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Getting The Deal Through: Pharmaceutical Antitrust 2017. Ukraine
Автор: Алексей Пустовит
Источник: Getting The Deal Through. Pharmaceutical Antitrust 2017 Edition, с. 101-105
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Pharmaceutical Antitrust 2017. Ukraine

Pharmaceutical regulatory law

1 Which legislation sets out the regulatory framework for the marketing, authorisation and pricing of pharmaceutical products, including generic drugs? Which bodies are entrusted with enforcing these rules?

The relevant legislation includes the following:

  • Law on Medicines 1996;
  • Law on Legislative Fundamentals in Health Care 1992;
  • Law on Licensing of Certain Types of Economic Activity 2015;
  • Law on Advertising 1996;
  • Resolution of the Cabinet of Ministers of Ukraine (CMU) Approving the Procedure for State Quality Control of Medicines Imported to Ukraine, No. 902 2015;
  • Resolution of the CMU on State Regulation of Prices for Medicines No. 862 2016;
  • Resolution of the CMU on Reimbursement of the Cost of Medicines No. 863 2016;
  • Resolution of the CMU Approving the procedure for State (Re-)registration of Medicines and State (Re-)registration Fee, No. 376 2005;
  • Resolution of the CMU on the Measures for Stabilisation of Prices for Medicines and Medical Devices, No. 955 2008;
  • Resolution of the CMU on the Notification of Changes in Wholesale Prices on Medicines and Medical Devices, No. 240 2014;
  • Resolution of the CMU on Certain Issues of State Regulation of Prices for Medicines and Medical Devices, No. 333 2009;
  • Resolution of the CMU on the Implementation of a Pilot Project Regarding the Introduction of State Regulation of Prices for Medicines for Treating Persons with Essential Hypertension, No. 340 2012; and
  • Decree of the Ministry of Health of Ukraine (MHU) Approving the Procedure for Expert Examination of Medicines' Registration Materials which were Submitted for State (Re-)registration and Expert Examination of Materials on Amendments to Registration Materials within Registration Certificate Validity Term, No. 426 2005.

The regulators entrusted with enforcing these rules include:

  • the Cabinet of Ministers of Ukraine;
  • the Ministry of Health of Ukraine;
  • the State Administration of Ukraine on Medicinal Products;
  • the State Expert Centre of the Ministry of Health of Ukraine;
  • the Antimonopoly Committee of Ukraine; and
  • the State Inspection of Ukraine on Consumer Rights Protection.

2 Is there specific legislation on the distribution of pharmaceutical products?

  • The Order of the MHU Approving the Licensing Terms for Manufacturing, Wholesale and Retail of Medicines, No. 723 2011;
  • The Order of the MHU Approving the Licensing Terms for Conducting of Economic Activity regarding Import of Medicines,
  • No. 143 2013;
  • The Order of the MHU Approving the Procedure of the Quality Control of Medicines in Retail and Wholesale Trade, No. 677 2014;
  • The Order of the MHU Approving the Procedure of the Certification of Enterprises, which are the Wholesalers (Distributors) of Medicines, No. 421 2005;
  • Guidelines of the MHU 42-5.0:2014 - 'Medicines. Good Distribution Practice'; and
  • Guidelines of the MHU 42-5.1:2011 - 'Medicines. Good Storage Practice'.

3 Which aspects of this legislation are most directly relevant to the application of competition law to the pharmaceutical sector?

The above legislative acts mainly regulate technical requirements. The Resolutions of the CMU regulating price-related issues are possi­bly the most relevant, in particular, by setting maximum margins for selected medicines.

Competition legislation and regulation

4 Which legislation sets out competition law?

Dominance, anticompetitive conduct and mergers are regulated by the Law on Protection of Economic Competition 2001, while unfair com­petition issues are addressed in the Law on Protection against Unfair Competition 1996.

Competition legislation is enforced by the Antimonopoly Committee of Ukraine (AMC), which has quite broad powers that cover mergers, arrangements and practices in the pharmaceutical sector. Its activity is regulated by the Law on the Antimonopoly Committee of Ukraine 1993.

