Sleight of hand and no fraud, or how to save the profits of drug manufacturers

The Ministry of Health published an updated draft resolution on regulating marketing services in the pharmaceutical market for public discussion on its website. Despite the declaration of a compromise, the document protects exclusively the interests of large manufacturers, as the proposed model allows them to maintain super-profits, while pharmacies, distributors and end consumers find themselves in a less advantageous position, writes UNN.

Details

The updated draft resolution presented by the Ministry of Health establishes restrictions on the expenses of drug manufacturers on marketing services. According to the updated document, such expenses cannot exceed 20% of the total sales of over-the-counter drugs (excluding VAT) for the previous year. Formally, this looks and is presented by the regulator as a step towards the market. But in reality, we are talking about a regulatory model that is beneficial exclusively to manufacturers.

According to the proposed changes, marketing expenses are divided as follows: 18% - for over-the-counter (OTC) drugs, and only 2% - for prescription (Rx) drugs. And this model, strangely enough, immediately received the support of Ukrainian manufacturers.

The minister probably heard us, because a new draft resolution with a different marketing regulation model appeared quite unexpectedly for most market participants, which the minister personally presented to market participants. This model is more compromise and clearly establishes that marketing services are paid only for over-the-counter drugs and are administered by the manufacturer. That is, the manufacturer, shipping over-the-counter drugs every day, clearly understands how much marketing he can pay and provides the relevant data to the State Consumer Service

But even Bahriy himself admits that the new model allows manufacturers to pay less. And this is the key difference from the previous version of the draft resolution on marketing regulation, in which the Ministry of Health proposed to limit it to 12% of marketing from the total volume of pharmacy sales. Then the manufacturers opposed this approach to regulation and threatened to increase drug prices.

This model offers 18% of the turnover of over-the-counter drugs. In the end, for the manufacturer, this is many times less than 12% of the market turnover

What is the manipulation?

Despite the beautiful 20% wrapper, this figure is just a facade behind which completely different calculations are hidden. Most of this figure, or 18%, is the marketing of OTC drugs. Currently, according to analysts at Proxima Reserch, who conduct regular studies of the pharmaceutical market, the share of over-the-counter drugs is approximately 35% of the entire drug market. So in reality, the share of marketing costs will be much smaller, even if you calculate them as a percentage of the entire drug market, and not just the over-the-counter segment.

So, 18%, which is proposed to be allowed for the plant to spend on marketing from 35% of the share of over-the-counter drugs - this is 6.3% of the total sales of drugs at manufacturer prices.

If we add to this 2%, which is proposed to be allowed for the marketing of prescription drugs (and this is 65% of the entire market) at the retail price, it turns out to be 1.3%.

That is, simple mathematics shows that the 20% declared in the draft resolution turns into 7.6% in reality.

This is almost half as much as the same 12% that the Ministry of Health proposed in the previous draft. In addition, it should be taken into account that all these calculations are only an ideal theoretical maximum. The situation on the market is actually a little different

Currently, the markups of distributors and pharmacies together amount to 30%.

In terms of retail prices, 7.6% turns into 4.92%, and if we take into account that about 30% of manufacturers do not pay for marketing at all, then the actual level is even lower - about 3.5%.

So what the Ministry of Health presents as 20% is actually only 3.5% in reality.

What a "compromise" the impressive 12% turned into 3.5%, which is less by three and a half times. Now it is clear why the manufacturers are more than satisfied with this option.

It turns out that instead of a transparent and honest approach to regulating marketing services in the pharmaceutical market, the Ministry of Health is actually playing on the field of large manufacturers. Currently, the situation looks like the main goal is not to reduce the cost of drugs, not to regulate the relationship between the manufacturer, the pharmacy and the patient, but to maintain the profits of pharmaceutical giants under the guise of a compromise.

Let us remind you

From March 1, 2025, resolution of the Cabinet of Ministers No. 168, which introduces restrictions on markups on medicines and a ban on marketing agreements, came into force in Ukraine.  It was adopted in pursuance of the decision of the National Security and Defense Council to reduce drug prices in Ukraine.

However, in practice, the ban on pharmacies entering into marketing agreements with manufacturers did not lead to cheaper medicines. The Ukrainians interviewed by UNN did not feel a drop in prices, but on the contrary, they state that medicines are becoming more expensive.