Nearly seventeen months since Russian troops crossed the Ukrainian border triggering the deadliest European conflict since World War II, the Ukrainian pharmaceutical business is not just struggling to survive. Capacities are being modernized, investments are allocated to research and development, and ambitious plans are drafted for the post-victory future.

The start of the hostilities on February 24, 2022, nearly paralyzed the Ukrainian pharmaceutical market. During the first days of fighting, only 10% of pharmacies nationwide remained operational, estimated Darnitsa, one of the leaders of the Ukrainian pharmaceutical industry.

The first shock winded down quite soon. On March 24, roughly 80% of pharmacies opened their doors again, though in a completely new reality. For several months the import of a long list of medicines was halted owing to logistics chaos on Western borders and seaport blockade. In the meantime, the share of the hospital segment of the pharmaceutical market, in peaceful times ranging between 7.5% and 8%, spiked to 40%.

For the Ukrainian pharmaceutical companies, those months were insanely challenging. A few months before the hell broke loose on the Ukrainian land, Pharmak, one of the local market players, invested money into a line for the medicine production in nebulas at its factory in Kyiv.

The company was launching this line “under the roar of the Russian cannonade during the fieriest battles” near the Ukrainian capital, the company reported. Foreign engineers expected to handle equipment commissioning predictably refused to come to Ukraine due to safety concerns, and the Pharmak employees had to execute this task on their own.

Darnitsa had not suspended operations even for a single day, even when the enemy was in Kyiv’s threshold, Vasily Gubarets, director for corporate communications of Darnitsa, reported, attributing this primarily to successfully implemented automation and digitalization programs. Thanks to these, a large part of office workers switched to remote work.

Arterium, another major market player, suspended the operation of Kievmedpreparat not far from Kyiv until the middle of March to guarantee the safety of its workers. In the meantime, the company’s second factory Galichfarm near Lviv, in the western part of the country, continued operation.

Investment activity in the industry seemingly resumed around April 2022, when Russia retreated from Kyiv, Sumy, and Chernihiv regions. Vladimir Kostyuk, CEO of Farmak, estimated that last year, the company released at least 11 new medicines and was not planning to slow down. Darnitsa kept up the pace and put at least 15 new medicines on the market.

The hostilities largely shifted the focus of the Ukrainian pharmaceutical companies, which are working to meet the growing needs of the military. In addition, Darnitsa started manufacturing tableted potassium iodide, which among other things, could be used in a case of a nuclear accident. It appeared to be in high demand among Ukrainians, some of which live in constant fear of a disaster at the Zaporozhe nuclear plant—the biggest in Europe, located not far from the battlefields at the territory currently controlled by Russian forces.

Some Ukrainian companies also consider investments in overseas assets. Farmak, for instance, pumped €20 million into a new factory near Barcelona for the production of solutions, suspensions in vials, and syringes, which is slated to become operational in 2024.

Evolving to adapt

In previous years, the Ukrainian pharmaceutical industry increased output on average by 10% to 12% per year, driven by growing domestic demand and rising export sales, a marketing study conducted by local think tank Proxima Research showed.

However, immigration, a loss of territories, and a catastrophic slump in purchasing power of the Ukrainian population took a heavy toll on local demand. Darnitsa calculated that the domestic market saw a 29% slump in sales in 2022 compared with the previous year.

In addition, some production capacities sustained physical damage, while others ended up in the territories controlled by Russians.

“For business, the situation is tough. Many players in the national market suffered losses. In the case of our company, this is a loss of warehouses with all finished products and packaging worth over 1.5 billion hryvnias ($41 million). For understanding the scale, this is higher than the company’s net profit in 2020,” Kostyuk stated.

A massive flow of humanitarian aid coming to Ukraine from other countries appeared to be an unexpected problem for Ukrainian pharmaceutical companies, said Alexander Partyshev, commercial director of Arterium

“Healthcare facilities were often overloaded with humanitarian drugs, and Ukrainian pharmaceutical companies lost an opportunity to supply their products to certain market segments. In this situation, with our initiative and support in Ukraine, a Ukrainian translation of the WHO Guidelines on good practice in drug donation was published. We hope they will be used. And the management of humanitarian aid with medicines will improve,” Partyshev added.

Ukrainian companies account for 65% of sales on the domestic market in packages and only 36% in monetary terms, Proxima Research calculated. Since the beginning of the conflict, the demand for dietary supplements, vitamins, prophylactic drugs, and anti-covid drugs in the country plummeted, resulting in large overstock among all pharmacies. In the meantime, in some categories, the demand skyrocketed as Ukrainians stocked up vital medicines, the analysts reported.

Considering this, Ukrainian companies largely focused on meeting the demand of the local population. “Before the war, export was growing by 30% on average per year,” Golubets said, adding that last year export dwindled due to logistics challenges. “Darnitsa still exports products to 14 countries in Europe, the Middle East and Eastern Asia.”

Pharmak used to export 25% to 30% of its products to 50 countries. After losing its warehouse in March 2022, the company suspended foreign sales until June to meet the domestic demand.