The AMC issues regulations and guidelines comprising a substan­tial part of the national competition legislation. The most relevant are:

  • the Regulation on the Procedure for Filing Applications with the AMC for Obtaining its Approval of the Concerted Practices of Undertakings (the Concerted Practices Regulation) 2002. The document clarifies the procedure for obtaining concerted practices approvals and requirements to notifications;
  • the Regulation on the Procedure for Filing Applications with the AMC for Obtaining its Prior Approval of the Concentration of Undertakings (the Merger Regulation) 2002. Similar to the Concerted Practices Regulation, the document sets the procedure and requirements for merger applications;
  • the Methodology for Establishment of the Monopoly (Dominant) Market Position of Undertakings (the Monopoly Methodology) 2002, which contains rules on market definition and tests for domi­nance and collective dominance;
  • the Resolution on the Standard Requirements to Concerted Practices of the Undertakings for their General Exemption from the Requirement to Obtain Prior AMC Clearance (the General Exemption Regulation) 2002, which sets safe harbours for agree­ments between undertakings; and
  • the Resolution on the Standard Requirements to Concerted Practices of the Undertakings concerning Joint R&D or Development and Engineering Works 2012 (the R&D Regulation).

5 Which authorities investigate and decide on pharmaceutical mergers and the anticompetitive nature of conduct or agreements in the pharmaceutical sector?

  • There is no special authority in charge of competition issues in the phar­maceutical sector. The AMC conducts investigations and decides phar­maceutical cases and mergers following general rules and procedures.

6 What remedies can competition authorities impose for anticompetitive conduct or agreements by pharmaceutical companies?

These can be split into interim measures and decisions. During a case investigation the AMC can request that an undertaking refrain from certain practices if, in the authority's opinion, these practices may qual­ify as a violation of the competition laws. The AMC may also obligate an undertaking to perform certain actions that are required to ensure the rights and interests of third parties.

Where the AMC identifies that conduct or agreements have characteristics of violation of the competition laws, it may also issue recommendations to cease such practices without opening a case investigation. If the undertakings comply with the recommendations and, where applicable, take measures to remove the AMC's concerns, it can avoid the case investigation and sanctions that would be problem­atic, should the AMC complete the investigation and issue a statement of objection.

Following the case investigation, the AMC can issue a decision containing an order to bring the violation to an end and also to elimi­nate the consequences of the violation.

It should be noted, however, that often the AMC's recommenda­tions and decisions lack precision and the addressees face difficulties in understanding what exactly in their conduct raises competition con­cerns and how best to resolve the problematic issues. For this reason, remedies usually require follow-up negotiations with the AMC.

7 Can private parties obtain competition-related remedies if they suffer harm from anticompetitive conduct or agreements by pharmaceutical companies? What form would such remedies typically take and how can they be obtained?

Yes, private parties can lodge complaints with the AMC. If the AMC finds that certain conduct raises competition concerns, it may impose remedies. For details on the remedies, see question 15.

8 May the antitrust authority conduct sector-wide inquiries? If so, have such inquiries ever been conducted into the pharmaceutical sector and, if so, what was the main outcome ?

Yes, the AMC does this quite regularly. Focus of the inquiries varies from year to year, recent hot topics are:

  • retroactive discounts (in the AMC's view any discount should be passed downwards and should result in lower prices for end customers);
  • transparency of conditions offered by pharmacies (the AMC wishes to ensure non-discriminatory conditions);
  • payments to pharmacies for various marketing services; and
  • inadequate pricing practices.

Most of the concerns relate to abuse of dominance where the AMC tends to define markets very narrowly, both by product and geography. See question 11.

As the result of most of the sector inquiries the AMC issued rec­ommendations; in some cases it opened investigations into suspected violations, with a few cases resulting in fines. The vast majority of fin­ing decisions concerned abuse of dominance. The AMC also often requests or suggests remedies in its decisions, usually to refrain from increasing prices.

9 To what extent do non-government groups play a role in the application of competition rules to the pharmaceutical sector?

The AMC welcomes cooperation with such groups, but it is mainly lim­ited to an exchange of opinions. Recently, the AMC made an attempt to find effective ways to resolve some of the most problematic issues in marketing in the pharmaceutical sector by creating a working group with representatives of NGOs.

