Pharmaceuticals Update: Multinationals

UNCLAS SECTION 01 OF 05 ANKARA 001157

SIPDIS


DEPT FOR EB/TPP/MTA/IPC - SWILSON/JURBAN AND EUR/SE
DEPT PASS USTR FOR LERRION/BPECK
DEPT PASS LIBRARY OF CONGRESS
DEPT PASS USPTO FOR ELAINE WU
USDOC FOR ITA/MAC/DDEFALCO


SENSITIVE


E.O. 12958: N/A
TAGS: ETRD KIPR TU
SUBJECT: Pharmaceuticals Update: Multinationals
Threatened by New Pricing Decree


Ref: Ankara 977 and previous


Summary
--------------



1. (SBU) U.S. companies have complained that a new GOT
pricing caps threaten the commercial viability of many
of their product lines, and could lead them to delay or
suspend the launch of new pharmaceuticals in Turkey. In
a letter to USTR, the Foreign Trade Undersecretary
maintains that the GOT views data exclusivity as an EU
Customs Union obligation rather than a WTO TRIPS
requirement, and that this policy will be introduced
with an unspecified transition period. The GOT's
Council of State rendered a decision limiting the
application of "cheapest generic" reimbursement policy
in the state pension fund. Embassy requests guidance on
the pricing decree, and urges Washington agencies to
pursue sustained engagement with the GOT on intellectual
property and other WTO issues affecting the
pharmaceuticals sector. End Summary.


New Price System A Blow to Research-Based Firms
-------------- --



2. (U) At a February 20 briefing for the Ambassador,
U.S. companies expressed serious concern with a February
14 pricing decree. The decree, which is already in
force, limits pharmaceuticals prices in Turkey to a
maximum of 90 percent of the average of the lowest two
prices prevailing in a group of five European countries.
While the measure does not appear to address any
intellectual property issues, it may contain WTO-
inconsistent provisions allowing higher prices for
domestically-produced generic drugs, and does not set
objective pricing criteria or remedy mechanisms for
companies applying under the decree (reproduced in para
9).



3. (U) Research-based companies had pressed for changes
to the previous pricing system, which applied
discriminatory price limits on imported pharmaceuticals,
and had even suggested some forms of reference pricing.
While the new system eliminates many of those
provisions, research-based companies have told us that
the new system will render sale of some medicines
unprofitable, and could lead to delay or suspension in
the launch of new molecules in Turkey. AIFD, the
Turkish research-based pharmaceuticals association, has
written to the Prime Minister to register its concerns
with the decree.



4. (SBU) Econoff raised U.S. company concerns with
Hayriye Mihcak, the Health Ministry's Director General
for Pharmaceuticals, Dilek Emil, the Treasury
Undersecretariat's Deputy Director General for Foreign
Investment, and Husnu Dilemre, Foreign Trade's Deputy
Director General for Multilateral Agreements. All
expressed some surprise that research-based companies
did not consider the decree an improvement over the
previous pricing system. Foreign Trade told us that the
Turkish decree was modeled on Portugese and Spanish drug
pricing systems.




Data Exclusivity
--------------



5. (SBU) The GOT has not made an announcement on data
exclusivity, though Mihcak told us that the Government
planned to make an announcement on this by the end of
March. Dilemre also said that a decision on data
exclusivity would be announced soon, but emphasized that
Turkey viewed this as an EU Customs Union obligation
rather than a WTO TRIPS requirement. In a February 11
letter to A/USTR Novelli (reproduced in para 10),
Foreign Trade Undersecretary Tuncer Kayalar also made
these points, but argued that Turkey would need a
transition period for implementation.


Legal Challenge on Reimbursement Policy
--------------



6. (U) In January 2004, the Council of State (Danistay)
issued a ruling restricting application of the "cheapest
generic" pharmaceuticals reimbursement policy for the
GOT's pension fund. The decision, a preliminary
injunction, calls for the GOT to stop implementation,
within 30 days, of "cheapest generic" reference pricing.
However, industry sources have said that the injunction
is likely to be overturned as the case moves through the
courts. The Danistay also limited reimbursement of
generics to those which the GOT has certified as
"bioequivalent" with the brand name molecule. While
research-based companies have welcomed the decision, the
impact will be limited: industry sources relate that
there is now a bioequivalent generic for most original
drugs.


Comment/Action Request
--------------



7. (SBU) Research-based industry is alarmed by the new
pricing decree, though its concerns seem to lie more
with the pricing formula for brand name drugs than with
the parts of the decree (generic pricing, transparency)
that could be WTO-inconsistent. Embassy requests
Washington agencies' guidance on whether to advocate for
change in the pricing formula.



