June 2012

A look at the extensive reform taking place within healthcare

Kazakhstan is the ninth largest territory in the world, and with a population of only 16.5 million, it stands the most economically liberal country in the former Soviet Union. Kazakhstan has the eleventh largest proven crude oil reserve,

according to the Organization of Petroleum Exporting Countries, and attracted roughly US$20 billion worth of foreign investment in energy and minerals in 2011.

In order to eliminate the dependency on energy industries for growth, the government developed the “Kazakhstan 2030 Strategy”. The plan outlines 5-year development programs for these specific niche sectors: chemicals, pharmaceuticals, electric energy, tourism, agro-industrial complex, light industry, and transportation infrastructures. The current program for 2010-2015 is called the State Program of Accelerated Industrial & Innovative Development (SPAIID).

What are the driving factors of government healthcare policies and reforms?Two decades ago, the healthcare system in Kazakhstan was close to total collapse; the system was unsustainable. Hospital equipment and devices were outdated, and healthcare personnel were underpaid and lacking modern professional qualifications.

Since then, the healthcare system has undergone extensive reforms - building 100 hospital complexes within a 5-year period, sending healthcare professionals abroad to upgrade their qualifications, renovating hospitals and clinics, and investing heavily in medical equipment and devices.

Beginning in 2000, Kazakhstan addressed its other ongoing challenges by:

●• Increasing the country’s population

●• Maintaining health standards within different social sectors

●• Effectively allocating budget resources to healthcare

●• Creating a sustainable pharmaceutical industry

●• Operating a fully transparent and accountable reimbursement system

D O I N G B U S I N E S S I N

KAZAKHSTANKazakhstan Pharma Market: Kazakhification?

by Seref Tasdemir

Two decades ago, the healthcare system in Kazakhstan was close to total collapse;

the system was unsustainable.

MULTI-INDUSTRY

NPT | The Community of Big Thinkers

The next decade will see Kazakhstan become

a success story in the pharmaceutical industry.The National Welfare Fund, which controls all state critical

assets, established SK Pharmaceuticals LLP in 2008 as the sole national distributor of medicine and medical devices. They establish long-term agreements with a 7-year purchase guarantee, direct purchase agreements with foreign producers, support the industry by searching potential local and foreign investors, and monitor Chimpharm JSC - the biggest local drug manufacturer within SPAIID.

The government purchases and then provides medicinal drugs, devices, equipment and services to citizens free of charge within the framework of Guaranteed Volume of Free Medical Aid (GVFMA). This support is given in the following areas: HIV, respiratory illnesses, newborn and maternal health, prevention and treatment of hepatitis B and C, oncology, tuberculosis, cardiology and gastroenterology.

How is the reimbursement system organized?The state reimbursement system is based on Guaranteed Volume of Free Medical Aid (GVFMA). The structure of the tenders is shown in the following table.

The total state budget for tenders in 2012 is estimated at US$960 million. Of this, 60% is allocated to SK Tender, 30% to Regional Outpatient Tender, 7% to Hospital Tender, and Commercial Offer is allocated the remaining 3% of the budget.

How does the tender process work?The Ministry of Health (MoH) annually publishes the State Formulary Drug List. SK sends a request, based on the International Nonproprietary Names (INN), to each state’s healthcare administration to collect the drug list for the upcoming year, including the quantity, form, and dosage requirements for state hospitals. SK announces the drug list for tender with INNs, price, and quantities between June and July. The final tender list with dosage, form, quantity, and maximum price in lots is officially published by SK between August and September. The successful bidder is announced in November.

Organizer Level Designation Decision-Maker Budget Allocation

SK Pharmaceuticals LLP Central SK Tender SK Pharmaceuticals LLP Federal

MoH Kz Regional Regional City and state (oblast) Republican Outpatient Tender healthcare department

State Hospital City Hospital Tender Chief doctor and/or distributor States (oblast)

State Hospital Individual Tender by Chief doctor and/or distributor Hospital Hospital Commercial Offer

KAzAKhstAn PhArMA MArKet: KAzAKhificAtion? - Multi-industry

June 2012

Multi-industry - KAzAKhstAn PhArMA MArKet: KAzAKhificAtion?

How to prepare for SK Tender• Review the official tender list to ensure

your products match dosage and form definitions

• Ensure the maximum ceiling prices are suitable for your company

• Know your competitors and consider their minimum bidding price

• Research local manufacturers for your products

• If you have the only representative office, consult with your distributor

• Confirm that your distributor will attach the tender to your product

• Confirm final delivery price, terms and time

• Ensure you can provide the delivery on time, as required by SK

• Ensure you have a person/department dedicated to the SK Tender

• Follow SK announcements and press releases

How is the Regional Outpatient Tender made?The SK Tender closes by September each year, and by mid-November the MoH announces the regional Outpatient Tender within the framework of GVFMA to supply medicinal drugs to regions and cities. The drug list with maximum ceiling prices, product, dosages and forms is published with the following specifications:

• The collection of orders with INN from hospitals by the Oblast and city healthcare departments around mid-September

• The announcement of the tender list by MoH with product ceiling prices

• Determination of drugs listed with quantities, dosages, and forms by regional authorities

• Bidding by the suppliers is completed from December - February

• Declaration of the winners by each regional authority, individually and independently.

Note: You will be dealing with each regional healthcare authority separately and your

distributor may not win the tender in each region.

What are the opportunities of Kazakh reimbursement for drug makers?The opportunities are clear for foreign producers of reference (“original”) and/or bioequivalent (“generic”) drugs in Kazakhstan’s reimbursement system. Tens of millions of dollars can be made every year submitting tender with one or two products in a market with an estimated projected size of USD$2.5 billion in 2015.

How to avoid complications and create a sustainable business model for Kazakhstan

Product Portfolio Management:• Assess your company’s strengths

• Analyze the market with the government’s reimbursement programs

• Determine profitable therapeutic areas and plan your 5- or 10-year forecast, analysis of competitors, market dynamics, branding, positioning, and pricing

• Make sure that you have at least 3 or 5 products in each therapeutic area

• Consult with product experts, discuss the viability of the product with your distributor

* Important Note: avoid copy-&-paste style product portfolio management from your global HQ. Customize for Kazakhstan.

Regulatory affairs and registration:Due to the Eurasian Custom Union between Russian, Belarus, and Kazakhstan and the adaptation of European & American pharmacopeia in Kazakhstan, the ever-changing rules of product registration creates synergy between regulatory departments in ex-Soviet Union countries.

• Review existing rules, regulations, and registration procedures

• Check your dossiers against all registration rules

• Beware of patent protection and trademark issues

• Be careful about the full description, dosage and form of your product in MA issued by the MoH

• Pay attention to the fact that MAs are issued for 5 years, and once expired you can’t import into Kazakhstan - re-registration takes 12 to 18 months

• FAMM: register a product that is only sold in the SK Tender from a local supplier

ConclusionWithout considerable efforts, resources and commitment, success in the Kazakhstan’s pharmaceutical market is a challenge. Kazakhstan is positioned for growth and the healthcare industry has seen significant change over recent years. The next decade will see Kazakhstan become a success story in the pharmaceutical industry. The market is destined to grow, so don’t miss out!

Mr. Seref Tasdemir is the chief pharma consultant at Ironstone Castle Ltd in Kazakhstan. They provide a range of services including: registration, market access, portfolio management, acquisition & merger, market analysis, toll manufacturing at GMP sites, product forecasting, business development & licensing for local

and international pharmaceutical companies. seref.tasdemir@gmail.com

What is the volume of state procurement vs. total market in million US$ terms?