As regards enforcement, complaints can be lodged by parties suf­fering from an alleged violation that appreciably limits the mechanisms available to the groups to influence the AMC. However, various round tables and public discussions are usually taken into account by the AMC, and there have been cases where the issues raised by the groups resulted in investigations and decisions.

Review of mergers

10 Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?

There are no sector-specific rules in Ukraine. Given that pharmaceuti­cal deals are normally large-scale, a great deal of the mergers reviewed by the AMC are not domestic transactions. Still Ukrainian merger con­trol rules capture many foreign-to-foreign transactions and there have been many decisions in such cases.

The latest trends show that the AMC - by publishing short notices on its website and sending information requests to selected respond­ents - actively encourages third parties to express their opinions with respect to notified mergers. From a competition analysis perspective, the effectiveness of the new approach is questionable; it also makes the review process more complex and less predictable for the notifying parties, as the law is generally silent as to what extent such third parties shall be heard, and scope of their involvement is at the AMC's discre­tion. Judging from past cases, the notifying parties may need to address negative opinions that are not always substantiated (eg, the authority may not have sufficient resources to do a fast and proper analysis of such responses).

Another issue is that the AMC approach to defining the relevant markets and assessing possible effects on competition is still develop­ing, and may vary from case to case.

11 How are product and geographic markets typically defined in the pharmaceutical sector?

Historically, the AMC reviewed most mergers referring to ATC clas­sification. In most cases it used ATC level 3 as a starting point; recent merger cases show that the authority tends to examine at ATC 4 or even ATC 5 level. Over the last year the AMC has conducted many sector inquiries that led to alternative market definitions. While the AMC continues to predominantly use ATC3 in merger cases, in other cases it would rather initiate an in-depth substitutability analysis.

The AMC often relies on various scientific studies and opinions of the competent Ukrainian associations and institutes. Where switching to an alternative product is problematic (eg, because of the established practice or other reasons why the procuring public authorities would normally stick to specific brands), the AMC is likely to consider such product as a separate market, even though there could be substitutes at the same ATC level. Other factors that are often seen as differentiat­ing between products are, for example, galenic form, dosage or even the price. There have been cases where competing products were each considered as a separate product market because they were marketed under different brands.

As regards geography, the AMC would often consider the national market. In mergers it may also take a wider approach and look at the market more globally (in particular as regards APIs), especially when it comes to overlaps or claimed efficiencies.

For mergers involving distributors and pharmacies in particular, the markets may be defined much more narrowly. In many abuse of dominance cases pharmacies were considered as having a dominant position on selected streets or other small areas. Needless to say, such an approach is heavily criticised.

12 Is it possible to invoke before the authorities the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?

In mergers, efficiencies may be taken into account, but they would not outweigh serious competition concerns at the AMC review stage. The legislation, however, provides for the possibility of seeking CMU clear­ance of a transaction prohibited by the AMC. This procedure is very complex and rarely used (there are no precedents in the pharmaceutical sector), but the efficiencies or other advantages should be taken into account by the CMU.

13 Under which circumstances will a horizontal merger of companies currently active in the same product and geographical market be considered problematic?

There are two tests for assessment of mergers in Ukraine. The merger can be prohibited if it either results in monopolisation or substan­tial restriction of competition on the market. There is no established practice on assessing the competition concerns raised by a merger, but historically the AMC analysed whether such merger may lead to monopolisation on the relevant market.

Monopolisation is defined as obtaining or strengthening of a domi­nant position without further elaboration; the AMC considers any increase in the market share above the dominance threshold (irrespec­tive of the increment) as monopolisation. Dominance is presumed to exist if the market share exceeds 35 per cent, unless the undertaking proves that it faces significant competition from its rivals; for other cases where dominance can exist, see question 25. For this reason, transactions where either party has close to or over a 35 per cent market share can be problematic, while market shares of 15 to 35 per cent are likely to draw additional attention. Still, under the Horizontal Mergers Guidelines recently adopted by the AMC, high market shares provide only first indicators of the competition concerns, and when assessing the merger, the following aspects should also be taken into account:

  • the Herfindahl-Hirschman Index levels;
  • the likelihood of anticompetitive effects in the relevant markets;
  • the likelihood that buyer power, market entry or efficiencies would act as a countervailing factor to potential anticompetitive effects; and
  • conditions for a failing firm defence.

