Sep 22, 2009: Russian Government Introduces Important Amendments into the Rules on Pricing of Medicines

[This legal alert has been prepared by Baker & McKenzie]

Russian Government Introduces Important Amendments into the Rules on Pricing of Medicines

On August 8, 2009 Decree of the Russian Government No. 654 On Enhancement
of State Regulation of Prices of Essential Medicines (the “Decree”) was
adopted. The draft, on which this decree is based, was published in spring
of 2009 and was widely discussed thereafter both due to the social importance
of the pricing regulations in the current economic conditions and due to the
impact it may have on the Russian pharmaceutical market in Russia. The Decree
itself is already in force, however, the addendum to it, which contains the
new and amended sets of rules (the “Amendments”), will come into force
on January 1, 2010.

Pricing regulations have existed on the Russian pharmaceutical market for
almost 15 years. They set the rules limiting the selling price and mark-ups
applied to it with respect to certain medicines (most importantly, the medicines
Included into the essential drugs list or “EDL”). The Decree does not significantly
alter the principal mechanics of the current pricing regulations, nonetheless
the amendments introduced by it are very important.

First of all, the Amendments make registration of prices for all EDL medicines
and compliance with the pricing regulations expressly mandatory. Noncompliance
with pricing regulations will lead to, most importantly, the risk of losing your
license to sell medicines (due to the fact that the Amendments expressly
include compliance with pricing rules into the terms and conditions for the
licensing of wholesale and retail sale of medicines).

Secondly, the price registration process of foreign medicines has been modified.
According to the Amendments, an applicant for registration of a maximum
price for an EDL medicine will have to submit data on the sales price of this
medicine on foreign markets where this medicine is also registered. The details
of this procedure and its influence on the final decision as to the registration
of the maximum price of the relevant medicine in Russia are not yet certain.
Unfortunately, no criteria for such reference pricing, e.g., comparability of
markets requirement or the like are yet established.

Lastly, the Amendments confirm the rule of Decree of the Russian Government
No. 239 On Measures for Arranging of State Regulation of Prices (Tariffs) dated
March 7, 1995 that the regional authorities in Russia may establish the
maximum mark-ups with respect to any medicines, whether or not they are
included into the EDL. We are unaware of any further federal regulations,
which would develop this rule.

The overall interaction and amount of information exchange between the
Russian state bodies involved was heightened by the Amendments. For
example, the customs authorities will now share various information on
the importation of the EDL medicines with responsibility for enforcement
of the authorities vested with price regulations.

Adoption of the Decree mentioned above does not complete the amendments
to the pricing regulations in Russia. As we are aware, certain Russian state
bodies are now working on the methodologies which are necessary to
implement the Amendments, namely the methodology for determination of
the maximum sale prices for EDL manufacturers for Russia and the
methodology for determination by the regional authorities of the maximum
mark-ups applicable to the registered prices of the manufacturers.

Work on revision of the EDL is also currently underway. However, we are
not yet aware of the results of this work. The revision of the EDL is an
ongoing process. There have been several revisions to the EDL over the
last decade (in particular, it was updated on an annual basis from 2002
to 2005). Such regular revisions are likely to continue going forward due
to the fact that the current Russian rules and regulations provide for an
annual review of the EDL.