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LEGAL ALLIANCE, founded in 1995, is today one of the leading Ukrainian law firms specializing in legal support to pharmaceutical companies doing business in Ukraine and CIS countries.

OUR CLIENTS represent the following industries: pharmaceuticals, medical devices, consumer goods, medicine, cosmetics, para-pharmaceuticals, chemistry, biotechnology, agriculture and food products.

LEADING ASSOCIATIONS — AIPM Ukraine, APRaD as well as the EBA Healthcare Committee have chosen Legal Alliance as their legal advisor.

Pharma Market: When the Mist Clears Away

Andrii Gorbatenko, associated partner at Legal Alliance Company

Source: Новое Время

Market of medicines has been under constant attention of the Antimonopoly Committee of Ukraine for more than five years.

During this time pharmaceutical companies were able to feel the imperfection of Ukraine's competition legislation. Its blurred and inaccurate description of violations affects not only business, but also patients.

For example, if a manufacturer of innovative medicines decides to launch a program within which patients will be able to get a substantial discount on such drugs, such a producer will have to deal with a number of issues without specific answers.

On the one hand, such a program can make drugs that have better qualities compared to previous generations more affordable for patients. On the other hand, under certain conditions, such a program can create problems for competition, which in the future will transform into problems for patients. In particular, due to a long and substantial discount on more expensive drugs, cheaper substitutes may disappear from the market. So, when a discount period ends, patients will no longer have an affordable alternative. In addition, in a situation where a patient is forced to undergo therapy for a long time or throughout his life, one should take into account such a factor as the complexity of switching the patient from one drug to another. That is, sometimes when a patient starts to use a certain drug, he will have to continue therapy using this drug, despite the increase in the price of it, as switching to another drug can harm his health.

Thus, before launching such a program, it is necessary to carefully examine the question of its possible impact on competition. In this case, a manufacturer will have to rely solely on the experience and professionalism of its consultants. Unfortunately, legislation or current practice does not contain clear criteria that could be “tried” on a case-by-case basis. Such uncertainty prevails not only in “exotic” cases, as in the example above, but also in other rather routine issues in the area of distribution, such as a minimum volume of supply, provision of discounts, promotion of the volume of procurement, provision of information on the movement of goods, territory of distribution, etc.

As a result, players in the pharmaceutical market of Ukraine still do not know what a contract should look like not to raise questions from the Antimonopoly Committee.

At the end of June, the Antimonopoly Committee took a serious step towards solving this problem. The draft Model Requirements for Vertical Harmonized Actions of Business Entities on Supply and Use of Goods were published on its website. This document is the implementation of the EU legislation in Ukrainian legislation. Typical requirements define the criteria for a “safe harbor”. That is, the conditions under which an agreement cannot significantly affect competition. This document also specifies a list of “strict restrictions”, the inclusion of which in the majority of cases will result in a negative impact on competition.

However, this safe harbor is too shallow for the distribution market of medicines.

One of the main criteria for a secure transaction is the shares of its parties in relevant markets, which should not exceed 30%. There are two main distributors with shares of more than 30% on the market of medical products of Ukraine. They act as distributors for almost all suppliers, making safe harbor impossible to use under most distribution agreements.

Current approaches of the Antimonopoly Committee to the definition of drug markets significantly complicate the use of a safe harbor. According to the Antimonopoly Committee, separate markets form medicinal products that have the same active substance, dosage and dosage form. This approach greatly narrows the product boundaries of the market and artificially increases shares of its participants. In our practice, there was a case where the producer estimated its share as 1.5%, but the Antimonopoly Committee estimated it as more than 70%.

Consequently, the new and progressive for Ukraine Model Requirements are undoubtedly a step in the right direction, however, this step will not dispel the fog over the contracts for distribution of medicines. The market should not lose time waiting for the practice to be formed, because its formation, as a rule, is associated with loud cases and fines. First of all, we must make our own approaches to the painful issues, which in the future, I am convinced, can become the basis for more narrow and accurate recommendations of the Antimonopoly Committee.

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