14 When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?

Information on the products in the pipeline is not strictly required. However, if the notifying parties seek to be as compliant as possible and include respective discussions in the notification, the AMC would likely pick up on this issue and request that the parties evaluate any pos­sible effects.

15 Which remedies will typically be required to resolve any issues that have been identified?

For domestic mergers notified to the AMC, the authority may request parties not to exceed a certain level of prices for selected medicines (usually socially sensitive; eg, anti-flu drugs, over-the-counter medi­cines), not to limit their production without sensible reasons; it would also usually impose reporting obligations to monitor overall compli­ance and see how the situation develops with respect to problematic products with a view to intervene where necessary. Structural rem­edies are also possible. In foreign-to-foreign mergers, the AMC often imposes reporting obligations and requests that the undertakings con­cerned refrain from unjustified price increases; these requirements only concern products present on the Ukrainian market.

16 Would the acquisition of one or more patents or licences be subject to merger reporting requirements? If so, when would that be the case?

It is unclear whether acquisitions of licences constitute mergers. If, in addition to the licences, there are other assets being acquired, the merger requirement is likely to apply (assuming that the reporting thresholds are hit). If only the licence is being acquired, clearance may still be required in some situations. Additionally, if the transfer of the licence includes restrictions or may otherwise have potential effects on competition, separate antitrust clearance may be required. See ques­tion 17.

Anticompetitive agreements

17 What is the general framework for assessing whether an agreement or practice can be considered anticompetitive?

An agreement or practice can be considered anticompetitive if it has the prevention, elimination or restriction of competition as its object or effect. Below is a non-exhaustive list of practices that are hard­core restrictions:

  • fixing prices or other purchase or sale conditions;
  • limiting production, markets, technological development or investment, as well as assuming control of them;
  • dividing markets or sources of supply according to territory, type of goods, sale or purchase volumes, or classes of sellers, buyers or consumers;
  • distorting the results of trading, auctions, competitions or tenders;
  • ousting other companies from the market or limiting their mar­ket access;
  • applying different conditions to identical agreements to put a spe­cific company at a disadvantage;
  • executing agreements that are conditional on the contracting par­ty's acceptance of additional obligations unrelated to the subject of the agreement;
  • substantially limiting the competitiveness of other companies without justifiable reasons; and
  • parallel behaviour (actions or omissions) that resulted or may result in the prevention, elimination or restriction of competition is also considered a violation, unless there are objective reasons for that.

There are also general exemptions and block exemptions. Prohibition of anticompetitive practices will not apply:

  • where the aggregate market share of the parties (including their respective corporate groups) in any of the product markets con­cerned is less than 5 per cent (except for hard-core restrictions; see below); or
  • to vertical or conglomerate arrangements where the parties' com­bined market share is below 20 per cent, and to horizontal and mixed arrangements where the parties' combined market share is below 15 per cent. However, market share-based exemption cannot apply if (cumulative conditions):
  • the aggregate worldwide turnover or assets value of the parties (including their respective groups) exceeded €12 million in the preceding financial year;
  • the aggregate worldwide turnover or assets value of at least two undertakings that belongs to the parties' groups separately exceeded €1 million in the preceding financial year; or
  • the aggregate turnover or assets value in Ukraine of at least one undertaking that belongs to either party's group exceeded €1 million in the preceding financial year.

However, it appears that, in practice, the value of assets or turno­ver test does not serve as an appropriate benchmark for the AMC to assess potential competition concerns, especially as regards vertical restraints, where effects on competition primarily depend on the mar­ket position of the parties (for example, their market shares).

If the parties are at least potential competitors, the general exemptions do not apply to horizontal or mixed hard-core restric­tions, including:

  • price fixing;
  • territorial, customer or supplier and other market sharing;
  • restrictions on (including imposing an obligation to refrain from) production or distribution of products; and
  • distortion of the results of trading, auctions, competitions or tenders.

