Dmitry Shimkiv: Ukrainian chemists do not create unique things? That's wrong!
An interview with the Chairman of the Board of Directors of Darnitsa Group
Dmitry Shimkiv
Age: 43 years
Place of birth: Lvov
Profile: IT, pharmaceuticals
Civil status: married, three children
Place of residence: Кiev

In July 2014, the former Chief of the Ukrainian Office, Dmitry Shimkiv, was unexpectedly appointed to Deputy Chief of the Presidential Office of Ukraine Microsoft.

He became one of the first technocratics reformers coming to power from private sector after Revolution of Dignity.

"My goal was to transform the country. Now I've decided to return to my wheelhouse – business", he wrote in his post on Facebook, leaving the Office in August 2018.

According to Shimkiv, his main achievements in civil service were the launch of high speed 3G/4G internet and public electronic procurement systemProzorro, as well as the opening of public register data and implementing of online petitions.

The Media wrote that at the time of leaving the Office, Shimkiv received several good offers from Ukrainian telecommunication holding companies. Rumors were not confirmed. In September 2018, the manager became a member of the Management Team of the Ukrainian pharmaceutical giant, Darnitsa, where he is in charge of strategy, external relations and new technologies.

"Darnitsa is a modern, dynamic and profitable company. Propelling it to the club of global pharmaceutical players is an interesting challenge for me as a businessman", commented Shimkiv his appointment. – "It is medicine and pharmacy that will be setting the trends in economics and innovation over the next 25 years, that's why I'm here."

In the interview to, he discusses the organization of the pharmaceutical business, competition with low-quality Indian medicines, and awesome Ukrainian chemists.

How much does Darnitsa cost and what is its strength
- After almost a five-year break, you are in private business again. Why in pharmacy?

- It is a new and interesting industry. It reminds me of the IT sector 20 years ago.

- You often compare pharmacy and IT. Why do you suppose that pharmacy will become a force for changes in the world over the coming decades?

- This is evidenced by the dynamics of the technological startup development on the market and innovations produced. They are evaluated in the capitalization of companies.

An assessment of global pharmaceutical business has revealed that market multipliers are many times higher than the average multipliers of other sectors. For example, when it comes to buying a business of generic companies, the average multipliers are EBITDA X 10.

There are deals with the multiplier of 27-28. For example, Tikeda acquisition of Shire is estimated at $ 81 billion.

In Europe, consolidation of the pharmacy has been in process in recent years, which means that many deals are being prepared.

- Is Ukraine in trend?

- Ukraine can not be contemplated outside the global context. The average rate of Ukrainian pharmaceutical industry growth over the last years was 11% per year. This is three times higher than indices of the Ukrainian economy in general.

We are a part of a dynamically developing and growing global market. At the same time, Ukraine is listed as one of the fastest growing markets in the global pharmaceutical industry, that is why it is really interesting to work here.

- What are the multipliers in Ukraine?

- From 8 to 10. It all depends on the company's portfolio.

- How much does Darnitsa cost?

- According to the independent assessment conducted recently, the company is valued at more than $400 million.

- Darnitsa is number one in market share in Ukraine, but if we convert it into money, Darnitsa is in third or fourth place. Why?

- Our market share in terms of packages (items of products manufactured - ed.) is 14%. This means that we are the largest pharma in Ukraine. The company following us has 7 %.

Why aren't we the number one in terms of proceeds? The reason is simple. It is the cost of products.

A Ukrainian spends an average of $73 on medicines, an Estonian - $258, a Swede - $509, annually. Consumption of medicines in Ukraine is still significantly lower than in the EU countries.

We are aware of the Ukrainian consumer purchasing power, and set prices taking into consideration the real paying capacity of the people. Notwithstanding that our portfolio contains expensive products as well, in general, we consider ourselves as an affordable pharma.

- What are your strengths? What medicines do you focus on?

- Our specialty is interesting, when comparing with competitors. The portfolio of another companies consists mainly of medicines for nose-throat-diabetic issues. We focus on and specialize in heart (heart disease medications), pain, and nervous system issues.

It is understood that the product line contains both throat preparations and preparations used in common cold; we have our share in gastroenterology and intimate health. But, speaking of the areas we consider the most attractive in relation to our development, they are pain, heart, and nervous system issues.

