On the GC Grapevine - Hungary - Edition 3

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Issue 3: Pharma In this issue: “There is less pressure to impress and sell myself so I see it as a more down-to-earth profession.”

“Commonplace but more and more true to our days: only change is constant..”

“..where lawyers add value is not in giving the answers that everybody already knows, but giving the answer that nobody has thought about.”

“Due to the effect of the changes on their profitability [..] pharmaceutical companies may be forced to reconsider their investments in Hungary.”

“It is not clear from the wording of the Medicinal Thrift Act whether any changes that occur after the notification would need to be reported to the Authority.” “..it is clear that Hungary has probably the greatest variety of such measures, including the highest level of extra taxes imposed on pharmaceutical companies.”

This Issue’s Grapevine Pick: d r. G e r g ő B u d a i - L e g a l D i r e c t o r - P f i z e r

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Issue 3: Pharma Letter s from the editor s What’s Dr.?

the

prognosis,

Volume 1

The pharmaceutical market in Emerging Europe is clearly facing a need for realignment with pressing issues of reduced health care expenditure, governmental cost reductions, product pricing, generics and the list goes on and on.

How is Hungary’s Pharma industry planning to endure the next 5, 10 years and beyond? What are the major influencing factors in Hungary at present and what is everyone debating? Will innovation suffer? But in such a competitive industry with patents expiring on big ticket drugs, the industry is in dire need of the subsequent “smash hit(s)”. We are hearing so much talk about the Széll Kálmán plan but how is it actually affecting the industry and ultimately the end consumer? Everyone’s asking the same question “what’s in store for Hungary’s Pharma future?”. The GCG has invited General Counsels of some of the most prominent players of the pharmaceutical industry to share their experiences, adversities and feats in this challenging environment. We’ve asked the tough questions about generics, price competition, governmental policies and many more pressing issues. The controversy and zeal associated with many of the topics we thrash out in this edition has undoubtedly resulted in, we hope, a very exciting and informative product not only for us to work on, but foremost to share with you. We hope you enjoy the read!

When we first launched the GCG in May we could not have imagined what lay ahead. 3 editions, 3 sectors, 9 General Counsels, 10 senior private practice, countless reader submissions for the “Private Practice Strip” and “(My) Word On The Grapevine” sections, all brought together by a simple idea - building a strong GC community to share challenges, solutions and best practices.

Orsolya Endrefi Associate Director - Emerging Europe and Latin America Legalis

Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Legalis

In retrospect, what makes us most proud about this publication, is the fact that, in reality, it is not our publication. Almost all of the content, ideas, suggestions or simple funny stories, belong to our readers that were not shy in reaching out to us and expressing their opinions and comments .

With that in mind, we thank you all and we cannot express enough what an honor it has been to work with you. Your input is what drives this publication forward at the momentum it is going so keep those emails coming.

We are working diligently on the skeleton of the next issue and next volume, but we need your nominations to pick the first Grapevine Pick for 2012. Write to us by December 1st and let us know who should be given this honor.

In this issue: DR.

ESZTER TÖRÖK - GENERAL COUNSEL FOR HUNGARY AND CENTRAL-EASTERN EUROPE TEVA GROUP…………………..3

DR. J UDIT

MISKOLCI - LEGAL DIRECTOR - SANOFI-AVENTIS….5

DR.

GERGŐ BUDAI - LEGAL DIRECTOR - PFIZER...…………8

T HE S ZÉLL

KÁLMÁN PLAN PUTS INCREASING PRESSURE ON PHARMACEUTICAL COMPANIES BY DR . ILDIKÓ CSÁK..………..12

P HARMACEUTICAL COMPANIES

FACING NEW CHALLENGES DUE TO THE AMENDED REGULATION OF PROMOTIONAL ACTIVITIES - BY DR . DÓRA P ETRÁNYI..……….13

EXTRA

PHARMA SECTOR TAXES IN HUNGARY: AN EUROPEAN OVERVIEW AND INTERPRETATION ISSUES - BY DR. HELGA BÍRÓ & DR . GERGELY RISZTER ……….14

We are always happy to hear from our readers so, please, feel free to write to us at GCG@legalisglobal.com or join the dedicated group here for more details.

