Market Analytical Review: Medical and Pharmaceutical Law
Legal Alliance Law Firm:
Andriy Zelinsky, lawyer,
Andriy Horbatenko, senior lawyer,
Natalia Dokuchaeva, development manager

The last quarter of 2008 and the first three quarters of 2008 brought about palpable adjustments to medical and pharmaceutical law practice.

Among positive developments is the fact that pharmaceutical industry continues to grow and demonstrate sustainability amid the ongoing global economic decline.  Per-capita consumption of medicines, a key factor of sales strategy success, is going up.  In this context, law firms supporting the activity of pharmaceutical industry have not felt any decrease in relevant revenue.

The most palpable change in the legislative area is the amendment of the Guideline for Clinical Tests of Pharmaceutical Products and Due Diligence of Clinical Test Materials that normalised the procedure of submissions for approval of Ethics Commission and effectively somewhat constrained the preparatory phase of clinical tests.  Another amendment concerned License Terms for Business Activity in Production, Wholesale and Retail Trade of Pharmaceutical Products.  It was mostly targeted at harmonisation of Ukrainian laws with statutory framework of the EU and actually resulted in stricter requirements to business entities involved in production and trade of pharmaceuticals.

The most frequent subject referred to us by our clients was protection of intellectual property rights.  Large manufacturers have faced the acute need to protect their titles to trademarks and active substances.  International players of the pharmaceutical market have demonstrated increased interest to arrangement of clinical tests in Ukraine.  Furthermore, pharmaceutical companies nourish their interests in corporate law, particularly as concerns mergers and acquisitions.  Matters related to specifics of pharmaceuticals marketing too remain topical.

Among the most important Legal Alliance’s pharmaceutical law projects in 2008 was merger of Schering Plough and Organon Biosciences.  The number of merger transactions is expected to grow by mid-2009; many of them will be based on aggressive growth strategies professed by large international pharmaceutical manufacturers.

In the meantime, the past several months have been difficult and rich in unpleasant surprises government sprang upon practically all members of pharmaceutical market.

The largest amount of confusion and questions arises out of government regulation of pricing of pharmaceutical products and medical supplies.

An established practice of pricing in respect of the said commodities existed before 17 November 2008.  It was governed by paragraph 6 of clause 12 of Addendum to the Ukrainian Cabinet Decree dated 25 December 1996 No. 1548 On Establishment of Authority of Municipal Executive Government Bodies in Regulating Prices (Tariffs) and set profit margin limits to pharmaceutical products and medical supplies sold in pharmacies and subject to government price regulation at 35 per cent of manufacturer’s wholesale price (customs value) after all discounts and to those purchased for government-owned and municipal health care establishments for state budget funds, at 10 per cent of manufacturer’s wholesale price (customs value) after discount.

New Cabinet Decree No. 955 On Measures to Stabilise Prices to Pharmaceutical Products and Medical Supplies adopted on 17 November 2008 (as amended by the Cabinet Decree dd. 19 November 2008 No. 1022 On Amendment of Cabinet Decrees dd. 10 September 2008 No. 837 and dd. 17 November 2008 No. 955) provided for new profit margin limits.  Namely, in respect of pharmaceutical items and medical supplies included in the National List of Basic Pharmaceutical Products and Medical Supplies as introduced by the Cabinet Decree dd.  29 March 2006 No. 400 limits for profit margin/surcharge on wholesale price were fixed at 15 per cent of manufacturer’s wholesale price (customs value) after discount and for profit margin/surcharge on retail price at 35 per cent of manufacturer’s wholesale price (customs value) after discount.  The aggregate profit margin was to be no more than 50 per cent.  Furthermore, separate limits were applied to pharmaceutical products and medical supplies from the list approved by the Joint Order of Health Ministry and Ministry for Economy and European Integration dated 3 December 2001 No. 480/294: 10 per cent of manufacturer’s wholesale price (customs value) after discount for profit margin/surcharge on wholesale price and 15 per cent of manufacturer’s wholesale price (customs value) after discount for profit margin/surcharge on retail price; the aggregate margin for such products was to be no more than 25 per cent.  As regards pharmaceutical products and medical supplies purchased for government-owned and municipal health care establishments for state budget funds, margin/surcharge limit on wholesale and/or retail price was 10 per cent of manufacturer’s wholesale price (customs value) after discount.

No said margin limit depended on the volume of sale transactions in pharmaceutical products and medical supplies.

These novations could be viewed differently.  Wholesale suppliers and retailers of pharmaceutical products and medical supplies did not see them as an efficient anti-crisis tool – on the contrary, they believed they worsened the situation.  On the other hand, for consumers the new system was more progressive compared to the previous one as it offered better protection of their interests and made pharmaceuticals more affordable.

However, the entry into effect on 5 December 2008 of the Presidential Decree dd. 3 December 2008 No. 1139/2008 On Cancellation of Cabinet Decrees dated 10 September 2008 Nos. 827 and 837, dated 17 October 2008 No. 955 and 19 November 2008 No. 1022 voided the new Cabinet Decree dd. 17 November 2008 No. 955 On Measures to Stabilise Prices to Pharmaceutical Products and Medical Supplies setting new profit margin limits, while failing to re-enact the previous one (paragraph 6 of clause 12 of Addendum to the Ukrainian Cabinet Decree dated 25 December 1996 No. 1548 On Establishment of Authority of Municipal Executive Government Bodies in Regulating Prices (Tariffs)).

That is to say, there is presently no government price regulation whatsoever on the market of pharmaceutical products and medical supplies.

This situation – in fact, being nothing short of chaos – will pertain until the Constitution Court of Ukraine passes an appropriate ruling or until the Cabinet cancels the later Decree and adopts a new one.

In the context of economy crisis, none of pharmaceutical market players will benefit from a situation like this – save for those who dishonestly seek to gain at the expense of others.