In July 2022, the Ukrainian government recognized the pharmaceutical industry as a strategically import segment of the national economy. Ksenia Velichko, general manager of Darnitsa, praised the decision, claiming that it helped the industry to attract additional investments. Besides, the authorities lowered the administrative burden on the pharmaceutical industry, abandoning some excessive rules regulating the registration and re-registration of medicines in the country.

Unfortunately, this might not be enough to compensate for the blows the industry suffered during the past year.

“First of all, [pharmaceutical] manufacturers want the state to roll out a formulated strategy for the development of the Ukrainian pharmaceutical industry as an integral part of the healthcare system. It is important for business to understand long-term plans for developing the country’s medical system, drug reimbursement programs, and government procurement schemes,” Velichko said.

Ukrainian pharmaceutical companies have been asking the government to reform the national healthcare system for several years. A marketing study conducted by a local news outlet Liga in 2020, showed that an average Ukrainian spent only $73 on medicines per year, against $258 for an average Estonian and $509 for an average Swede.

“The problem is that 99% of medicines Ukrainians buy come from their own pocket, while in the Western countries, a large share of the cost of medicines is covered by insurance and special state programs,” Liga said, adding that introducing such a system the Ukrainian government would give a powerful impetus for the growth of the domestic pharmaceutical market, and fill the industry with money.

It is unlikely, though, that the requirements of the Ukrainian pharmaceutical industry will be fulfilled in the foreseeable future. The authorities were reluctant to embark on reforms to the healthcare system even in peaceful times, citing enormous costs the national treasury could barely afford. Now, extra costs are expected to be unbearable for the already strained country’s budget.

Forging stronger ties with Europe

In previous years, the Ukrainian pharmaceutical industry has mulled various plans of joining forces with foreign colleagues on various ventures.

“Ukrainian pharmaceutical business had a high potential of working with international pharmaceutical companies, in particular, under contract medicines manufacture,” Dmitry Shivkiv, chairman of Darnitsa, outlined during a press conference in Kyiv a few years back. “Ukraine already had examples of contract manufacturing. That was primarily in bulk or repackaging. But Ukraine can offer more interesting opportunities.”

It is remarkable that these plans are not abandoned even now, when the future of Ukrainian statehood looks exceptionally vague, as the end of the conflict is nowhere in sight. Still, a vast majority of Ukrainians are confident that their country will eventually prevail on the battlefields, taking back all territories, including Crimea. Ukrainian business is also confident that the country should already start working on its post-victory future.

“After the victory, our country will have a unique chance to occupy a prominent place in the global super-competitive pharmaceutical market,” Farmak’s Kostyuk said, adding that “beating this goal requires joint efforts, decisive actions, and painstaking work on the part of both the state and business right now.”

The Ukrainian government supposedly now understands the importance of the national pharmaceutical industry and the willingness to support it.

“The COVID-19 pandemic, and a full-scale war, put everything in order. Finally came the realization that independent and sustainable healthcare industry is not just slogans from pre-election programs, but vital and relevant here and now,” Kostyuk added.

Last summer, Ukraine became a candidate for joining the EU and is currently on its way to European integration. It must harmonize its legislation with the Europeans to get “a visa-free regime for industrial goods” and simplify the access to medicines of Ukrainian origin on the European market, he added.

A part of the Ukrainian pharmaceutical industry believes that in the next few years, Ukraine could attract billions of euros of investments from global market players who would eventually eye not just the Ukrainian but also the European market.

“The pandemic has revealed the vulnerability of the existing system, and Europe is now considering various possibilities of bringing all stages of drug production closer to the EU. Ukraine has everything it takes to become a powerful hub that can partially mitigate the deep dependence of the EU health care system on supplies from China and India,” Kostyuk said.

Ukraine boasts a favorable geographical location, a relatively cheap but highly-skilled labor force, and low taxation. In addition, its pharmaceutical industry is already strong enough to meet the sophisticated requirements of Western partners, according to Kostyuk.

“However, it is not only about Europe. The international pharmaceutical business, although not completely leaving Russia, is scaling down their investments in the aggressor country and is actively looking for alternatives for the future,” Kostyuk added.

He expressed confidence that Ukraine needs to do its homework to lay the groundwork for encouraging leaders of the global market to invest in R&D centers, create export hubs, and sign contract manufacturing, localization, and technology transfer contracts with Ukrainian partners.

“There will be little time for recovery after the victory because the global pharmaceutical market is very dynamic and competitive. It is necessary to prepare in advance,” Kostyuk said.

Whatever the prospects the Ukrainian pharmaceutical industry may have on the global market, they are unlikely to be realized while 7 million citizens—15% of the population—remain refugees abroad, the fighting keeps raging on hundreds of square kilometers of territory, and barrages of missiles and kamikaze drones attack infrastructure daily.

These are all reasons to believe that the conflict could last for years, meaning that the Ukrainian pharmaceutical industry will likely live in a state of rampant uncertainty for the time being.