PHARMACEUTICAL COMPANIES SEEK USG HELP ON GOE

UNCLAS QUITO 003053

SIPDIS

STATE PASS USTR BENNETT HARMAN

E.O. 12958: N/A
TAGS: ETRD KIPR EFIN EC
SUBJECT: PHARMACEUTICAL COMPANIES SEEK USG HELP ON GOE
PROPOSAL TO LIMIT PROFITS



1. See action request paragraph 7.


2. Summary. Econ and FCS met November 19 with
representatives from Bristol Meyers and Pfizer. The
pharmaceutical representatives complained that the GOE is
trying to exert further control over drug prices and company
profits. This latest initiative by the Ministry of Public
Health is the second attempt in the last six months at
decreasing drug prices by limiting drug company profits.
According to the drug reps, if approved, the regulation would
adversely affect international and local drug companies in
Ecuador. Emboffs explained that Intellectual Property
Rights, particularly concerning pharmaceutical company
concerns, have been an important and sensitive part of Andean
Free Trade Agreement negotiations. We promised to seek
Washington guidance as to how to raise this issue with the
GOE. End Summary.


Another Assault on Profits
--------------


3. Pharmaceutical representatives explained to econ and
commercial section officers on November 19 that the GOE was
trying for the second time in the last six months to limit
pharmaceutical prices, this time via a Presidential decree.
Earlier this year, the GOE considered a draft law that would
have reduced the maximum profit allowed drug companies for
each individual product or presentation from 20% to 8%.
After complaints from the industry and discussions with
Emboffs, the GOE backed off from that initiative.


4. The Ministry of Public Health is behind the latest
initiative, according to the Bristol Meyers Squibb and Pfizer
representatives. Bristol Meyers' lawyer said the decree
would redefine and lower the acceptable costs of
pharmaceutical companies; thus, "artificially" inflating
company profits and forcing them to reduce prices in order to
keep under the 20% profit ceiling. Other representatives
noted that drug prices had already been frozen by the GOE for
the last two years. When questioned, they said the proposed
decree would adversely affect both international drug
companies and local generic drug producers.

A Topic for the Trade Negotiators
--------------


5. Econoffs noted that intellectual property rights (IPR),
particularly with respect to pharmaceutical products had been
an important and sensitive part of the ongoing Andean Free
Trade Agreement negotiations. Given the sensitivity, the
Embassy would request instructions from Washington before
approaching the GOE about this issue.

Comment and Action Request
--------------


6. This latest salvo from the GOE is another attempt to
address populist concerns about the price of drugs in
Ecuador. The fact that the proposed decree would adversely
impact both major pharmaceutical companies and local
producers of generic drugs means both will probably lobby
against the proposal, making issuance of the decree less
likely. Still, any GOE effort to lower drug prices would be
viewed favorably by many and the Gutierrez administration
could use all the popular support it can get. Thus, populist
concerns could win the day.


7. Action Request. Post requests guidance from Washington on
what, if any, next steps to take regarding the proposed
decree.
KENNEY