Banning marketing agreements will not make medicines cheaper - it contradicts logic, said the CEO of the "Podorozhnyk" network

New regulations of the pharmaceutical market, aimed at lowering drug prices, came into effect on March 1. Domestic manufacturers provided the Ministry of Health with lists of drugs they produce, for which they agreed to reduce prices by 30%. In addition, the government adopted a resolution prohibiting pharmaceutical manufacturers and pharmacies from entering into marketing agreements, and also limits pharmacy markups on medicines. 

The ban on marketing agreements in the pharmaceutical business is a decision that has shaken up the pharmacy market in Ukraine. The Ministry of Health is convinced that this will help reduce drug prices, but market participants have a different opinion. UNN spoke with Taras Kolyada, CEO of the Podorozhnyk pharmacy chain, about how marketing agreements worked, whether they helped make medicines more affordable, and what consequences the pharmaceutical market will feel after their cancellation.

What are marketing agreements in the pharmaceutical business? How did they work and why were they concluded by pharmacies? What were the marketing payments used for (discounts for people, social programs, staff training, etc.)? How did marketing payments affect the price of drugs in your pharmacies? Do they really help to reduce the markup and make drugs more affordable for consumers? Is it true that small pharmacies survived thanks to marketing?

Marketing agreements are an integral part of any retail business. All over the world, manufacturers pay for promotion of their products in stores: for better shelf placement and merchandising, additional displays and digital promotion, for placement in advertising catalogs, mailings and booklets, participation in loyalty programs and special events for customers, and even for additional staff training on product properties. In short, manufacturers pay for facing so that their product is visible among competitors and sells better.

In addition, manufacturers want their product to always be adequately represented at retail outlets: this means that the retailer must purchase it with a reserve, occupying its space with not one, but, say, four packages of one SKU (stock keeping unit - ed.) of one manufacturer. But facing is not unlimited, and someone has to invest in placing these four packages in the warehouse. And it should be the manufacturer, not the buyer.

Podorozhnyk's policy of cooperation with pharmaceutical companies is based on making it interesting for both manufacturers and end consumers. In particular, we launched the "There are Discounts" project, which offers favorable prices for popular drugs every month. Discounts are partially compensated by our network, partially by manufacturers, which was enshrined in our marketing agreements. All socially oriented programs, such as "Therapy Plus" (a joint project with AstraZeneca), "Joint Support" (a joint project with "Rompharm"), "For the Sake of Life" (a joint project with Pfizer), "Protect Blood Vessels - Save Heart" and "Improved Blood Circulation for Brain Health" (joint projects with "KRKA") and many others, work on the same principle.

Therefore, when someone says: take away marketing agreements from pharmacies and medicines will become cheaper - this actually contradicts logic. According to Proxima Research, the markup of pharmacy chains has already decreased by almost 10% in the last 10 years, and it would continue to decrease due to marketing. Many drugs were sold with a minimal or zero markup, because pharmacies could afford it thanks to marketing. Because funds from marketing agreements are not so-called additional income of pharmacies, as some observers think. They were a driver of competition, because at their expense pharmacies had more room to compete on price for all drugs, even for those for which there have never been and will not be marketing payments.

Marketing agreements are now prohibited. Have you already felt these changes? What exactly has changed? Has this affected drug prices? Or their availability, i.e. the range in pharmacies. How exactly?

The life cycle of товарних залишків in pharmacies can last from 40 days or more, depending on demand. Therefore, a lot here depends on how many drugs were available in a particular pharmacy at the time of the price reduction initiative, and the changes do not happen everywhere at the same time. However, already now people in different parts of Ukraine are facing a shortage of drugs.

