Industry Trend Analysis - EAEU Regulatory Harmonisation To Boost Drugmaker Prospects - APR 2018

BMI View: Kyrgyzstan's nascent regulatory environment presents risks to drugmakers. The implementation of price controls will improve access to medicines while stabilising market dynamics, and the transition towards adopting unified legislation for the Eurasian Economic Union will also increase regulatory transparency and access to medicines. We note that these legislative changes remain in the draft and development stage and as such, little impact will be felt in the short term.

The gradual development of pharmaceutical legislation in Kyrgyzstan bodes positively for drugmakers operating in the country. The market remains underdeveloped - even relative to its Commonwealth of Independent States peers - which will hinder opportunities for drugmakers; however, throughout 2017 the government focused on remedying this situation. Intentions to implement medicine pricing legislation and amendments to the state registration of medicine will improve the ease of business through a more streamlined and transparent operating environment while some of the proposals have the potential to result in greater access to medicines, booting growth prospects as well.

Given the market's lack of development, highlighted by its low per capita expenditure on medicines (USD38 in 2017), there is considerable growth potential. From a low base of KGS17.0bn (USD229mn) in 2017, we forecast the market to grow at a five-year local currency compound annual growth rate (CAGR) of 10.9% (9.4% in US dollar terms) to KGS28.4bn (USD360mn) by 2022. Over our long-term forecast to 2027, the market is expected to expand at a 10.4% CAGR in local currency terms and at 9.6% in US dollar terms to KGS45.7bn (USD571mn).

Underdeveloped Market Poses Growth Potential
CIS Markets: Pharmaceutical Sales Per Capita
e = BMI estimate. Source: BMI

Eurasian Economic Union Single Medicine Market

As a member of the Eurasian Economic Union (EAEU) alongside Armenia, Belarus, Kazakhstan and Russia, Kyrgyzstan will eventually have a uniform procedure for the registration of medicines. Through to December 31 2020, these markets are in a transition phase, after which time all markets will be regulated by a single framework of legislation according to the Rules of Registration and Expertise of Drugs within the framework of the EAEU. In early 2018, the Department of Drug Supply and Medical Technology of Kyrgyzstan developed a draft decree 'On Approval of the Procedure for State Registration of Medical Products', incorporating a number of articles from the 'Agreement on Common Principles and Rules for the Circulation of Medicinal Products Within the Framework of the Eurasian Economic Union' to govern the market through the transition period. Among the draft changes, registration deadlines and criteria for accelerated registration procedures have been developed.

We note that as the legislative environment in Kyrgyzstan at present is relatively weak, the market will benefit positively from the formation of the unified EAEU market. Drugmakers will be able to access a vast market through streamlined registration procedures, boosting opportunities for revenue growth. This should result in greater competition in the marketplace as well as increased medicine registrations in Kyrgyzstan; both of which are positive for medicine access. We note that the major beneficiaries of the EAEU common market are likely to be the major drugmakers in Russia given their already strong manufacturing presence. Furthermore, demand for patented medicines in the region will remain weak due to low income levels and the operating environment for innovative drugmakers is likely to remain challenging due to weak patent enforcement. Indeed, in the pharmaceutical Researchers and Manufacturers of America (PhRMA)'s 2018 submission to the United States Trade Representative, its members stated that they were 'concerned that the current EAEU regulatory frameworks creating the common pharmaceutical market do not provide robust patent protection for innovative medicines'.

Pricing Controls On The Horizon

On February 14 2018, Heath Minister Talantbek Batyraliev announced the government's proposals to introduce medicine price regulation. At present, there is no such regulation in Kyrgyzstan at either ex-factory, wholesale or retail levels. This creates challenges for medicine affordability given the high levels of out-of-pocket payments required for drugs, compounded by the price inequalities between rural and urban areas further reducing access to medicines. According to a 2014 study by the WHO, 64% of people surveyed in Kyrgyzstan reported excessive prices as the primary reason for not purchasing medicines. Indeed, a 2016 study by the WHO highlighted the need for the country to develop pricing legislation. According to the Health Minister, maximum retail mark ups may be set at 20% of the wholesale price.

We note that the government has yet to draft legislation to implement this proposal, limiting the impact of this proposal over the short-term. However, the government continues to develop a more robust regulatory environment which will improve the long-term outlook for the market.