8. (SBU) As noted reftel, elevating Turkey in the
Special 301 Watch List system, combined with sustained
Washington engagement, is our best hope for prodding the
GOT to action on data exclusivity and WTO-inconsistent
practices. We understand that Commerce A/S Lash and
Senator Lugar plan to write to top GOT officials on
pharmaceuticals issues. Embassy continues to recommend
that Washington agencies also consider dispatching an
interagency IPR delegation to Ankara, and sending
additional high-level correspondence on these issues,
and particularly to rebut the GOT's position that the
TRIPS Agreement does not require data exclusivity.



9. (U) Begin Text - AIFD Translation of GOT Pricing
Decree:


Decision No: 2004/6781
It has been decided to enforce the attached "Decision
Regarding the Pricing of Medicinal Product for Human
Use" upon the letter dated 21/1/2004 and 003149 of the
Ministry of Health, by the Council of Ministers on
6/2/2004.


Decision Regarding the Pricing of Medicinal Products for
Human Use


Article 1 - In accordance with "the Law no. 1262 on
Pharmaceutical and Medicinal Products" and "the
Fundamental Law no. 3359 on Healthcare Services", the
Ministry of Health (the Ministry) shall determine the
maximum prices by adopting the necessary measures that
will be taken to ensure the affordability of medicinal
products for human use (products). Companies may
request prices below the maximum price. The price
approved by the Ministry of Health shall be in effect as
of the date of its approval.


Article 2 - The Ministry of Finance shall be authorized
to investigate the suitability of these prices to the
principles set forth in this Decision.


Article 3- The maximum price of original products,
excluding VAT, shall be determined as follows: 2
reference countries with the cheapest prices of the
product for which a price is to be determined in Turkey
shall be selected out of 5 countries, namely France,
Italy, Spain, Portugal and Greece in the year 2004 and
to be deemed as suitable among the European Union (EU)
countries by the Ministry; the retailer sale price of
the product shall be determined by taking as basis
maximum 90 percent of the average ex-factory price
(sales price to the wholesalers calculated by deducting
pharmacy and wholesaler profits from the retailer sale
price) of these 2 reference countries and by adding the
profit rates of wholesalers and pharmacies to be
calculated in accordance with article 10. Should the ex-
factory price in the country from where the product is
imported be lower than the determined reference price,
the profit rates of wholesalers and pharmacies shall be
added to the price in the country from where it is
imported.


Article 4 - The retailer sales price of generic
products, excluding VAT, shall be determined by taking
as basis maximum 70 percent of the average of the ex-
factory sales price of the original drugs of these
products, calculated in accordance with article 3 and
adding the profit rates of wholesalers and pharmacies.
Yet, the maximum rate may be increased to 80 percent in
case it is documented that locally manufactured raw
materials have been utilized as the active ingredient of
the drug in the production of generic products. In case
the ex-factory sales price in the country from where the
product is imported, results to be lower than the price
determined for the EU countries, the profit rates of the
wholesaler and pharmacies shall be added to the price in
the pertinent country.


Article 5 - The price of the products not marketed
outside Turkey and the products not marketed by the EU
countries shall be determined by taking into
consideration the principles and the cost factors set
forth in articles 3 and 4, provided it does not surpass
the price of similar products.


Article 6 - The ex-factory price of the products packed
for hospitals shall be determined by taking into
consideration the principles and the cost factors set
forth in articles 3 and 4, provided it remains at least
10percent below the unit prices of the original
products.


Article 7 - A "Price Evaluation Commission" shall be
established and convene on a quarterly basis upon the
participation of the representatives of the Ministry of
Finance, the State Planning Organization and the Turkish
Treasury under the coordination of the Ministry of
Health, in order to submit proposals to the Ministry of
Health for the increase, decrease, or freezing of the
price of medicinal products. In case of a change of more
than 5percent in the foreign exchange rate within a
minimum period of 30 days, the Price Evaluation
Commission shall convene on an extraordinary basis, upon
the invitation of the Ministry of Health to re-evaluate
the prices of products. The secretarial services of the
commission in question shall be executed by the Ministry
of Health.


A "Reimbursement Commission" shall be established and
convene once every 6 months upon the participation of
the representatives of the Ministry of Health, the State
Planning Organization and the Turkish Treasury, the
Social Insurance Institution, Emekli Sandygy and Bad-Kur
and upon consulting the views of civil society
organizations, under the coordination of the Ministry of
Health, in order to submit proposals to the pertinent
ministries. The secretarial services of the commission
in question shall be executed by the Ministry of Health.


