Georgian Pharmaceutical Market Still Monopolized and Overpriced
28 June, 2012
Georgian Pharmaceutical Market Still Monopolized and Overpriced

 

Georgian pharmaceutical market is still dominated by oligopolies and work on high profit margin, Transparency International Georgia reported in its recent research. Georgian pharmaceutical companies disagree with the research and find the reported data incorrect. Currently Georgia spends 4% of its GDP on pharmaceuticals that is twice as much as in the United States, a country known for its high expenditures on pharmaceuticals. Georgia Health Utilization and Expenditure Study 2010 shows that the expenditures on medical goods in 2010, made up

for 60% of the total health care expenditures per household. From 2007 to 2010 the expenditures on pharmaceuticals have grown at the pace of 23.7% each year.

Explanations for the increased expenditures on pharmaceuticals are ascribed to oligopolies and high profit margin they enjoy which greatly exceed those for general goods and services in Georgia.

Thanks to high profit margin Georgian pharmaceutical sector grows at a rapid pace every year. While the turnover of retail trade was GEL 196.6 million in the sector in 2006, this increased to GEL 543.3 million in 2010. The turnover of wholesale increased from GEL 502 million to GEL 896.5 million in 2006-2010, while the total production value increased from GEL 22.1 million to GEL 90.2 million in the same period of time.

Sector pundits have been hailing government for a decade the high prices in pharmaceutical sector were  reasoned by rampant monopolies that enjoyed about 120% of profit margin but only in 2009 when prices jacked by 50% up the President of Georgia acknowledged this fact. To discharge the market off monopolies government addressed removed import barriers and made medicine trade more accessible and liberal to smaller companies. However the pharmaceutical market still remains monopolized and enjoys high profit margin, Transparency International Georgia (TI Georgia) having researched the market recently reported on June 22, 2012.

“The pharmaceutical market is best described as an oligopoly and vertical monopoly of two companies (Aversi and PSP) that use their strong concentration of market power in the import/distribution, the retail and the manufacturing sectors to dominate the market. The 2009 legislative amendments designed to promote competition have only had a limited effect on the market. While the barriers to competition created by previous legislation have been removed, other barriers—such as the dominance of large companies—have not been adequately dealt with,” the TI Georgia experts stated.

According to TI Georgia report, the markup for medicines in Georgia is far above the average markup for medicines in other European countries and exceeds 100%.

The market still is controlled by three companies Aversi, PSP and GPC that have acquired a position where they are able to dominate the import/distribution, the retail and the manufacturing sector of the pharmaceutical market and although prices on Original Brands (OB) dropped by 27% in 2009-2011 and 21% for the lowest price generics (LPG), prices on the rest medicines making three fourth of the medicines got more expensive.  The Curatio Foundation presumes this decrease can be part of their short term strategy to push the new competitors out of the market.

There are 70 manufacturers in the Georgian pharmaceutical market but two companies Aversi Rational and GMP (PSP) account for 90% of manufacturing. They are also the largest companies in the import/distribution making 48% of this market jointly. GPC and ABC Pharmacy joint share accounts for 23%.

The prescription behavior of doctors appears to be influenced significantly by financial or other incentives offered by large pharmaceutical companies. The largest pharmaceutical chains reportedly promote their own medicines in their stores to an unacceptable extent.

The Agency for State Regulation of Medical Activities responsible for examining the quality of medicines appears to lack the resources to perform its role effectively. Due to a loophole in the registration procedure, there is a possibility that counterfeits or “bad medicines” will enter the market.

There appears to be a strong interrelation between the government and the largest pharmaceutical chains. The owner and founder of PSP Kakhaber Okriashvili has been a Member of Parliament for the ruling United National Movement since April 2004. He has also been a member of the Committee on Health Care and Social Issues, and a member of the Committee on Sectors of Economy and Economic Policy.  TI Georgia’s study of party financing showed that Aversi Pharma, PSP Pharma and GPC have been among the largest contributors to the electoral campaigns of the ruling party. Aversi Pharma donated GEL 200 thousand between 2007 and 2010, and won public procurement contracts with a total value of GEL 823.997. PSP Pharma donated GEL 200 thousand as well, and won public procurement contracts worth of GEL 141.044 . GPC spent GEL 175 thousand in donations and won public procurement contracts worth of 61.847 between 2007-2010.

PSP, Aversi and GPC top officials claim the data in the TI Georgia’s report are inflated and far from reality.

Companies questioned almost all data reported by TI Georgia and waived existence of trust deals and privileges at the market.

“If there was a trust deals there would not be Aversi, PSP and GPC pharmacy outlets located next to each other, “Gocha Gogilashvili, General Director of PSP, said.

Paata Kurtanidze, Head of Aversi, assures that the average markup on medicines makes about 25-30% that is quite a realistic profit margin.

The afflicted pharmaceutical companies plan to start an in-depth analysis together with the non-governmental watchdog over the research.

 

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