Annually, a Ukrainian spends an average of $73 on medicines. An Estonian - $258, a Swede - $509. Consumption of medicines in Ukraine is significantly lower than in the EU countries
- How do you maintain the product quality in technological context?

- When I came to the pharma, I realized what the key difference from IT is. In IT, you made a product and entered a market. The process may take relatively a little time. Further, the market works: someone buys it, someone does not. Even bugs are allowed, they can be fixed along the way.

It is not the same in pharmacy. Firstly, the process from the idea to the launch of the medicine can take a decade. Secondly, the presence of bugs in the medicines is impossible. The quality requirement is one of the most strict standards for us. Issues of product quality, state-of-the-art equipment, and testing accuracy are the part of Darnitsa's DNA.

Preferably, we use Italian, Finnish and Swiss equipment. German autonomous systems provide indoor air filtration.

Antibiotics, for example, are manufactured in a separate, physically isolated facility in compliance with the requirements of Good Manufacturing Practices (GMP). An influx of 100% fresh, highly purified air is provided for the clean working places; the water treatment system enables obtaining the water purified in terms of the desirable parameters. An automatic system for maintaining the desirable microclimate standards is installed at the creams and gels manufacturing site, and a monitoring system controls air temperature and humidity.

-There are only short-cut lawns and no trees on the premises? Is this for security reasons, as well?

- Vegetation creates an additional burden on purification filters, therefore, its amount should be minimal according to standards.

On robots at manufacturing place and investing in R&D
- You automatized the manufacturing process and even use robots for individual operations. Is there a risk they will replace people?

- This is a question from the area of futuristics and projections. But today, a completely automatic warehouse complex is in operation; at the time it was opened in 2008, it was the first project on this scale in Eastern Europe.

It consists of 12 levels for 10,000 pallets. All the operations in the product storage area is performed by robots.

The warehouse is operated almost without human involvement, controlled by a computer system, and is connected to the other areas by conveyor and elevator network. This organism has a "memory" and knows everything about each unit of raw materials, materials, or finish products: from the composition and quantity to the production site and expire date.

- Pharma is dominating in terms of investment intensity: 19 kopiika of capital investment falls per every hryvnia of value added costs in this industry. How much do you invest in? What exactly do you spend money on?

- We invest in R&D (research and development works ed.) and CAPEX (capital investment) about 10 % of the income. This is a standard for the industry.

Over the past 10 years, the Zagorys (owners of the Darnitsa company ed.) has invested more than 200 million euros in the manufacturability of the entire manufacture and compliance with GMP requirements.

It's not only about modernization. We have automatized both standard business processes and sales planning, logistics and production operations starting from planning the requirements for raw materials. Today we are in the phase of creating a digital company: we are digitalizing the document flow and lifecycle of the medicines.

When it comes to the large investments, installation of a modern infusion production line worth more than half a billion hryvnia can be attributed to the large projects, in addition to the automatic warehouse.

- How long is the payback period for such equipment?

- This process is still going on. In general, the payback period is about 7 years.

- What exactly do your investments in R&D involve?

- An important area is clinical trials, confirmation of bioequivalence.

Generics are authorized copies of original medicines. Such medicines have a "complete profile" with proven efficacy, safety and quality. In addition, they are much cheaper than the originals.

The generic must satisfy certain criteria, and its effectiveness should be equivalent to the original medicines. For this purpose, clinical trials of bioequivalence are conducted. Historically, few to no clinical trials were conducted in Ukraine.

Today, Darnitsa is the leader of the Ukrainian market (both among national and international companies working here) in terms of the number of clinical trials of bioequivalence. This year alone, we have obtained certificates for six medicines.

- How was bioequivalence confirmed earlier? Why weren't bioequivalence investigations conducted?

- It is enough for an international company to merely provide confirmation that clinical trials of bioequivalence were conducted whatsoever, and such documents are valid in Ukraine. At the same time, it is difficult to verify the validity of these trials; also, how and in what conditions they were conducted are questionable.

The issue is typical not only for our country. In 2015, a big scandal unfolded due to such practise: one of the Indian companies was providing false documents for their medicines sold on the EU market. The European Medicines Agency (EMA) banned 700 Indian medicines considered as substandard, as a result of the inspection.

By the way, a very interesting book has recently been published, Bottle of Lies by the American investigative journalist Katherine Eban, in which the quality of Indian pharmaceutical products is contemplated. I recommend reading it. Many interesting things about Ukraine are said there.
How banned Indian medicines get into Ukraine and why they are sold
- Are substandard medicines represented on the Ukrainian market? Where are they coming from?

