which she heads, while Hryshchenko demanded it to be the State Pharmaceuticals Service that reports directly to the premier. It appears that the latter was more persuasive.
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“It is possible that lobbyists want to introduce a mechanism similar to that used on our car market through this law,” comments MP Lesya Orobets. “Whereby all components are imported into Ukraine and vehicles are assembled here, qualifying them as domestic production. Given Mr. Azarov’s stance, this is the idea for drugs, i.e. to import the raw materials and produce finished drugs domestically. This is supposed to make drugs less expensive. There is the added bonus of a good cover for the supposed development of the Ukrainian pharmaceutical industry.”
If implemented as planned, the process will likely take place at facilities controlled by a number of top officials who will end up with huge profits due to their monopoly position. No questions regarding the quality of the drugs will arise, since the above mentioned licensing procedure will only apply to imported drugs while the homeboys will have a green light. International companies can enter the market through traditional kickbacks. The only player whose interests the scheme ignores is the final consumer.
