In an interview with the “Interfax – Ukraine News Agency” Darnitsa Group Executive Board Head Dmytro Shymkiv talked about the 2020 results, perspectives of Ukraine’s return to production of vaccines, innovative drugs, and about the competition at the pharmaceuticals market

 By Anna Levchenko

- Can the Ukrainian pharmaceutical manufactures produce the COVID-19 vaccine?  

- There are about thirty candidate vaccines that are currently in phase II or III of clinical studies. This means studies of those vaccines are entering the final straight. Three of them are famous vaccines by Moderna, Pfizer, and AstraZeneca. We are most likely to see the results of work of those three companies in the form of the approved vaccine approximately by the beginning of 2021.

As for the production of the vaccine by the Ukrainian companies, we already had some requests, if Darnitsa could produce the vaccine on its plant. I have an answer: No, we can’t. Most of the pharmaceutical companies cannot manufacture the vaccine, as it demands the localization in a separate building, isolated from the main pharmaceutical production facilities.

- What’s your opinion on the idea of the renewal of vaccine production in Ukraine, which has been lately discussed in the government circles?

- Should Ukraine have its own vaccine production? Sure. But the vaccine manufacturing is first and foremost an issue of the public-private partnership. We have studied the possibility of starting the vaccine manufacturing. The main issue is who will be the ordering customer. If the government guarantees the purchase, we will have a Ukrainian plant with the best technologies. Darnitsa is ready to invest. But only if the government will order the product. It is too risky to invest in those spheres that have no public procurement guarantees.

-  Let’s return to the issue of coronavirus.  How will Darnitsa work if the government imposes the lockdown? 

- We’ve already worked out the model of our work during the lockdown back in March, but we continue to improve it. We already know how to organize the remote work of our office staff effectively. Without exaggeration, we also have a unique experience of the operative and flexible adjustment of the production plan. This year we have produced 200 % more “paracetamol” than we planned. We understood that patients needed it and we had to prevent the deficit.

However, the personal security of Darnitsa’s team was the first thing we cared about from the very beginning of the pandemics. All our employees have been medically insured long ago, however, at the start of the pandemics we reconsidered our insurance package in order to let everyone get medical assistance, in case he or she tests positive for COVID-19. We purchased the WHO-approved flu vaccine for our staff and organized a vaccination campaign. We use software based on Azure Maps that builds safe routes in the conditions of limitations in functioning of the public transportation, for our staff to get to the office.

-  What can the Ukrainian pharmaceutical industry offer for the symptomatic treatment of COVID-19? Antibiotics?  

- Antibiotics among other treatments. However, it is important to remember the risk of antibiotic resistance, as well as the possible harm of self-treatment here.

In general, we produce a range of products, that can be used for the treatment of symptoms, common for COVID-19. We also produce infusion solutions for intensive care or medicines for the treatment of such consequences of the disease as thrombosis. We manufacture drugs that are administered in case of infections and pneumonia, medicines used for the treatment of severe damage of lungs, neuro and cardiovascular system, against arrhythmia. Our portfolio also includes antipyretics, such as paracetamol, which World Health Organization recommends as an effective remedy against fever, which is common for coronavirus.

Since the start of the pandemic in Ukraine, there has been no deficit of medicines, which Darnitsa produces. We have been working 24/7 with the maximum productivity to avoid any black marketing with the life-saving medicines. 

- What is the situation in the Ukrainian pharmaceutical market? What are the main tendencies? How did the quarantine limitations affect the market?

- 2020 was a very hard year for our industry. Sharp but short time consumption growth in March changed to the biggest plunge of 20 years in April-May – a fall by 20 percent. 

Postponement of scheduled surgeries, as well as the decline of the patients’ visits to doctors, and as a result, the decline in prescriptions had a negative impact on the consumption of drugs. Significant decline in incomes of the population had also a huge impact on the market.

The fourth quarter of the year brought a revival and positive dynamics to the market, but it is not consistent. The category of antibiotics, anti-thrombotic medicines, analgesics, and antiviral drugs is on the rise.

