VZCZCXRO6914
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBM #0337/01 1381318
ZNR UUUUU ZZH
P 181318Z MAY 09
FM AMEMBASSY BUCHAREST
TO RUEHC/SECSTATE WASHDC PRIORITY 9522
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAUSA/DEPT OF HHS WASHINGTON DC PRIORITY
RUEHPH/CDC ATLANTA GA PRIORITY

UNCLAS SECTION 01 OF 02 BUCHAREST 000337 
 
STATE FOR EUR/CE ASCHEIBE 
STATE PLEASE PASS TO USTDA JMERRIMAN 
COMMERCE FOR KNAJDI AND JBURGESS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV TBIO PGOV SOCI AMED KHIV RO
SUBJECT: ROMANIA: REGULATIONS CHOKE PHARMA COMPANIES 
 
REF: A) BUCHAREST 315; B) 08 BUCHAREST 607 AND PREVIOUS 
 
Sensitive But Unclassified.  Not for Internet distribution. 
 
¶1.  (SBU) Summary:  American and other foreign pharmaceutical 
companies are upset that the Ministry of Health (MOH) has recently 
passed several ordinances which, taken together, severely impact 
their ability to operate profitably in Romania.  With its 
"universal" healthcare system, the Government of Romania (GOR) has 
significant pricing power in the pharmaceutical market, which the 
MOH has consciously decided to use to force down costs.  In order to 
sell medicines in Romania, pharmaceutical firms must certify to the 
Government that they are charging the "minimum European price," 
i.e., the lowest average price available in a basket composed of 
several EU countries, using a methodology and foreign currency 
exchange rate unilaterally determined by the MOH.  Recently adopted 
rules also institute a price freeze for all drugs, including the 
drugs currently priced below the minimum European level.  A 
separate, poorly conceived ordinance establishes a circular pricing 
methodology which interrelates generic and name brand prices in such 
a way that any price greater than zero theoretically violates the 
ordinance.  Pharmaceutical firms are concerned that the ordinances 
in question were passed with no advance, and little subsequent, 
consultation with industry.  The MOH appears secure in the knowledge 
that no one company can afford to exit the growing and highly 
competitive Romanian market, and is therefore willing to wring out 
cost savings by targeting the deepest pockets around-- multinational 
pharmaceutical firms. 
 
¶2.  (U) Post reported in ref A on proposed reforms to the Romanian 
health care sector.  This cable, together with ref A, updates post's 
prior series of reports (ref B) on this sector.  End Summary. 
 
¶3.  (SBU) In a letter sent to Health Minister Ion Bazac on March 17, 
2009, the Association of Drug Manufacturers and Importers (ARPIM) 
asked for further bilateral discussions on three issues:  1) a clear 
methodology for updating the exchange rate; 2) the elimination of 
the "circular references" (see paragraph 5) between generic and 
name-brand medications; and 3) a calendar for raising the prices of 
pharmaceuticals that are currently sold below the minimum EU price 
level.  MOH has not accepted any of these proposals to date.  To 
illustrate the egregiousness of the problem on just the last point, 
one American company had agreed on a humanitarian basis to 
temporarily sell an anti-HIV drug at a loss in Romania.  However, 
the MOH freeze on price increases has meant that the company now has 
to choose between selling indefinitely at a loss or withdrawing the 
product entirely-- a tough call when the medication is the only 
thing keeping some Romanian HIV-positive patients from developing 
full-blown AIDS. 
 
¶4.  (SBU) The fixed exchange rate for imported drugs established by 
the MOH has disproportionately affected American manufacturers whose 
costs are denominated mostly in U.S. dollars.  On February 1, the 
MOH determined that the official exchange rate forecast in the 
Government's 2009 budget of 4.00 RON/euro would be used to calculate 
the "minimum European price" for pharmaceuticals for the entire 
year.  (The Government's budget forecast has since been revised to 
4.3 RON/euro, but the Ministry's number has not been adjusted.) 
While this represents an improvement from the 3.63 RON/euro rate 
previously in effect, the RON was trading at 4.31 RON/euro when the 
rate was fixed and has remained above the reference rate since then. 
 Major American firms with cost structures largely in dollars, such 
as Merck Sharpe and Dohme (MSD), operate at a competitive 
disadvantage to their European rivals (who are also suffering, but 
less severely), as they are forced to convert prices to RON at an 
arbitrarily fixed RON-euro exchange rate and then repatriate any 
profits at a floating RON-dollar rate.  In essence, the weak RON has 
allowed the MOH to tack on an extra discount to the "minimum 
European price," wiping out already-slim profit margins. 
 
¶5.  (SBU) Pharmaceutical companies maintain that the combination of 
a disadvantageous exchange rate and "minimum European price" will 
cause the damage to their business to ricochet through other EU 
markets.  As many of Romania's neighbors peg drug prices to a basket 
of prices in other countries (using Romania as a reference), 
Romania's artificially low price forces prices lower in other EU 
markets.  Furthermore, the fixed exchange rate creates a potential 
arbitrage opportunity for distributors to purchase pharmaceutical 
products in Romania and export them at a profit to other EU 
countries.  The lack of intra-European border controls makes the 
extent of the latter problem hard to track, but isolated instances 
have been uncovered. 
 
¶6.  (SBU) MOH's new rules applying to generic pricing are even more 
objectionable on commercial grounds.  The MOH requires that brand 
 
BUCHAREST 00000337  002 OF 002 
 
 
name medications be sold at no more than a 35 percent mark-up over 
generic competitors, while generic drugs are required by law to be 
sold at no more than 65 percent of the price of a brand name drug. 
The net effect of this "circular reference" pricing policy is that 
the only price at which both criteria can mathematically be met is 
zero.  Any other price puts companies in violation of one of the 
ordinances, as it is impossible for a product to be no more than 35 
percent more expensive than a competitor, when the competitor is 
required to charge no more than 65 percent of the name brand. 
Despite repeated interventions on the part of companies, this 
requirement has remained in place and the Ministry has shown no 
inclination to adjust the rules or further clarify how these 
ordinances are to be implemented. 
 
¶7.  (SBU) Comment:  Post is coordinating with other foreign missions 
on this issue, and there is a general agreement on the need to 
address at least the generic pricing question on a high-level basis. 
 In this instance, the American firms seem the worst off overall and 
they have been the most active in pushing the European firms to act 
in concert with them.  The one point of consensus, however, is that 
the Ministry has neglected to consult with stakeholders in advance 
and is enforcing rules which are harmful and discriminatory toward 
all pharmaceutical importing companies.  This lack of consultation 
underlines the importance of post's continued engagement on the 
issue.  From both a commercial and policy standpoint the harm being 
done to American pharmaceutical companies in Romania is significant. 
 Furthermore, the crack-down on medication is short sighted in a 
country which experiences high rates of chronic illness.  If the 
MOH's actions force firms to exit from or reduce their exposure to 
the Romanian market, it is ultimately the patients who will bear the 
brunt of having access to lifesaving medications curtailed.  End 
Comment. 
 
GUTHRIE-CORN