Ukraine: Protecting Investments through Entry Agreements Between Pharma and Government

In Ukraine, 2017 saw the settling of a landmark case between Ukraine's Ministry of Health and Gilead Sciences, Inc., relating to Gilead’s Sovaldi.
 
The case illustrates that even in the case when laws on intellectual property rights and data exclusivity provisions do not work, an interested party and the government may find the legal tools to protect foreign investments in Ukraine under bilateral investment treaties, reconciling the same with the need to secure access to the innovative technologies under the negotiated price.
 
At the same time, the case may be used as the precedent for adoption of the international practice of managed entry agreements entered between a manufacturer and health institutions (payers) to enable access (coverage/reimbursement of) to a health technology subject to specified conditions and which supports the new form of reimbursement. Generally, these agreements may be divided into two general categories:
 
• financial based agreements which are based on the observable financial performance, and
• outcomes-based agreements aimed to accelerate access to safe and effective therapies whiles the pharmaceutical is already onto the marker, but still additional evidences should be collected.
 
The background to the case is as follows. On November 28, 2014 Euro Farma International applied for the marketing authorization for the generic pharmaceutical, Grateciano, with sofosbuvir as the active ingredient. The pharmaceutical was registered on November 15, 2015. In the application for the marketing authorization, Sovaldi was indicated as the reference pharmaceutical, first registered by FDA in 2013.
 
On the date of filing the respective application, Sovaldi was not present on the Ukrainian market. Moreover, Gilead  filed their application for the state registration of Sovaldi in Ukraine only on July 9, 2015, long after the filing date of application for Grateciano. 
 
The Sovaldi application was considered swiftly, Gilead benefiting from Ukraine’s simplified procedure for registration of innovative pharmaceuticals used for treatment of socially dangerous diseases, but the late filing of the application for marketing authorization by Gilead meant the US company lost its rights to enforce their data and market exclusivity in Ukraine.
 
As no patents for sofosbuvir were filed in Ukraine by Gilead, data exclusivity was the only option for the company to secure market exclusivity. However, under Ukrainian law, the 5-year period of the data exclusivity is calculated from the registration date of the original/reference pharmaceutical. Gilead was not entitled to claim data exclusivity over the data in respect of Sovaldi because the Ukrainian generic company applied for marketing authorization well before Gilead. Thus, on the filing date of the competing pharmaceutical Grateciano with sofosbuvir as the active ingredient, Gilead Sciences, Inc. did not have any valid registration of the original product in Ukraine.
 
Gilead contested the validity of the registration of the Grateciano based on the data exclusivity provisions, but the Ukrainian court dismissed the action in October 2016. Gilead appealed the said decision, but not expecting much, sought for alternative solutions of the problemand entered into a settlement agreement with Ukraine through the Ministry of Health of Ukraine under which the Ukrainian Health Authority was obliged to cancel the state registration of Grateciano. At the same time, Gilead was obliged
  • to decrease the price for Sovaldi in Ukraine for the state procurement and fix it at a rate of USD 250, at least for the time period not less than the data exclusivity period
  • not to refuse without any grounded reasons to supply Sovaldi in trade chains for Ukrainian patients, and to make all reasonable efforts to distribute the products in retail chains, and fix the wholesale selling price of Sovaldi at a rate not exceeding USD 349,90 at least for the time period not less than the data exclusivity period.
This agreement sets the discounts on prices depending on the channels of distribution of the products. Indeed, the price discount for Sovaldi will significantly reduce overall costs for treating hepatitis C in Ukraine. As such, in March 2017 Sovaldi’s active ingredient, sofosbuvir was included in Ukraine’s National Essential Medicines List. It means that healthcare institutions funded from the state and local budgets are entitled to procure Sovaldi for public funds. It is also included into the list of medicines to be procured via centralized procurement procedures conducted by UNDP in Ukraine, which means that the manufacturer has a guaranteed market for its products. 
 
Moreover, studies show that because of lack of budgetary funding, approximately 90% of medicines in Ukraine are bought out of patients' pockets. Placing the product into pharmacies and following it by the efficient informational campaign allows the manufacturer to expect even more significant outcomes of the agreement, as there are more than 105,000 patients officially diagnosed with hepatitis C in Ukraine, and up to 2-3.5 million people remain undiagnosed. 
 
Ukrainian pricing and reimbursement legislation is undergoing significant change. Currently, the Ministry of Health and the Cabinet of Ministers are considering an expansion of the reimbursement system to cover more medicinal products. The importance of this for both the country and Ukrainian patients cannot be overestimated. Reimbursement programs for three types of diseases (type II diabetes, cardiovascular disease and asthma) only began in April 2017. Within 2.5 months, the volume of consumption of medicines (INNs) included into reimbursement list increased by over 62%, and the prices for medicines subject to reimbursement decreased in average by 25%. From the list of diseases, medicines for which are currently subject to reimbursement in Ukraine, it is evident that the government intends to cover the most socially significant diseases by reimbursement, and medicinal products used for their treatment are most likely to be reimbursed in the nearest future. 
 
From practical point of view the agreement between Gilead and Ukrainian government may be considered a managed entry agreement, which is aimed at entrance of the medicinal product to Ukrainian market under specified conditions. This type of the agreement is a mutually beneficial deal for both parties and Ukrainian patients. For the manufacturer, it opens a huge market for sales from both public and private funds and has a reputational benefit as it presents Gilead as the company with a significant corporate responsibility.
 
From the perspective of Ukrainian government, such agreements provide the opportunity to clearly understand the budget impact, positively affect bilateral cooperation between Ukraine and innovative foreign investors, such as Gilead, allow implementation of effective treatment mechanisms for socially significant diseases and demonstrate to foreign partners and investors that Ukraine and its government comply with their obligations in respect of foreign investments.
 
For pharmaceutical companies, the potential benefits of such agreements may include earlier market access and effective budget management. For the patients it provides the affordable access to the innovative and effective medicinal product. At the same time, given the possible negative impact of the agreement on competition on Ukrainian market, and given that formally generic product has been registered in compliance with the effective law, provisions of this agreement providing for cancellation of marketing authorization for generic product might be contested by the Grateciano manufacturer as potential abuse of powers by the Ministry.
 
Even though such agreements may be difficult to negotiate, requiring both political will from the state and a proactive approach from the manufacturers, we believe that they are a mechanism worth considering by both sides.  
 
Lana Sinichkina is Partner, Kateryna Oliinyk is Counsel, and Yevgeniya Ocheretko is Associate, all at Arzinger law office, Ukraine.
 
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