Monopoly and excessive profits: Why the pharmaceutical distribution sector in Ukraine requires reforms.

The pharmaceutical distribution market in Ukraine has undergone significant changes in recent years, posing new challenges for companies, pharmacy chains, and consumers. The main issues highlighted by the analysis of distributor activities from 2020 to 2024 include market concentration in the hands of a few players, rising markups, and regulatory intervention.

Dominance of Two Players in the Market

The Ukrainian pharmaceutical distribution market is currently dominated by two giants—"Badm" and "Optima"—which together hold over 90% of the market. This monopoly allows them to dictate prices and terms of cooperation to both pharmacy chains and drug manufacturers. Other players, including "Venta," have limited options: among the twenty largest pharmacy chains, only 27% have chosen to partner with this distributor.

It is noteworthy that the owner of "Optima," Andrei Hubskiy, brother of the well-known politician Bohdan Hubskiy, resides abroad. Among the three co-owners of "Badm"—the Sukhodolskys family and Alexander Dityatkovskiy—the latter also lives outside Ukraine. This situation complicates oversight of these companies and raises questions about the transparency of their operations in the pharmaceutical market.

This situation stifles competition, creating barriers for new entrants and reducing the availability of favorable terms for pharmacies and drug manufacturers.

Challenges for Pharmacy Chains

This concentration reduces the geographical reach of the market and affects the accessibility of medications for end consumers.

Some pharmacy chains are trying to avoid working with dominant distributors; however, this requires significant investments in developing their own logistics systems or seeking new partners, which is economically unfeasible.

Increase in Markups

Over the past three years, the average markup of distributors has increased 2.5 times—from 4.5% in 2021 to 12% in 2024. This once again indicates collusion among large distributors and abuse of their dominant position. Meanwhile, the net profit of companies has increased sixfold, a result of setting excessive prices for medications. Such actions raise concerns about the transparency of pricing and fairness of conditions for consumers.

The increase in markups has become one of the strategies for distributors to maintain their profitability amid war and economic challenges; however, this undermines the accessibility of medications for a wider audience.

Response of the Antimonopoly Committee

The Antimonopoly Committee of Ukraine (AMCU) has initiated an investigation into the pharmaceutical market due to the high concentration. The AMCU's task is to combat monopolies, ensure transparency, and prevent abuse of power by major players.

Both companies risk facing multi-billion fines: for "Optima," the amount could be 5.4 billion UAH, while for "Badm," it may reach 6 billion UAH. It is noteworthy that their owners have already hurriedly withdrawn significant amounts of dividends: "Optima"—almost 2.9 billion UAH, and "Badm"—over 2.3 billion UAH. This move indicates an attempt to reduce the companies' assets before potential fines.

Response of Parliament

Amid market concentration and rising prices, politicians have also turned their attention to issues in pharmaceutical distribution.

For instance, the leader of the "Batkivshchyna" party, Yulia Tymoshenko, initiated the establishment of a temporary investigative commission (TIC) aimed at halting the corrupt schemes of monopolistic intermediaries. According to Tymoshenko, two monopolistic companies purchase about 80% of the medication volumes in Ukraine, leading to significant price inflation compared to European markets.

The TIC plans to develop legislative initiatives aimed at substantially reducing prices in pharmacies and ensuring market transparency.

Overall, politicians and market participants are convinced that systemic measures are necessary to address the problems of pharmaceutical distribution in Ukraine.

First, competition in the market should be strengthened by creating conditions for new players to enter. Second, transparent pricing mechanisms should be implemented to avoid artificial price inflation for medications.

An important step is the active role of the state—the Antimonopoly Committee must not only investigate violations but also effectively impose sanctions.

It is essential to develop and implement a comprehensive strategy for reforming the pharmaceutical distribution market, which will include measures to support competition, combat corruption, and create transparent conditions for all market participants. This will facilitate the establishment of a transparent market that ensures the accessibility of medications and business stability.