15th International Eurasian Pharmaceutical Forum

«Kazakhstan created unprecedented benefits for domestic pharmaceutical producers in comparison with other CIS countries»: Interview with Yerhat Iskalyev, «SK-Pharmacy»

Pharmacies of Kazakhstan. Source: Sputnik Kazakhstan. Quoting, copying and distribution of this material and/or its fragments is possible only by placing an active link to this publication.

Last year, 2022, proved to be a pivotal year for the pharmaceutical market in Eurasia. Pandemic-related problems have been exacerbated: complicated logistics, inventory shortage, and component supply disruptions.

How are the major players responding to these changes? Have they been able to adapt to the new reality? What business models and operating formats have proven to be most effective in a tough environment? These and other questions will be discussed by participants in the Top Managers' strategic discussion on the sidelines of the 14th Eurasian Pharmaceutical Forum in Almaty. Erkhat Iskaliev, the speaker at the upcoming event, Chairman of the Board of SK-Pharmacy, shared his experience in an exclusive interview with Adam Smith Conferences.

– Erkhat Serikovich, if we summarize the results of the past 2022 - what were they like for the Unified Distributor?

The uninterrupted supply and advance procurement of medicines and ensuring equal and fair access to medicines for Kazakhstanis under the Statutory Free Medical Assistance (SFMA) and in the Compulsory Social Health Insurance (CSHI) system are the main focus of the Unified Distributor's activities. Every year we provide more than 2 thousand medical organizations, and the number of patients who receive the medicines we purchase exceeds 5 million.

In 2022, the list of procured medicines and medical devices amounted to more than 1,600 items for the amount of USD 796.5 million, based on the results of procurement due to centralization of procurement procedures, the savings amounted to USD 57.5 million of budgetary funds.

As part of the Reboot program, regulatory and legislative acts, namely Resolution of the Government of the Republic of Kazakhstan No. 375, have been amended to improve procurement procedures. Thus, the evaluation criteria for the application of potential suppliers have been revised. Also increased the percentage of purchases of minimum permitted stockage from 10 to 25% of the total volume. As part of the implementation of the Head of State's instruction to increase the share of domestically produced medicinal products and medical devices from the current 17% to 50%, the Unified Distributor has initiated a number of projects. In order to ensure technology transfer to Kazakhstan, to provide patients with access to innovative medicines, the Unified Distributor is working with a number of BigPharma companies on projects for the production of innovative drugs with further export to the EAEU and Central Asia.

In order to facilitate the entry of global pharmaceutical companies into the domestic market and localization of production of originators in the country, work has been done to improve mechanisms for concluding long-term agreements with contract manufacturing customers. The proposed changes include allowing only originator under patent protection to be localized in Kazakhstan. As part of the discussion, a working group was formed with representatives of business, associations, employees of SK-Pharmacy, the National Center for Expertise of Medicines and Medical Devices and the Ministry of Health of the Republic of Kazakhstan

This is by no means the entire list of accomplishments for the current year. We have worked systematically and in detail each year to improve the operation of the Unified Distributor. The main goal is to improve the country's pharmaceutical market and the healthcare sector as a whole.

– Which of these results will most noticeably affect the development of the country's pharmaceutical industry this year?

Each of the outcomes has a greater or lesser impact on the further development of our pharmaceutical industry. Each year we set ourselves specific goals, and the work we have done so far plays an important role.

The Unified Distributor is working with leading players to create and develop medical-pharmaceutical clusters. The cluster will unite existing and create new enterprises for the production of innovative medicinal products, medical equipment, research institutes, universities, science parks and other organizations.

According to the order of the Ministry of Health of the Republic of Kazakhstan, medical-pharmaceutical clusters for the development of innovative medicines and medical devices will be established in Astana, Aktobe and Shymkent. Each cluster has its own specifics. The Shymkent cluster is aimed at the production of medicines, the Aktobe cluster zone is aimed at the production of medical equipment, and the Astana cluster will be focused on intellectual support of the pharmaceutical industry.

Currently, the Unified Distributor is also working on the implementation of the second stage of centralization of medical equipment procurement through the introduction of a centralized procurement program, which allows for offtake contracts between the Unified Distributor and major vendors, as well as the use of lifecycle contract mechanisms. In order to digitalize drug supply and improve the IT infrastructure of the Unified Distributor, work is underway to consolidate balances at the level of medical organizations, improve and automate the processes of planning of medicines and medical devices by medical organizations, and fully automate procurement procedures. To date, the Unified Distributor’s Information Systems Development Concept has been developed and approved, with implementation to begin in 2023.