In turn, the negative consequences of these changes have also affected retail. For example, our network is now reviewing its business strategy and was forced to stop promotions and discounts and medicines in pharmacies, because we were actually deprived of the mechanism for their implementation. We have also frozen some plans related to investments in new openings, particularly in localities with low customer traffic. At the same time, Ukrainians' access to quality pharmaceutical care remains our key priority, and Podorozhnyk's strategy is to appear, among other things, where there are no pharmacies at all, even if it is not a profitable step for our business. Because people always need medicines, and we must adapt to the new rules of the game. 

When talking to representatives of the pharmaceutical market, we heard the opinion that marketing agreements still need regulation, but only according to EU standards. That is, regulation should be comprehensive and systematic, as in the EU countries. Do you agree with this opinion or how exactly, in your opinion, should marketing agreements work, or are you happy without them?

Marketing agreements in the EU remain in the plane of free market relations. Regulation of markups on medicines is mainly applied to those drugs that participate in reimbursement programs. Reimbursement is the only effective process that makes medicines more affordable, because in this case, part of their cost is compensated by the state. Ukraine has also followed this scenario, but so far only about 2% of medicines are dispensed under the "Affordable Medicines" program in our country, while in Poland, for example, up to 50%.

Now the state is initiating the referencing of drug prices according to the best practices of neighboring countries. And this is a good step, but if we compare the realities in the field of healthcare and the sale of medicines in Ukraine and other countries, we must be careful and honest with ourselves. Our closest neighbors in the EU are an order of magnitude more developed in this area, and this can be clearly seen by simply seeing the top sales of medicines in Ukraine. 

In third place after drugs to support heart health and the gastrointestinal tract are drugs related to pain management - their share is almost 10% of all sales. And what is pain management? It is treating the symptoms of diseases. People do not solve real problems, very rarely visit doctors, almost 40% self-medicate, almost 20% resort to folk medicine. 

Often, a trip to the pharmacy replaces a trip to the hospital for Ukrainians. Therefore, when we compare the sales of medicines and the number of pharmacies in Ukraine and the EU, these factors should also be taken into account. Then it turns out that the number of pharmacies per capita that is operating in our country now is quite justified. 

Some drug manufacturers say in interviews with the media that marketing payments are a way for pharmacies to "earn" on drugs. Is this really the case? Do you agree with this statement?

It may be a secret to someone, but stores earn money by selling, and pharmacies earn money by selling medicines. And if everyone accepts this fact as a given and does not demonize pharmacies as one of the players in the pharmaceutical business (which also includes manufacturers, distributors, and price aggregators), we will have room for productive dialogue and positive change.

Is it true that marketing payments supported competition between small pharmacies and large chains? Did this help to avoid market monopolization?

It may seem strange to someone: do small pharmacies also get paid for marketing? Yes, because manufacturers pay everyone. Some more, some less. After all, if a manufacturer is interested in penetration (increasing sales in existing markets by increasing the presence of a product or service - ed.) of its product on the market and its display, it invests in ensuring that the remains of its product are in every pharmacy, regardless of whether it is a large chain or a small point in a town. It is important for manufacturers to be everywhere.

And small pharmacies, thanks to this desire of manufacturers, can remain competitive and offer almost the same range as large chains. And the end consumer benefits from this. One pharmacy per village does not imply competition: the seller dictates his terms and you can only buy what he has on the shelves from him. And many pharmacies within walking distance for the client means a choice: in terms of price, service, habits and personal preferences. And also, it is the opportunity to buy medicines here and now, and not order them from the other end of the city or, even worse, from another city. Active and dynamic competition ensures the development of the industry, and I hope that it will remain so in the pharmacy market.

Let us remind you

Cabinet of Ministers of Ukraine Resolution No. 168 of February 14, 2025 provides for new rules for regulating the pharmaceutical market. In particular, restrictions were introduced on markups on supply and marketing and retail markups for all medicines, and not only for certain categories, as is the case now.

The purpose of the resolution was to reduce the prices of medicines and increase their availability to the population. At the same time, patient organizations   warned that excessive regulation could lead to a shortage of medicines, the closure of pharmacies in small towns and villages, and the termination of social programs to support patients.