- There is a lot of the Indian products here, on the Ukrainian market. I checked it expressly. Medicines contemplated in the book the documents for which have been falsified, and the evidences of substandard quality have been confirmed, appears to be sold here, on the Ukrainian market.

- How do they get to Ukraine? Why is there no ban?

- This is a question for the Regulatory Authority. When the production plant is located in Ukraine, the Ukrainian Regulatory Authority is able to check it at any time. Over the past 3 years, the Regulatory Authorities of Ukraine, Belarus and EU have conducted 5 inspections of Darnitsa, all of which are successful. Since there is such a rule, welcome! You can come and inspect, we are open to it. The same pattern is for USA and Europe.

When the company's production plant is located in another country (in this case, in India), it is difficult for our Regulatory Authorities to inspect them.

By the way, Hindus are famous for their making a fuss over inspections. From the fake offices that the inspectors are shown in, to the falsification of documents for medicines.

The book describes the story of the Indian company Ranbaxy, representatives of which carried medicines in suitcases, and, when conducting trials, two identical original medicines were compared instead of comparing the original drug and the generic.

The company also falsified the portfolio of the medicines, did not conduct trials at all, produced drugs under terrible, often unsterile conditions, breaking almost all medical and human rules and laws, changed the formulation deliberately, used little amount of the active ingredients, making the medicines ineffective and so on.

The fraud was revealed as a result of a massive investigation. The company was obliged to pay a record $ 500 million fine and withdraw all the products.

Last year alone, the products of more than 50 Indian production plants were banned in the USA and Europe. Nothing is prohibited in Ukraine.
Medicines banned in the USA are forwarded to Africa and Ukraine. The Minister of Health of India feels free to admit that several different quality standards for different countries are valid in India
- What is the share of Indian generics in the Ukrainian market?

- The share is huge and it is growing. In the same book, Katherine Eban says clearly that medicines banned in the USA are forwarded to African countries and Ukraine. The Minister of Health of India feels free to admit that several different quality standards for different countries are valid in India.

At the same time, Ukrainian pharma has been already certified in accordance with the international standards. Recently, Darnitsa has confirmed the GMP certificate (Good manufacturing practice) that is a mandatory standard for certifying the pharmaceutical manufacturing in Europe.

We, as a company, stand for any inspections, but insist that the proper control requirements is applied not only to local manufacturers, but to everyone.
On awesome Ukrainian chemists and pharmacists
- Why does Ukrainian pharma prefer to make copies of famous medicines, but not to launch anything original?

- It is a myth. There are companies that posses their own molecules and conduct complex chemical research here, in Ukraine. But in this case, it comes to a very long process of patenting and clinical trials that may take up to 10 years.

There are truly awesome chemists and pharmacists here, in Ukraine. A technologically complex production process has been developed in the industry, also, analytical chemistry and elements of complex calculations are applied, and experiments, prognosis and clinical trials are conducted. The industry is developing.

- How about personnel in the pharmaceutical business? Is there lack of personnel, education quality issues, and brain drain?

- One can gain a good education in analytical chemistry in Ukraine. When it comes to technologists, situation is more complicated. The average age of the R&D department members in our company is 30 years.

We are eagerly looking for specialists who work outside Ukraine. Our experience shows that the attracting personnel from the international pharma is also possible.

- In general, how much do good experts earn on the market?

- The wage level of a good chemist is comparable to the wage of a leading IT developer.

- As to medicines, what new and interesting products is Darnitsa manufacturing?

- Complex generics, an innovation present in modern generic companies, including ours.

The task is to combine ready-made molecules into a single medicine. The first molecule resolves one issue, the second resolves another issue, but as a result, you take one tablet instead of four.

In addition, it is a matter of the prolonged release of active ingredients that enhances the adherence to the prescribed treatment regimen, and, therefore, increases its effectiveness. The subject is very interesting, but complex and rather technological.

- What are your strongest brands?

- Citramon and Kaptopres, headache and blood pressure. And, do not forget Medichronal, a seasonal product that is popular after holidays (laughing).

- Is there something in the area of sexual health?

- We have already launched Silagra.

- Is that similar Viagra?

- Yes.

- What is the difference?