Article 8 - Product manufacturers and importers shall
be obligated to document that their products are
original or generic. Manufacturers and importers shall
be obligated to submit to the Ministry the ex-factory
prices in the reference countries together with their
requests for obtaining, increasing or decreasing a
price. The TL equivalent of the prices determined shall
be calculated upon the foreign exchange sales rate of
the Central Bank of the Turkish Republic. The price
which is deemed suitable shall be approved by the
Ministry within 10 working days. The justification for a
price which is not deemed suitable shall be communicated
by the Ministry to the concerned company within 10
working days. The pricing transaction shall be executed
within 90 working days upon the submission of the valid
documentation by the concerned company. This period may
be extended by 60 working days in case of accumulation
of applications and in periods of heavy workload. In
case of failure of the concerned companies to submit
their valid documents, the price determined by the
Ministry shall be retained valid.


Article 9 - In case of a decrease of 5percent or more in
the price of the original product in the reference
countries, the company manufacturing or importing the
product shall be obligated to apply to the Ministry
within 30 days to obtain a new price. A second degree
withdrawal transaction shall be implemented on the
products for it is determined by the Ministry that no
such notification has been made and the registration
shall be suspended for a period three times longer than
the period in which no notification has been made,
including 30 days. The suspension transaction shall be
annulled by issuing the new price at the end of this
period.


Article 10- The wholesaler and pharmacy profit rates to
be implemented when determining the retailer sales
price of products in accordance with article 3 and 4,
shall be determined in segments as follows, for both
imported and local products:


Out of the sales price to wholesalers/Wholesaler
(Percent)/Pharmacy (Percent):


Part up to/including 10 million TL: 9, 25
Part between 10 - 50 million TL: 8, 24
Part between 50 - 100 million TL: 7, 23
Part between 100 - 200 million TL: 4, 16
Part above 200 million TL: 2, 10


The Ministry of Health shall be authorized to review
these rates by taking into consideration the annual
wholesale price index of chemical products of the State
Statistics Institute of the former year and the
allocation of the total sales of medicinal products in
the last 3 years.


Article 11 - Product manufacturers and importers are
obligated to adhere to the principles set forth in this
Decision. Legal action within the pertinent
legislation shall be taken against those in violation
of these principles.


Article 12 - The Ministry shall be authorized to issue
notifications with regard to the implementation of this
Decision.


Article 13 - The Council of Ministers Decision dated
6/2/2002, with no. 2002/4331 has been revoked.


Temporary Article l- As of the publication date of this
Decision, the prices of registered products shall be re-
determined in accordance with the principles set forth
in this Decision. The concerned companies shall apply to
the Ministry upon having compiled the necessary
documents in accordance with this Decision, within 45
days as of the publication date of the Decision, in
order to establish a basis for the determination of the
new prices. The registrations of the products for which
no application is submitted within this period shall be
suspended until the application date. The sales prices
excluding VAT, to be determined in accordance with this
article, shall not surpass the price in TL, excluding
VAT, on the date of this Decision for local products,
and the amount in TL, excluding VAT, corresponding to
the foreign exchange sales rate of the Central Bank of
the Turkish Republic, on the application date for the
product for imported products.


Temporary Article 2- The prices of imported products
shall be re-determined ex-officio by the Ministry over
the foreign exchange sales rate of the Central Bank of
the Turkish Republic on the publication date of this
Decision. The new prices shall be retained valid as of
the approval date.


Article 14- This Decision shall be enforced as of its
publication date.


Article 15- This Decision shall be executed by the
Council of Ministers.


End Text - AIFD Translation of GOT Pricing Decree.



10. (U) Begin Text - Foreign Trade U/S - USTR Letter


February 11, 2004
Ms. Catherine A. Novelli
Assistant US-Trade Representative for
Europe and the Mediterranean
Dear Ms. Novelli,


I would like to thank you for your letter dated January
14, 2004 which has provided me with the opportunity to
clarify the misconception about the compliance of
Turkey's IPR legislation with the TRIPS Agreement.


As you will recall, the WTO Members unanimously
confirmed the consistency of Turkey's IPR legislation
and implementations with the TRIPS Agreement at the
TRIPS Council's meeting in Geneva on November 30, 2000.


Besides, as referred in your letter, our authorities are
working on a plan to introduce and implement rules and
regulations regarding data exclusivity in
pharmaceuticals in line with our commitments arising
from the Customs Union with the EU.


As you may appreciate, this plan will not only have
negative impacts on the consumers and the current public
health policies but on the generic industry as well.
Therefore, the transition period turns out to be a
necessity to offset to a certain extent the economic and
social pressures and to avoid any further economic
damages that would be recovered at a higher cost
otherwise.


On the other hand, I would like to note that my
colleagues are doing their best to figure out an option
that keeps the transition period as short as possible.
At this point, supportive approaches from our trading
partners will certainly contribute to the early
conclusion of their studies.


Expressing my best wishes and highest regards to you, I
remain,


Sincerely Yours,


Tuncer Kayalar
Undersecretary


End Text Foreign Trade/USTR Letter.
Edelman