The exemption under the R&D Regulation applies when the combined market share of the parties on the relevant market does not exceed 25 per cent and the parties meet a set of other criteria (for example, equal access to the results of the R&D activity).

When assessing their practices, undertakings may obtain advice from the AMC regarding their compliance with competition legisla­tion. It is also possible to seek authorisation (individual exemption) of certain potentially anticompetitive concerted practices if:

  • the parties can prove that these practices encourage manufactur­ing, technological or economic development, or other efficien­cies; and
  • the practices do not lead to a substantial restriction of competition.

18 To what extent are technology licensing agreements considered anticompetitive?

Such agreements would not normally be considered anticompetitive, as far as they contain standard permissible restrictions, such as dura­tion or territory of use of the licence, types of activities and sphere of use, as well as minimal volume of production.

However, minimal volume of production may raise the AMC's con­cern if it limits the competitiveness of the undertaking, or, for example, if there exists an unreasonably high quota that may oust other compa­nies from the market or limit their market access.

19 To what extent are co-promotion and co-marketing agreements considered anticompetitive?

This may be the case if the cooperation removes or lessens competition between the parties having appreciable market presence (eg, securing marketing channels or control over sales). Achieved advantages, such as extra discounts or exclusivity, may also be problematic.

20 What other forms of agreement with a competitor are likely to be an issue? Can these issues be resolved by appropriate confidentiality provisions?

Any agreement or behaviour that satisfies criteria outlined in question 17. The confidentiality provisions between the parties may reduce the likelihood of the agreements coming to the AMC's attention; still, they will not resolve the underlying issue of whether there is any anticom­petitive conduct.

It is also worth mentioning that in the AMC's opinion confidential­ity provisions may be anticompetitive. The AMC has been encourag­ing companies to make their conditions transparent, available to third parties and end customers, justifiable and non-discriminatory. It is assumed that by having access to such conditions an interested party can better plan its activity and benefit from them generally.

21 Which aspects of vertical agreements are most likely to raise antitrust concerns?

Exclusivity is one of the most problematic issues. Other common prob­lems include retroactive discounts, individualised sale terms and con­ditions (eg, special discounts), unreasonable additional services (eg, marketing) coupled with unjustified level of compensation for them.

22 To what extent can the settlement of a patent dispute expose the parties concerned to liability for an antitrust violation?

There are no relevant cases or rules; general restrictions apply. The set­tlement will qualify as an agreement. See question 17.

23 Are anticompetitive exchanges of information more likely to occur in the pharmaceutical sector given the increased transparency imposed by measures such as disclosure of relationships with HCPs, clinical trials, etc?

Exchange of information is not expressly regulated by competition laws and general rules on concerted practices apply. In the investi­gations conducted by the AMC so far, the information exchange has not raised substantial concerns. However, the issue may attract more attention as the AMC's enforcement practice evolves.

Anticompetitive unilateral conduct

24 In what circumstances is conduct considered to be anticompetitive if carried out by a firm with monopoly or market power?

Any conduct (actions or failure or refraining to take certain actions) of a dominant (or monopolist) undertaking that resulted or may result in the prevention, elimination or restriction of competition or harm to the interests of other undertakings or consumers may be regarded as abuse of dominant (or monopolist) position on the market. In order to be found abusive, such conduct should not be possible in a highly com­petitive environment.

When investigating a potentially abusive conduct, the AMC must first assess whether the undertakings concerned are dominant on the relevant market. For that purpose the AMC will primarily define the relevant product and geographical market (see question 11 for the mar­ket definition) and calculate the market share of the undertakings con­cerned on that market.

As a general rule, the following unilateral conduct is considered abuse of a dominant position:

  • setting of prices or other conditions of purchase or sale of products that could not have been set in a highly competitive environment;
  • applying dissimilar prices or other conditions to equivalent trans­actions without valid justification;
  • making the conclusion of contracts subject to acceptance of supple­mentary obligations that, by their nature, or according to commer­cial usage, have no connection with the subject of such contracts;
  • limiting of production, markets or technical development that harmed or may harm other undertakings or customers;
  • refusing, in part or in full, to purchase or sell goods in the absence of alternative sources or distribution channels;
  • significant limiting of competitiveness of other undertakings with­out valid justification; and
  • creating barriers for market entry or exit.