Furthermore, we see the rise of the export ratio, as it becomes an important part both for Darnitsa and for the whole market. Thus in 2020 Darnitsa has shown 140 percent dynamics of export growth compared to 2019.

 - Which results do you expect by the end of the year?

- Ukrainian pharmaceutical industry has a huge potential, laid down in the preceding period: during the last five years, the industry was growing by 12 percent a year on average. According to the analytics, by the end of 2020, we can expect 4-5 percent growth, while in 2021 the market will grow by approximately 6-11 percent.

At Darnitsa, we expect to finish this year with the same results as in the previous year. Both in the Ukrainian, and in the international pharma industry this can be considered a serious achievement during this unexpectedly turbulent year.

- Can the Ukrainian pharma industry become a driver for the country’s economy, in your opinion?

- Ukrainian pharmaceutical industry contributes about 0.8 percent of our country’s GDP, but if you take retail business it is 10 percent. From the perspective of the added value pharma industry is No.1, as every employee in the industry creates about UAH 1.2 million of the added value. 

Along with that the pharmaceutical industry not only creates the added value and has an investment potential, it is also an issue of national security. If we recall the beginning of the COVID-19 pandemic around the world, we see not only lockdowns. We can recall that India and China imposed limitations on export of products, in particular the substances. Those countries decided to hold the substances and ready medicines for the treatment of their own population. Fortunately, Darnitsa had enough reserves and trustworthy long-term partnerships that allowed to get enough substances needed to secure the non-stop production. The United States also started actively talking about the localization of pharmaceuticals production. Everyone understood the more powerful national pharma industry is, the safer a country feels.

-  How do you estimate the emergence of innovative drugs in Ukraine?  

- To produce innovative drugs, we need scientific developments and patent protection of intellectual property rights not only on the Ukrainian territory but globally.  We also need a possibility to attract at least $1 billion investments and have enough time, 8-10 years minimum. There are no such resources in Ukraine as of today.

The generics market, on the other hand, demonstrates growth, creating more and more opportunities to meet the needs of patients in terms of the modern vision of therapy. In particular, the generics market creates a new combination of medicines and broadens the already existing product range.

Just take “Tiara” as an example – a product range of drugs used for the treatment of arterial hypertension. It includes mono-, double- and triple component medicines. According to international recommendations, it is allowed to use combination medicines to treat arterial hypertension. It is also effective, easy, and cost-effective for a patient.

- What do you think of the import-substituting products strategy, currently being discussed by many? Can the Ukrainian pharmaceutical industry fully provide for the Ukrainian health care system?

-  I am 100 percent sure it can’t. There are certain medical directions where the Ukrainian pharma industry cannot cover the needs. Here I am talking about drugs for orphan or rare diseases. And the problem is not in the production. It is in the narrow directions with the small end market. So the investments in their production are economically unviable without the state support. In the case of orphan diseases, the government has to guarantee public procurement. Like in the United States.

As for the import, one has to consider refusal from import in those segments, where Ukrainian companies can produce and already produce medicines. Of course, there is a competition with the foreign producers, but here we have a significant privilege because Ukrainian consumers know our brand well enough, they trust us, our production facilities are located in Ukraine. People can visit and inspect our production if they need – state organs conduct regular audits at our place.  At the same time, if there is a need to check a foreign producer, it will be much harder to do it, especially during the pandemics.

- Is the Indian pharma industry a competitor to you? 

- Of course it is. And not only for us but also for other Ukrainian and European companies. However, Europe has a strict regulation that banned more than 70 Indian factories out of the EU market in recent years, because of the proven facts of numerous violations in production. Europe protects its citizens from substandard medicines. As a result, dishonest producers have been forced out of the European market. Unfortunately, many of those producers have ended up in Ukraine and are still present in the local market.