- Actually, there is no difference, but the price is lower (smiling).
There are companies that posses their own molecules and conduct complex chemical research here, in Ukraine. There are truly awesome chemists and pharmacists. The industry is developing
- In which segments do you intend to compete in the global market?

-There are three interesting areas we discussed earlier: pain, nervous system and cardiology issues.

- What areas you do not cover and why?

- Oncology. This area demands immense investments. Before starting, one need to understand the sources of marketing.

The majority of national governments, unlike Ukraine, guarantee the purchase of certain medicines from national manufacturers. Yes, there are certain price level requirements, but this approach ensures the medicines availability for the population and market independence from the excessive influence of third countries.

Globally, the production of oncology medications is a matter of dialogue between the pharmaceutical manufacturer and the national government on which model will be acceptable. But, there should be a guarantee of public procurement at least for some period. Only in this case, the business will be ready to invest.
On investing in biotech, privately-owned pharmacies and artificial intelligence
- Are you interested in investing in biotech?

- Yes, we are ready to invest. There are interesting projects in China and the USA (San Francisco, Boston).

- What amounts are we talking about?

- We are talking about investments up to $ 100 million without the participation of the banking sector.

- So you are ready to invest $ 100 million in a startup you liked?

- Well, we are unlikely to invest $ 100 million in a startup (smiling), rather $ 10 million is more realistic.

- What is your opinion of the preventive medicine?

- Globally, it is one of the largest areas now. A person with potential cardiovascular problems can administer inexpensive medications and be healthy. Simply speaking, certain constant concentration of the substance should be maintained in his blood. It is much cheaper than treating heart diseases that may develop in the future.

- Are you studying this area?

- Yes. But, our society has not yet developed the culture of administering medicines for prevention. Another dynamic area is medicine delivery. For example, Amazon is actually becoming a pharmaceutical company that annoys traditional players.

- By the way, are you not going to buy a retail business — pharmacies?

- Vertical integration is still exist (laughing). Of course, we are considering different scenarios.

- But, anyway? See, Petro Poroshenkо is doing a good job on his network of privately-owned confectionery shops. Sugar - factory - shop. It works. How does Darnitsa consider the whole chain?

- A pharmacy is not a shop. A pharmacy has both social and medical function. And, online medicine delivery is still prohibited in Ukraine. Legislation needs to be changed. Althoug, there are startups (liki24 — Ed.) that involve delivery modelled on Uber here, in Ukraine. They have found a solution.
We are unlikely to invest $100 million in a startup, rather $10 million is more realistic
- Are you considering AI (Artificial intelligence)? How can it be used in pharma?

- We considereted it. We had discussion with one Ukrainian-American startup. But, we came to the conclusion that the use of AI nowadays lies to a greater extent in the development area, such as biotech area, rather than generic. But, there are areas that we are analyzing.

- Surely, you collect data during the manufacturing and delivery medicines to the market? What do they provide?

- This is analytics. We can monitor consumption, its seasonality, and dynamics, that affects sales optimization. Big retailers and wholesalers have useful arrays of information. These data can be exchanged, and complex and effective analytical solutions can be framed.

- Globally, one of the big data applications enables the company to prepare personalized products for each client according to his needs. Pharma is still a big clumsy classic mass market. Are you expecting changes here, in this area?

- Of course, but first we need to obtain data about our consumers. It would be a good idea, if the Ministry provided access to their arrays of data sanitizing it. Then, pharmaceutical companies could gain a common understanding of what prescriptions doctors give and in what cases. A geographical pattern would be formed: in which regions and from such diseases people suffered the most. As a manufacturer, we are even ready to buy such data. We will be able to make projections and decisions based on them.

I hope so much that the launch of an electronic prescription and transparent reimbursement will result in the introduction of the so-called pharmacoeconomics. When not only will the national government compensate under what-is-cheaper principle, but also choose which doses and which medicines have the strongest effect on the patient.

- A question about marketing. Packaging, a new presentation of medical products: what are you exploring in this area?

- I'm really interested to check out whether Ukrainians developments are represented in this area. After all, Ukraine has a strong creative industry.

There is very interesting dynamics in the world at medtech. Give you an example. I attended the presentation of a company that spent a huge amount of money on the bottle nozzle for delivering drugs as deep as possible into the nasopharynx. Due to this, the rate of sinusitis treatment increases. There is an element of innovation: the drops are the same, but the method of drug delivery is different. But it is clear that the cost of such devices at $ 50 is not relevant to the Ukrainian market for now.