The above list is indicative; it only outlines the AMC's approach to assessment of unilateral conduct in the context of dominance. Any other type of harmful restrictive behaviour of an undertaking with market power may be found to be abusive.

25 When is a party likely to be considered dominant or jointly dominant?

An undertaking will be presumed to hold a dominant position if its market share on the relevant market exceeds 35 per cent, unless such undertaking proves that it faces significant competition from its rivals.

Collective dominance is presumed if the three largest market play­ers jointly have more than 50 per cent of the market, or the five largest market players jointly have more than 70 per cent of the market.

In rare cases, a company with a smaller market share may be found dominant if such undertaking does not face significant competition from other market players, for instance, because of competitors' con­siderably smaller market shares.

26 Can a patent holder be dominant simply on account of the patent that it holds?

There are no relevant rules or cases. By analogy to other cases, a com­pany may be found dominant, but there are many other factors that need to be analysed. Essentially, this may be the case if the patent is in use and the product is present on the market and holds a domi­nant position.

27 To what extent can an application for the grant or enforcement of a patent expose the patent owner to liability for an antitrust violation?

A patent application does not provide exclusive proprietary rights to the applicant. Limited right to compensation arises when the patent appli­cation is published, however, such compensation may only be sought after the patent has been granted. At the same time, Ukrainian patent laws are clear that the patent owner has the exclusive right to prohibit the unauthorised use of an invention or utility model by others, and is entitled to apply to court in order to enforce his or her patent rights.

Therefore, an application for, or the actual grant of a patent alone, as well as bona fide application for enforcement, cannot be viewed as an antitrust violation. However, applying for the enforcement of a patent may be considered by the AMC as unfair competition practices where the purpose of the enforcement is to prevent other companies from the legitimate business operations. For example, the so-called 'patent trolling' may expose the patent owner to liability for an anti­trust violation.

28 Can certain life-cycle management strategies also expose the patent owner to antitrust liability?

General restrictions for unilateral conduct apply; see question 24.

29 May a patent holder market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection on the drug concerned, to gain a head start on the competition?

No special restrictions, general rules or prohibitions apply; see ques­tions 17 and 24.

30 To what extent can the specific features of the pharmaceutical sector provide an objective justification for conduct that would otherwise infringe antitrust rules?

There are no specific rules, but various efficiencies are more likely to be accepted by the AMC as justification than in other industries.

31 Has national enforcement activity in relation to life cycle management and settlement agreements with generics increased following the EU Sector Inquiry?

Not applicable.

Update and trends

Horizontal Mergers Guidelines adopted by the AMC in December 2016

The key developments introduced by the Guidelines that are likely to have the most appreciable impact on mergers are:

  • wider types of evidence and considerations that carry weight for the AMC when it is granting clearance (eg, market entries and expansion, HHI levels, cross-price elasticities of the products involved or diversion ratios);
  • an adjustment of the evidentiary weight of market shares;
  • the introduction of unilateral and coordinated theories of harm (the AMC emphasises that the overview of theories of harm in the Horizontal Mergers Guidelines cannot be exhaustive and factors other than those discussed in the document may also be relevant);
  • clarification on the evidence supporting powerful buyers, market entry and efficiencies as countervailing factors influencing the AMC's analysis (for example, the evidence of entry by other likely competitors can be significant evidence influencing the AMC); and
  • the introduction of the failing firm defence.

Completion of two major investigations in the pharmaceutical sector

The investigations concerned suspected anticompetitive concerted practices between two pharmaceutical manufacturers and several Ukrainian distributors, and resulted in fines in the overall amount of approximately €174,000. Among the actions viewed by the AMC as anticompetitive concerted practices are:

  • non-transparent retroactive rebate schemes between the manufacturers and distributors, allowing the latter to overcharge pharmaceuticals in tender proceedings; and
  • reporting obligations of the distributors before the manufacturers.
  • Several more investigations in the sector are still pending and are expected to be completed in 2017.