We support high standards and therefore we are confident that Ukraine has to impose the same laws  as in Europe. The drugs law in current edition has to correspond to four EU directives. Yes, that legislation is strict, but we at Darnitsa are ready to comply with its demands. This means that our competitors, who do not comply with them, must start to follow the rules or leave. We are ready for the stronger competitors and for the increase of the standards of quality too.

-  You’ve mentioned your Ukrainian competitors or market colleagues several times. How is that competition going in Ukrainian pharma industry, how civilized are the methods?

-  We have a common position on a variety of issues, in particular on the drugs law. We have joined forces in order to help our health care system to overcome the consequences. We keep the dialogue with the government on how to improve the conditions of Ukraine’s pharma industry development. We are interested in the implementation of innovations and the growth of the industry’s potential.  However, we compete for the consumer, for the enlargement of our shares on the market, we compete for leadership in production, more profitable conditions of our cooperation with the partners. We use marketing instruments to enforce our own positions on the market. Companies, as well as consumers, win from such competition, as it stimulates us to search for better decisions and stay ahead of our competitors.

- Should we expect any transactions, purchases, or companies’ takeover at the Ukrainian pharmaceuticals market?   

- Yes, you should. Ukrainian market is mega-fragmented. The pandemic has brought some severe economic challenges and changes and affected the business of several Ukrainian pharma producers. All these factors push the owners for associations and absorptions. I think it is possible that financial structures will become the participants of this process.

 

- What is Darnitsa’s market value? Can you comment on the rumors about the possible sale of the company?  

- There is a global practice of the generic companies’ estimation. Nowadays Darnitsa is the most effective company in the Ukrainian market according to many indices. International companies evaluated that Darnitsa is worth about $0.5 billion. We are the biggest producer in terms of sales revenues. Our closest competitor’s share equals half of our volumes. This is important because there is a global challenge on who can produce preparations in large quantities. We keep the leadership here in innovation and effectiveness.

We keep getting offers from M&A and consider them.  This is a permanent process that has several stages: negotiations, legal side, due diligence, first round, second round, and so on. This is a hard story, the kind journalists find out after the results of the deal.  But we indeed have been constantly searching for the possibilities of growth. This is really so.

-  Why are there no concrete transactions happening? Is that because the Ukrainian pharma market is a little inactive in comparison to other markets, or there’s just nothing to buy here? 

- Some people do not want to sell, others have no money to buy. Some people overestimate themselves. Plus, there are many global factors, that influence certain decisions. That’s why we do not have any transactions now. But I am sure, we can expect them.

- Let’s talk about public procurement. What share does it take in your portfolio? Is this direction interesting for Darnitsa? Is it even worth spending your time on public procurement?

 - Darnitsa’s hospital products portfolio is really wide: this year the share of the hospital direction in sales makes about 6 %. Of course, it is interesting for us and we have been actively cooperating with our partners, who participate in state tenders. Furthermore, we take part in public procurement too – via ProZorro.

- Do you plan to grow these volumes?

- We could have increased the volumes, but Ukraine’s state budget does not allow us to do it.  If the norm of the law on state financial guarantees, which defines that the program of medical guarantees should be financed at the level of 5 percent of the country’s GDP, starts working, this will become a positive signal.

As of today, the situation is different. And it is no secret that patients or their relatives usually buy most of drugs themselves in the hospitals. We would like to see the legislators more focused on health care. However, for now, we see that to our regret roads are more important for the government.

 

- What is the situation with Corvalol? Don’t you think that the fight of two market leaders, and the most innovative companies around this drug is discrediting Ukrainian pharma industry?

- Disputes between pharma producers are common for all markets. And such cases usually last for years and do not attract public attention. Only in Ukraine this has become a subject of public talks in journalistic circles. Do you know whom the international pharma companies sue, for example? Nobody knows that except the participants of those court processes. Because that’s the way to solve such disputes. So we propose to stop the public discussion of this issue.

Do we have the rights to produce Corvalol? We think we do – end of the story. Let the court decide the rest of the issues. The most important here is the fact that as long as there is competition between the Corvalol producers, its price will remain more affordable to the consumers.