US embassy cable - 04ANKARA1157

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