IA Reporter | 16 March 2017
Gilead Pharma corp withdraws investment arbitration after Ukraine agrees to settlement of dispute over monopoly rights to market anti-viral drug
By Luke Eric Peterson and Zoe Williams
This article was originally published by Investment Arbitration Reporter (IAReporter.com) on March 16, 2017 and is reprinted here with permission of the publisher. IAReporter.com is a specialist investigative news and analysis service focused on international investment law and arbitration.
Ukraine has settled a dispute with American pharmaceutical company Gilead Sciences Inc., following the company’s pursuit of legal remedies in both domestic courts and via investment arbitration.
(As IAReporter have chronicled the country faces multiple ongoing investor-state arbitration claims.)
The dispute with Gilead, which Ukraine’s Ministry of Justice had characterized as an $800 million dispute, relates to the drug sofosbuvir (sold by Gilead as Sovaldi). Sovaldi, a highly effective treatment for chronic hepatitis C, has been available in Ukraine - a country reportedly home to over 2 million people infected with hepatitis C - since 2015, but the company has lately been locked in a struggle over the ability of generic companies to market cheaper versions of the drug in Ukraine.
According to details of the settlement released by Ukraine’s Ministries of Justice and Health, the settlement sees Gilead refrain from pursuing its damages claims against the country, and will see the company offer Sovaldi (and a combination therapy called Harvoni) at a reduced price.
Also, following the settlement, a generic competitor of Gilead has seen its own competing drug de-registered by authorities.
Drug is highly-effective, but also very expensive; Ukraine was originally excluded from deal that Gilead struck to allow Indian generic companies to produce generic versions for some low-income markets
Sovaldi has been the target of criticism by both governments and NGOs, due to its high cost – up to a $1,000 per pill in the United States, with full treatment costing $60-80,000. While the drug has been very expensive in developed countries, Gilead has reportedly licenced seven Indian drug manufacturers to produce generic versions of the drug for sale in 91 developing countries. However, certain middle-income countries, including Ukraine, were excluded from this program. Critics of the licensing agreement such as Doctors Without Borders (MSF) have complained that the deal enticed generics firms to refrain from offering generic alternatives in a large number of middle-income countries.
Gilead’s plans for Ukraine became clearer in 2015 when the company applied for a patent for Sovaldi. The company’s patent application was immediately challenged by local patient advocacy groups.
While NGO-led challenges to the company’s patent application remain ongoing in domestic courts, Gilead did obtain so-called registration of the drug in mid-2015 (i.e. official permission to market the drug on an exclusive basis in Ukraine). Registration processes like those in Ukraine permit a company to register a drug - by providing the government with clinical trial results - and thus block generic competitors from the registration of generics for five years after the registration of a brand name drug.
Shortly after Gilead’s patent is registered in Ukraine, a state agency registered a generic competitor, thus leading Gilead to fight this registration
Although Sovaldi was briefly the only drug containing sofosbuvir on the market in Ukraine, the company nevertheless quickly encountered domestic competition. In November of 2015, a state registry of medicines listed Grateziano, a generic version of the drug produced by Egyptian owned manufacturer Europharma International.
This prompted Gilead itself to turn to domestic courts in May of 2016, filing a claim demanding that the government revoke and declare illegal the Ministry of Health’s registration of Grateziano.
During the course of the proceedings, Gilead also applied for an interlocutory injunction suspending the registration of Grateziano, claiming that it faced financial harm due to the existence of a generic on the market and the potential for local hospitals and other purchasers to favour this cheaper alternative.
In October 2016, the Kyiv District Administrative Court ruled against the claimant, refusing to revoke Grateziano’s registration, a decision which Gilead subsequently appealed.
Gilead also notifies Ukraine of an investment dispute
Sometime in 2016, the company additionally notified Ukraine of the existence of an investment dispute, at one point requesting that domestic legal proceedings be suspended while the parties attempted to reach an amicable settlement.
In a decision dated October 24, 2016, the District Court denied suspension request, holding that the claimant did not prove the impossibility of hearing the domestic case while the international dispute proceeded, and further, that the existence of an investment dispute did not affect the question of the legality of the state’s registration of Grateziano.
The local legal ruling did not provide much detail of the "investment dispute", including the treaty that Gilead invoked, and whether an actual Request for Arbitration has been filed - or merely a Notice of Dispute
Local news sources suggest that the investment dispute was lodged under the US-Ukraine BIT; Ukraine’s Justice Ministry has merely described the case as an investment arbitration in its public comments on the matter.
We have had no success in reaching any Gilead company officials who could confirm further details about the investment arbitration. (Several inquiries by IAReporter to Gilead media relations in recent weeks have not generated any response from the company.)
Settlement is struck, with investment arbitration withdrawn, and cheaper price agreed for brand-name drug
An interagency working group was created after Gilead threatened its arbitration claim, and recently Ukraine’s Ministry of Justice has disclosed that the recommendation of this group was to settle the dispute.
Thus, on January 25, 2017, an Order of the Cabinet Ministers of Ukraine approved a settlement agreement with Gilead.
The detailed terms of the settlement have not been released.
However, in a public statement issued by the Ministry of Justice the settlement was characterized as an aversion of the $800 million investment arbitration claim, and sought to portray it as offering a discounted deal on Sovaldi and Harvoni for Ukrainians affected by Hepatitis C.
More puzzlingly, the statement also prominently lamented unspecified "corruption" of the former administration of President Victor Yankovych.
In subsequent order by Ministry of Health, Gilead’s Egyptian rival is sidelined
The Ministry of Justice statement did not disclose whether the settlement would affect the rights of the Egyptian generic producer to compete with Gilead in the production of sofosbuvir.
However, in a subsequent order, the Ministry of Health announced that in order to comply with the agreement signed with Gilead, it was removing Grateziano from the State Register of Medical products. (Local news reports has suggested that patients who were in the midst of a course of Grateziano would be allowed access to the generic drug until their treatment was complete.)