- Products with added value costs are not considered at all in Ukraine?

- Again, the price is an important factor in Ukraine. In terms of medicine consumption index per capita, Ukraine is in the end of the list. There is room to grow.
On lobbying and government support
- What is your attitude to contract manufacturing and stimulating local producers, in general?

- The government should support its producers in a competent and transparent way. I mean both our manufacturing facilities and the manufacturing division of foreign companies that operate in Ukraine. Particularly, they produce, generate value added costs, develop Ukrainian brands, pay taxes, and create jobs.

This approach is used by all developed economies of the world. The leaders of correct protectionism are the USA, Germany, Japan, and others. For example, Germany is very creative in supporting its automotive industry.

- Is lobbying good or bad?

- I reckon that reasonable lobbying is good. And this is the undertaking I did not have time to realize while working in the PO — lobbying law. It exists in the States, and no one claims it corruption.
You might have heard stories that medicines cost $200 in Poland and $600 in Ukraine. Partially, this is a result of unequal competitive conditions
- Do you have lobbyists?

- The industry interests as a whole are represented through associations.

- Maybe, there are people's deputies who represent your interests?

- And what exactly can Darnitsa gain from the government? We have never participated in tenders announced by the Ministry of Health. We participate in hospital procurement publicly, only through Prozorro. Explain what else I can lobby? The market is megafragmented and megacompetitive.

- Maybe, you should interact with parliament more actively ?

- Truly, the solution to a number of issues lies in the legislative area. For example, individual companies support the so-called "evergreen patents" in Ukraine. This suppress the launch of generic medicines and forces consumers to pay an inflated price.

You might have heard stories that medicines cost $ 200 in Poland and $ 600 in Ukraine. Partially, this is a result of unequal competitive conditions.

Ukrainian generic manufacturers lose to manufacturers from Central and Eastern Europe. The reason is the legislation that allows to extend the validity of a patent for five years upon expiry of a 20-year period, and does not allow to start the development before the patent expires.

Thus, Ukrainian companies lose time for developing (up to four years), while competitors from Europe are able to carry out the deliveries the next day upon expiry of the patent on the reference medicine. And so, the issue can be completely resolved at the legislative level by adopting the "Bolar position".
On medical reform, telemedicine and global goals
- Ukrainian medical refoem has started. - What does it lack in your opinion?

- It lacks compulsory insurance. I have studied models of different countries. I like the ideas proposed by Roosevelt, and then realized by Truman, when health insurance is attributed to the costs of American employers. And the government co-finance it.

- What is the main public health service problem?

- The number of people on Earth is growing much faster than the number of doctors. A patient has only three-minute appointment in some Chinese clinics. Therefore, self-medication and preventive medicine will be inevitably developing worldwide.

One of the solutions is telemedicine. Once, I saw at Columbia University in New York that a large local hospital demonstrated an innovative solution - quick access to a doctor. It may be a cabinet in a pharmacy with special equipment that allows to conduct an automated examination of the patient by key parameters. In this case, a doctor estimates the diagnostic results and makes a diagnosis in a remote way. Imagine, IT has enabled healthcare to take this far. That is why huge investments go to medtech now.

- Would you ban the advertising of over-the-counter drugs for nose and throat on Ukrainian television? After all, such self-medication ruins health.

- I suppose that the market would be strongly affected by the rule obliging producers to write the active ingredient on drug label in advertising. The consumer would understand what he pays for.

Or, the principle of indicative price is needed. The discussion on this subject is conducted in the States, Japan, Europe. This approach allows you to cut off the brands inflated by marketing.

- What is the global goal of Darnitsa?

- To build a large international company. When I see the stories of Teva and Hikma, which started in countries much smaller than Ukraine, I ask myself: can't we do the same, can we? I'm sure we can.

My personal ambition is to make a big success story for the country.

- How is this evaluated in numbers?

- I believe that we are able to double our turnover - up to 6 billion hryvnia, remaining the generic company.
When I see the stories of Teva and Hikma, which started in countries much smaller than Ukraine, I ask myself: can't we do the same, can we? My personal ambition is to make a big success story for the country
Text: Denys Katsylo, Stas Yurasov
Foto: Andrey Hudzenko
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