The Pharmaceutical Industry in New EU Member States: A Statistical Comparison with Germany. Lessons for Ukraine

Abstract

Pharmaceutical production is a strategic sector of the EU economy. The authorities of Central and Eastern Europe (CEE) countries that became EU members in 2004 have been building up domestic pharmaceutical industries for purposes of production and distribution of medical drugs (MDs) and medical products (MPs), on the one hand, and government assistance to business entities and public procurement, on the other. The article’s objective is to assess the change in economic performance of the pharmaceutical industry in Poland, Hungary and Czechia after their accession to EU, to make a comparative statistical analysis with Germany, the leader of pharmaceutical production in EU, and to reveal key problems of this industry development in CEE countries, in order to elaborate recommendations for Ukraine on replication of best practices and avoidance of potential risks. Results of research show that pharmaceutical producers (group 54 SITC Rev.4) in CEE countries have been focusing mostly on EU market, with Germany being their main partner. The turnover of high tech pharmaceutical goods in CEE countries has significantly grown after the accession to EU, along with the significantly grown imports of these goods and the increasing negative trade balance. Pharmaceutical companies in CEE countries could increase the salaries and the apparent labor productivity, but the gap between them and Germany in salary and productivity terms still remains too wide. In the studied CEE countries there has been significant increase in pharmaceutical R&D spending, but its estimated share remains quite low compared with average figures for EU (16.1%) and Germany (25.6%). It is substantiated that because the future Agreement between the European Community and Ukraine on conformity assessment and acceptance of industrial products (ACAA agreement, or “Industrial visa-free regime”), which is being negotiated right now, will cover the pharmaceutical industry, the Ukrainian pharmaceutics will gain benefits only given the consolidated endogenous capacities of the industry and firmly established advantages of localization providing stimuli for European companies to create production facilities and R&D centers in Ukraine (including ones for contract-based R&D and productions). It is demonstrated that the inflow of investment and technologies from European pharmaceutical companies is capable of accelerating production start-up and exports of MDs and MPs (as time need not be lost for setting up all the links of the chain), thus adding up to the assets of Ukrainian producers (through transfer of knowledge and skills), but all the above cannot compensate for domestic efforts aimed at creating tangible and intangible assets in the industry. Given its Eurointegration context, Ukraine needs to pursue the policy of increasing the industry’s endogenous capacities and rely on the comprehensive approach (instead of focusing on MDs and MPs) that will cover the following key areas: biological and chemical ingredients, medical equipment, pharmaceutical fillers and packages, equipment and apparatus for pharmaceutical production. This is expected to reduce the dependence of Ukrainian pharmaceutics on imports and eliminate the problem of “truncated industrialization” that can cause structural imbalances, worsen the balance of payments and weaken the national currency.