Transparency International Detects Weak Oligopoly on Pharmaceutical Market.
Amalgamation of Pharmadepot and GPC grows risks of competition restriction and misuse of market dominant positions.
Thus, pharmaceutical market may be characterized as a weak oligopoly, but according to recent information, ABC Pharmacy that holds a dominant position (second place after PSP) since 2015, plans to merge with GPC and establish a new corporation – Georgian Pharmacy (GEPHA), which will combine Pharmadepot and GPC management. As reported, Competition Agency assessment is required for final decision and this assessment will be published in about a month.
“As a result, GEPHA will control 25% of the market (based on imports indicators) and move to the market leader position. Thus, quantity of the market dominant companies will shrink to 4 ones from 5. This concentration may bring both negative and positive results. Negative factors may arise out of the company’s 25% market ratio that may provoke misuse of dominant position, while positive aspects signify that amalgamation process will combine resources, expenditures will be optimized and company efficiency will increase in all directions”, the report reads.
Profits of pharmaceutical companies in 2014 made up 190 million GEL. As to the company turnover and revenues, according to the research, total annual turnover of in both retail and wholesale sectors made up about 2 billion GEL in 2014 (according to the recent indicators). To be precise, turnover of wholesaler companies is growing year to year and in 2014 it increase by 433 million GEL compared to 2010. As to retailers’ turnover, this indicator is changeable, but shows upturn tendency, in most cases, and the figure rose by 130 million GEL in 2014 compared to 2010.
Total annual profits of companies involved in pharmaceutical business in 2014 made up about 190 million GEL. To be precise, wholesalers’ profits in 2014 rose by 58 million GEL compared to 2010, while retailers’ profits increased by 9 million GEL in 2014 compared to 2010.
In 2012 pharmaceutical companies donated 415 000 GEL to United National Movement (UNM), but similar cases were not registered since 2012.
In the process of exploring major market players, Transparency International – Georgia examines contacts of persons, associated with business companies, with political parties in order to determine corruption risks, amely, whether these persons have donated money to some political party. The report shows that the year of 2012 was a special one for pharmaceutical companies in this sense. If we consider a situation with 25 companies, stakeholders of 4 ones and otherwise related 9 bodies donated total of 415 000 GEL to UNM. Since 2012 these bodies have not donated money to political parties. To detect corruption risks, Transparency International – Georgia also examines involvement of these companies in state procurement deals. Namely, main accent is made on value of contracts received without tenders, in a simplified purchase mechanism. “ In this sense the years of 2010-2016 have not recorded a specially interesting tendency.
A major part of state contracts obtained by companies were obtained by tenders, while the value of direct contracts, as a rule, was not too high”, the report reads. Price of medications rose by 25% and the process started 8 months earlier before GEL exchange rate depreciation. According to information of LEPL Medical Activities Regulatory State Agency, prices rose in some groups in 2012-2014 period.
“If we discuss a group of all medications jointly, this period has not recorded an extreme change in prices. As to 2014, especially after 2014, prices considerably increased on all pharmaceutical products and the peak of growth reached 25% in the second half of 2015. Extreme surge in prices started in parallel regime with GEL exchange rate depreciation, to be precise, 8 months earlier.
Representatives of pharmaceutical companies have shifted responsibility onto State Regulatory Agency because of alleged restriction of parallel imports, but the Agency rejects these accusations. Starting November 2015 price surge paces started declining and tariffs declined in some groups of medications. Price contraction tendency was maintained on almost all pharmaceutical products up to December 2016. If GEL exchange rate keeps dropping, naturally, medication prices will be also affected and their prices will be provoked for growth. However, it should be noted that, according to November 2016 statistics, annual inflation marked only 0.2%”, the research reads.
Every year imports exceeds exports about 5 times.
As to exports and imports, the report shows that both imports and exports of the mentioned medications show growth tendency in 2012-2015. Every year imports exceed exports about 5 times. In 2012-2015 major exports was carried out by LLC GMP, LLC Pharma Impex and LLC Pharma Logistics. It should be noted that the latter two companies are specialized in re-exports.
As to importer companies, in 2015 LLC PSP Pharma occupied the first position with 58 million USD (22.32% in total imports). This company emerges as a leading importer every year, excluding the year of 2013, when LLC Aversi-Pharma topped the list with 62 million USD (19.25% in total imports). According to 2015 indicators, LLC ABC Pharmacy ranks second with 39 million USD (14.91% in total imports); LLC Aversi-Pharma is third with 38 million USD (14.54%), JSC GPC is fourth with 26 million USD (10.2%), LLC Global Pharma is fifth with 18 million USD (7.02%).
At this stage, a total of 11 168 medications have been admitted to Georgian pharmaceutical market, including 1 367 medications are of Georgian origins.
Based on imports indicators, Aversi Rational and GMP manufacturers control 97% of production sector. At this stage, a total of 11 168 medications have been admitted to Georgian pharmaceutical market, including 1 367 medications are of Georgian origins, i.e. 12.25% in total number of admitted medications. Aversi Rational manufactures 259 ones and GMP produces 237 ones. Naturally, there are also manufacturers that produce pharmaceutical products of Georgian raw materials. Recognition regime registration regulations for pharmaceutical products creates risks for imports of low-quality medications.
As to other market shortcomings, according to the report, Georgia has not managed to move to international standards yet and this factor considerably hampers exports of Georgia-manufactured medications and makes quality of domestically produced products questionable.
Government of Georgia planned to move to international standards in 2016, but, according to new resolution of the Government, these reforms were rescheduled for 2018. According to the report, LEPL Medical Activities Regulatory State Agency, which is responsible for examination of medications quality, does not have sufficient financial resources/budget to efficiently fulfill this function. Moreover, the current legislation cannot ensure valuable implementation of this function.
At the same time, the report says that Recognition regime registration regulations for pharmaceutical products creates risks for imports of low-quality medications.