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Darnitsa is one of Ukraine’s largest pharmaceuticals. It’s in fourth place in Ukraine by value of sales, with about 3.3 percent market share, and in first place by volume, with 14.4 percent of products sold, according to data from the company and the law firm Aequo.
Dmytro Shymkiv, the former deputy head of administration for ex-President Petro Poroshenko and former general manager of Microsoft Ukraine, has been working as the chairman of Darnitsa’s board of directors since September. Under his watch, he wants the company to leverage its research, production and quality control to break into the global market.
Shymkiv sat down with the Kyiv Post to discuss Darnitsa’s desire to become a global firm, the future consolidation of Ukrainian pharmaceuticals and the controversial reputation of company owner Hlib Zahoriy, who will soon be stepping down from his post as lawmaker.
International aspirations
Though Darnitsa already exports to 14 countries, Shymkiv said that he wants the company to be a bigger player in the global market.
“The objective is to grow Darnitsa from a Ukraine-based company to an international one,” he said. “We would like to go further and bring more international perspectives to the company.”
Darnitsa is looking to buy up pharmaceutical portfolios from international companies. It will also try to lure some foreign talent to bolster its human capital and possibly even acquire entire companies based in Europe or North America. Shymkiv did not reveal which companies are currently on the short list.
The chairman had previously written that Darnitsa wants to cooperate with international firms. He told the Kyiv Post that the company is also interested in contract research organizations, companies that support pharmaceutical and biotech research on an outsource basis.
Shymkiv said that he observed aggressive activity by investment firms that play in the pharmaceutical space. “If you look at the competition which is taking place in M&A in Europe, we are not competing with pharma,” he said. “We are competing with private equity.”
In the local market, research by Darnitsa and Aequo found that the top 20 players in Ukraine control 47 percent of the market value, which is almost equally distributed among Ukrainian and foreign manufacturers. Among importers to Ukraine, Germany is in first place, followed by India.
Despite the volume of generics coming from India, Shymkiv said he believes that Darnitsa can outcompete them with safety and quality in part by adhering to the U. S. Food and Drug Administration’s Good Manufacturing Practices standards.
Shymkiv also hinted that Darnitsa is working not only on complex generics but also researching its own original molecules, as are a handful of other advanced Ukrainian companies. He did not provide any further details.
Consolidation
Shymkiv believes that Ukraine’s pharmaceutical market, which is currently very fragmented, will undergo a lot of consolidation in the future. While the market is underdeveloped and most companies have more room to grow, “as we go forward, the market will become more dense. It might require companies to merge,” he said.
Another major reason for consolidation is the track and trace requirements demanded by the U.S. and European Union for companies doing business there. Medication packages must be trackable through the entire supply chain.
Implementing this will require “significant investment, meaning millions (of dollars),” said Shymkiv. “Lots of companies can’t afford millions so they will look into a consolidation strategy.”
Shymkiv added that he sees parallels between Ukrainian companies, which are primarily family-owned such as Darnitsa, with earlier trends in other European countries including Italy and Switzerland. If children who inherit the companies don’t want to go into the business, it might lead to sell-outs and mergers.
A Darnitsa manufacturing line with a row of bottles containing the company’s infusion solution, a product launched in 2015. Darnitsa sells the most medications in Ukraine by volume. (UNIAN)
Some mergers are tougher than others. Darnitsa has yet to complete its acquisition of a majority stake in the Borschahivskiy Chemical Pharmaceutical Plant, which it has been trying to do since 2015, when it bought 30 percent of the chemical manufacturer.
The majority stakeholders of the Borschahivksiy plant had previously alleged that Darnitsa’s bid was tantamount to a hostile takeover, according to Ukrainian media. Shymkiv said that Darnitsa is still willing to buy the majority stake but conceded that the other side is not willing to sell.
“You can talk to any investment banker in this country, I think everyone tried to persuade them to do a deal,” he said. “I haven’t seen any successes there.”
Shymkiv added that Darnitsa has not been getting paid its full dividend by the plant and is looking into how it can address this “corporate issue.”
Controversy,- transparency
In May, company owner Hlib Zahoriy announced that he will be stepping down as a legislator and returning to the private sector to focus on running Darnitsa full-time.
Over his years in public office, Zahoriy became an object of scrutiny for Ukrainian media and civil society, which linked him to alleged corruption scandals. Some accused the lawmaker of trying to game the system to give Darnitsa an unfair advantage.
For example, several NGOs had stated that Zahoriy was linked to people appointed to several Ministry of Health committees. They alleged that this gave him some conrol over what substances are allowed into the country. Zahoriy was also accused of being behind the temporary ban of a foreign-made chemical that competed with Darnitsa’s product.
Public health advocates also accused Zahoriy of co-authoring legislation that would have interrupted Ukraine’s medical procurement reform, had it passed.
The Kyiv Post tried to reach Zahoriy through Darnitsa spokesperson Mike Gladky. Zahoriy did not respond in time for publication but Gladky also rejected all the negative allegations.
Shymkiv said that the allegations are “invented,” dismissing them as typical rumors that surround most political figures in Ukraine. He added that because Zahoriy is a known enemy of Russia and on that country’s sanction list, it’s possible that pro-Russian figures may have tried to tarnish his reputation at some point.
“It’s invented by someone, it’s classic stories that could have been broadcast on anyone,” said Shymkiv, saying that the company does not consider it worthwhile to pay attention to these allegations.
He added that Zahoriy leaving politics will be good for the company, as it will no longer be connected to a shareholder who is active legislator. Shymkiv said that there’s no chance of him ever returning to politics either.
Regardless, Shymkiv said that the company had been audited by the global audit firm KPMG as well as a German legal auditor over the past seven years — both audits concluded in 2018. He said that since Darnitsa wants to be a global player, its main priority is transparency and compliance, which are prerequisites for taking the company international.
“We see more opportunities in taking a strong Ukrainian player and elevating it to the international market and that’s more exciting than playing in a small pond,” he said. “There’s an ocean out there.”