– Are there any issues with the relationship between manufacturer and distributor at the moment? For example, the risk of inventory shortages of certain items?

In general, problems with foreign manufacturers may arise due to the geopolitical situation in the world. For example, earlier during the global crisis situation the Ministry of Health of the Republic of Kazakhstan and the Unified Distributor worked with suppliers to ensure timely delivery of medicines.

We have taken all measures and assessed the risks to prevent any disruption of supplies to the Republic of Kazakhstan from Europe, Ukraine, the Russian Federation and Belarus. All possible efforts were made to provide medicines to medical institutions on time and in the necessary volume. It is clear that in case of an unstable geopolitical situation, almost everything becomes more expensive: active and auxiliary ingredients, packaging materials, logistics has become more costly and time-consuming. Strong inflation is making its negative contribution. Today we are in an environment where things are changing rapidly. A holistic approach is needed.

– Are there technical difficulties in procuring or bringing innovative medicines to the market?

Localization of innovative pharmaceutical products on the basis of contract manufacturing is one of the priority tasks of the Unified Distributor. In solving this problem, the difficulty lies in attracting investment and cooperative arrangements with pharma giants. The issue of attracting investment is now being actively worked out with major European and Western players.

How does it work? A foreign company manufactures medicinal products on a contractual basis at the production facilities of a domestic agent. This mechanism is designed to support domestic manufacturers and simplify procedures for entering the market of original and innovative medicines, as the scheme allows BigPharma brands to enter the Kazakhstan market.

– Has the structure of procurement and consumption of medicinal products changed? Have the trends in COVID drug purchasing decreased or are they still high?

The structure of procurement and consumption of medicines has not changed. The Unified Distributor procures medicines and medical devices on the basis of the List approved by the Order of the Minister of Health of the Republic of Kazakhstan.

In 2023, the List of the Unified Distributor includes 1,765 names of medicines and medical devices, including COVID medicines. The list is constantly being updated with necessary items, depending on the demand for a particular drug. For example, in 2021, the List included 1,439 items, and in 2022 that number has reached 1,762. As we can see, the list has grown to over 300 items in three years.

It should be noted that medical organizations define their own needs in terms of the names of medicines, volumes and delivery schedule. And in accordance with these requests, the Unified Distributor, as the operator for the procurement and supply of medicines, carries out the procurement and supply of medicines to the country's medical organizations. Medical organizations of the republic have declared a need for 1,670 names of medicines and medical devices for 2023.

– What is the percentage of domestic medicines in the procurement volumes? How are these numbers trending compared to previous years?

Over the past 12 years, purchase growth has increased 11-fold and the number of items purchased from the Unified Distributor has increased 2.2-fold. Since 2010, the share of Kazakh producers has grown 2.2 times.

The development of domestic pharmaceutical production is one of the priority tasks set for the industry by the President of the country. Therefore, we pay special attention to the creation of favorable conditions to stimulate the development of the pharmaceutical sector, development of mechanisms to support domestic production through the system of unified distribution.

Kazakhstan has created unprecedented benefits for domestic pharmaceutical manufacturers compared to any other CIS countries. A support measure in the pharmaceutical industry is also envisaged in the form of long-term contracts for 10 years. As of today, 100 long-term contracts have been concluded with 36 domestic manufacturers for the supply of 4,669 items of medicines (760 medicines and 3,909 medical devices).

The dynamics of purchasing under the Unified Distributor's List shows an annual increase in the share of purchases from domestic manufacturers:

2019 – 515 items totaling 47.8 billion tenge;

2020 – 577 items for a total amount of 68.2 billion tenge;

2021 – 649 items totaling 90.3 billion tenge;

2022 – 848 items totaling 99.0 billion tenge.

– In general, which countries are the key suppliers of medicines for Kazakhstan? Are there prospects for involving new countries in this process and on what positions?

If we talk about statistics on medicinal products import for 2022, more than half of the products were purchased from domestic manufacturers (about 60%), as the development of domestic pharmaceutical manufacturing is the basis of national drug security and an important direction of long-term state policy. European countries then take the lead in terms of the proportion of medicines purchased – 24%. The smallest purchase was made in Belarus – 5 items.

