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Cablegate: Price Freeze Imposed On Medicines and Medical

VZCZCXYZ0000
RR RUEHWEB

DE RUEHKV #1832 2941414
ZNR UUUUU ZZH
R 211414Z OCT 09
FM AMEMBASSY KYIV
TO SECSTATE WASHDC 8631

UNCLAS KYIV 001832

SIPDIS

E.O. 12958: N/A
TAGS: ECON UB
SUBJECT: PRICE FREEZE IMPOSED ON MEDICINES AND MEDICAL
PRODUCTS

1. (U) Summary. Ukraine's parliament has enacted a new law
fixing prices of imported medicines and medical products at
their July 1, 2008 levels. Prices of domestically produced
medicines would be regulated by the GOU under the
legislation. Industry analysts expect the law would
negatively impact the 2 billion USD pharmaceutical industry
and create market shortages, but indications are that
President Yuschenko will veto the legislation. End Summary.

2. (U) The Verkhovna Rada passed Draft Law no. 3426 into law,
setting a moratorium on the increase in prices for
pharmaceuticals and medical products. The bill was
registered by two Communist Party deputies, Pyotr Simonenko
and Vladimir Matveev, in December, 2008, following sharp
local-currency price increases (42.2% over the past 12
months) on medicines, largely due to the devaluation of the
Ukrainian hryvnia (UAH). Until the GOU introduces official
price lists for domestic pharmaceuticals and medical
products, those items will also be set at their July 1, 2008
UAH prices. Medicines made domestically will be sold at
prices regulated by the GOU, while the prices of imported
medicines will be fixed at their local-currency prices as of
July 1, 2008.

3. (U) Imported medicines make up 65% of the 2 billion USD
Ukrainian market. Medical importers do not have significant
back stock purchased at July 2008 prices, and analysts expect
that new deliveries will be suspended, causing shortages and
industry losses of approximately UAH 6-7 billion (750 million
USD). When the Cabinet of Ministers established limits on
profit margins for medications in December 2008, pharmacies
saw the volume of imports drop and even basic imported
medicines, such as imported antibiotics, became more
difficult to find for consumers. The limits are still in
effect, through local business sources indicate that they are
no longer being enforced. The head of global pharmaceutical
firm AstraZeneca's Ukrainian branch, Vladimir Ignatov, said
that imports will not be possible if the law is implemented,
unless the GOU subsidizes distributors who incur losses or
offers a special optimal exchange rate for importers. The
medical importers' lobby attempted unsuccessfully to prevent
the adoption of the bill on the second reading, and is now
pinning hopes on a promised presidential veto and challenges
to the law's constitutional validity.

4. (SBU) Comment. Since resuming its legislative functions
in early October, the Verkhovna Rada has pushed forward a
number of populist bills. With Ukraine,s presidential
election coming in January 2010, it appears that, in this
instance, Ukraine,s parliamentarians are attempting to curry
favor with the electorate with price controls. End comment.
PETTIT

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