In September 2016, the Antimonopoly Committee of Ukraine (the “AMC”) issued a significant decision holding Alcon Pharmaceuticals LTD (Alcon), a Swiss subsidiary of Alcon, Inc. (Novartis group), and four of its Ukrainian distributors liable for uncompetitive conduct as a result of overcharging for drugs in Ukrainian public tenders. This decision is important because it sheds light on the AMC’s approach in enforcing Ukraine’s competition policy as it relates to discount and pricing practices in the Ukrainian pharmaceutical market.
Details of the Decision
The main focus of AMC’s scrutiny in this case were the discounts provided by Alcon at the time of drug supply (namely, at the time of importation) into Ukraine and the effect these discounts had on drug pricing for both the Ukrainian pharmacy market as well as the tender segment. The AMC held that the retroactive discounts granted by Alcon to its distributors via the use of credit notes lacked transparency and also served as a tool to manipulate drug prices for Ukrainian consumers. Specifically, the AMC stated that such discounts effectively decreased the price at which distributors purchased drugs from Alcon. Moreover, at the same time, the distributors chose not to apply for a reduction in the prices offered for Ukrainian tenders. As a result, the prices for drugs supplied to public sector customers were higher than those available at pharmacies.
Most significantly, the AMC concluded that this discounted structure resulted in the circumventing of the pricing restrictions established by Ukrainian law for supplies of drugs for public procurements, even though these actions did not per se violate the law. In the AMC’s view, Alcon should have realized that when it officially declared its nominal (namely, before discount) prices in the official Ukrainian drug price register, that distributors might excessively charge Ukrainian public sector customers based on such nominal prices, instead of the real prices after all discounts. Moreover, considering that distributors regularly report the volume of their sales, price levels, customers, etc. to Alcon, the AMC held that the company was aware of, and contributed to, the resulting price manipulations. As a result, the AMC found that the actions of Alcon and its distributors constituted concerted anticompetitive practices that resulted in excessive pricing of medicinal products for Ukrainian public tenders.
What does this mean for pharmaceutical companies doing business in Ukraine?
This decision is believed to be indicative of the approach that the AMC is likely to apply in similar investigations. Accordingly, pharmaceutical companies may wish to consider re-visiting their pricing and discount strategies for Ukraine to ensure that potential competition risks are duly addressed. Specifically, pharmaceutical companies should consider the following risk factors:
- Credit notes: Retroactive discounts via credit notes may be viewed as lacking transparency and enabling price manipulations;
- Level of discounts: Risk may increase proportionally to level of the discount provided;
- Application of discounts: Discounts granted at the producer-distributor level are expected by the AMC to be adequately applied at distributor-customer level;
- Pricing regulation: Medicinal products subject to pricing regulations in Ukraine, including those supplied for public procurements, require increased attention;
- Difference in pricing approaches for retail and tender business: If prices differ substantially, this may be an additional risk factor; and/or
- Level of detail in distributor reports: Excessive reporting by distributors to pharmaceutical companies may contribute to the qualification of their conduct as anticompetitive concerted practices.
Continue to watch the BRIC Wall Blog for further updates on decisions by the AMC regarding drug pricing policies in Ukraine.
This post was written by Lisa Mueller and Viktoriya Podvorchanska and Oksana Franko of Egorov, Puginsky, Afanasiev & Partners Ukraine.