Now, the Unified Distributor is exploring best practices in drug product procurement and logistics from global players for implementation in the domestic market. The issue of localization of medicines and medical devices manufacturing by BigPharma players on the basis of Kazakhstani manufacturers is also being worked out.

Framework cooperation agreements have already been concluded with global pharmaceutical companies F. Hoffmann-La Roche Ltd (Switzerland) and Novo Nordisk (Denmark). Pfizer (USA) and Kazakh Invest signed an agreement to localize production in Kazakhstan of a vaccine to protect children and adults against pneumococcal infection.

We are working on signing a cooperation and localization readiness agreement with AstraZeneca UK LTD. (UK), Bayer AG (Germany), Takeda Pharmaceutical (Japan). At the same time, cooperation with South Korean companies is being actively explored.

– If we look at the structure of purchases of the Unified Distributor, among the top five exporting countries of medicines for the Republic of Kazakhstan in 2022, in addition to Europe, were Russia, Ukraine and Belarus. What medicines were mainly purchased there and will you look for alternatives to these countries due to the possible threat of secondary sanctions and complicated logistics?

According to the procurement statistics for 2022, 2% of the total number of drug products were purchased in Russia, which is 29 different products. And the percentage ratio for Ukraine and Belarus is 1 (21 items) and 0% (5 items), respectively.

It is noteworthy that Ukrainian medicines were purchased despite difficulties with supplies. A total of 28 contracts for the supply of Ukrainian-made drugs were concluded for 2022, of which 21 were able to be supplied. Seven contracts were terminated due to plant closures. At the same time, alternatives were found for them, replacing them with Indian, Egyptian, Chinese and partially by European drug products.

For 2023, 10 drug products manufactured in Ukraine have been purchased. The purchase of another drug is at the stage of concluding a direct contract with the plant.

– What kind of regulatory support do you think the pharmaceutical industry in Kazakhstan needs now in order to increase the availability of medicines for citizens? How are the tools helping to curb drug price increases?

In general, a number of measures need to be taken to develop the pharmaceutical industry in Kazakhstan. To create a patient-centered healthcare system, the Healthy Nation, a new national project for quality and affordable healthcare for every citizen for 2021-2025, has been approved.

In order to provide quality treatment to patients, it is necessary to create favorable conditions for the provision of medical institutions with modern diagnostic and therapeutic equipment through the effective functioning of the medical equipment market and the availability of a list (Short List) of bona fide suppliers.

It is important to pay special attention to comprehensive maintenance of medical equipment and continuous training of medical staff. To this end, a life cycle contract tool is being explored.

The Unified Distributor has developed a model of effective medicine, where the main indicators of efficiency are reduction in mortality and increase in life expectancy of the people of Kazakhstan. The model consists of three backbone areas: ensuring a pool of highly qualified medical personnel, providing medical organizations with modern medical equipment, innovative medicinal products and medical devices.

Overall, its implementation requires balanced financing of health services and a comprehensive approach. Today it is impossible to talk about the effectiveness of medicine without digitalization of all business processes of the healthcare system.

Taken together, these measures should lead to the widespread application of the principles of personalized medicine, which aims to provide targeted treatment specific to each patient rather than the average patient.

Regarding the increase in drug products prices, Kazakhstan has introduced state price regulation for all drugs to ensure a transparent system of drug pricing, starting from the manufacturer's factory price, distributors' and pharmacies' mark-up. Thus, every year, according to the Order of the Minister of Health of the Republic of Kazakhstan, limit prices for medicinal products are approved for purchase within the framework of the SFMA and in the CSHI system, as well as separately for retail and wholesale sales, which are revised every six months. This measure is designed to increase both the affordability of medicines and reduce social tensions among a wide range of the population.

– What recommendation could you give to your colleagues from Kazakhstan and Eurasian Cooperation countries to improve performance in 2023?

First and foremost, we must not forget the patient-centered approach. This is a top priority for the entire healthcare system and pharmaceutical industry. Moreover, it is necessary to be open to dialogue with patients, medical associations, patient organizations, drug and medical device manufacturers to address current issues and improve the pharmaceutical sector.

I would also recommend that due attention be given to the digitalization of all healthcare business processes to ensure maximum transparency in operations. This implies balanced financing of health services and an integrated approach.

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