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d r. E s z t e r T ő r ő k - G e n e r a l C o u n s e l f o r H u n g a r y a n d C e n t r a l - E a s t e r n E u r o p e - Teva G r o u p one of three. I also had a lot of friends here who I had not seen for years and part of my family was living here as well. I think, overall the quality of life was better and I found living here a lot more pleasurable.

HL: I am sure our readers would enjoy to learn a bit about your background..

ET: I have been with Teva for nearly 8 years. Before that, I worked with CMS Cameron McKenna in Budapest. Prior to that, I worked with the same firm in London as a trainee solicitor. I am Hungarian by birth but I lived in the UK for 11 years and studied Law in Oxford. In truth, I was not really planning on coming back but I did in 1993 for the first time and then again in 1997 when I quite simply got stuck. I just loved Budapest and while London is beautiful, it is not a great city to live and work in.

HL: What was it that made you stay?

ET: As a very junior lawyer, the work was much more interesting and challenging here. It was simple math since, at that stage in London, I was one of the hundreds of trainees and here I was PAGE 3

“There is less pressure to impress and sell myself so I see it as a more down-to-earth profession.”

HL: One of the myths related to in-house lawyers is that their workday ends at 5 pm. How accurate do you find it?

ET: It is indeed much more balanced. You have less push from clients, although you have your own internal ones. I think it is a lot more flexible as people care a bit less of how and where you do your work. They do not mind if you send them an e-mail from home or on a Saturday evening. They simply want solutions. There is less pressure to impress and sell myself so I see it as a more down-to-earth profession. I simply work with my colleagues towards a common goal rather always need to impress the client and to convince them they are the best there is and ever will be.

With that in mind, my advice to lawyers would be, especially when you work with a large law

firm, do not be afraid to look around. There is another life. It is pretty rare and pretty lucky to find a company that has a good reputation and great work experience but they are out there.

HL: What makes a good GC in your view?

ET: First of all, I think it the case with most lawyers that they start as external counsels, most often with an international firm, and later in their career they move in-house. When working in private practice, especially with large international firms, lawyers need to specialize in one particular practice and, as a result, one of the main challenges is to widen your scope when you move in -house.

I had the same challenge since, as a GC, I had to have at least a basic idea of most areas of the law so I had to become more of a generalist. Before joining Teva, I was doing M&A, corporate and commercial work so my experience with other areas was limited. On the other hand, that is why I find my current role so much more interesting, because it is much more varied.

At the same time, you need skills that go beyond the legal skills:.

You need good networking skills; strong communication with all levels of the company is also key; you need to have basic feel of the company and what it is doing; and probably one of the most important aspects, especially in a

large organization, you need to be patient. For example, a lot of my work today is internal politics, liaising with different people and reaching compromises, which most of the time I do not mind, actually quite enjoy, but sometimes it can become a bit frustrating.

HL: You mentioned communication. What would you say are the differences between how an external counsel interacts with a client and how you interact with your colleagues?

ET: It really is a very different type of a relationship than when you are an external lawyer. In that situation you have a question, you write an answer along the lines of ‘you can do this, you cannot do this’ and at the end you write a very large disclaimer. As an in-house lawyer, if you say ‘this cannot be done’ your colleague will come back the next day and ask ‘ok, still, how can I do this?’. It is much more of a practical exercise, and you learn to avoid the very first step and not go out and say ‘this cannot be done’ but try to come up with a compromise of sorts.

HL: Having worked mainly in M&A prior to Teva, how did you manage the move to the pharmaceutical industry?

ET: The way I became involved with Teva was by sheer coinci-

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“I was blessed with great colleagues who never made me feel uncomfortable for asking what they might have perceived as silly questions.”

Even so, when you come into this industry for the first time, you need to interact with doctors, researchers and business people who have a very strong knowledge of the industry, so it is quite a challenge. I guess, in the early stages, I learned how to ask questions without revealing that I was asking them because I was not really familiar with the topic. Of course, reading and researching a lot was key in bringing myself up to speed. At the same time, I was blessed with great colleagues who never made me feel uncomfortable for asking what they might have perceived as silly questions.

HL: You have been in the industry, and the company, for quite a few years now.

What made you stay?

ET: I tend to stay unless I have a very strong incentive to leave. I like being familiar with what I am doing and I like the environment, I like the people. You will probably laugh but I like Monday mornings... I like coming to work. Most of the time I just enjoy what I do.

HL: Your role as GC must be even more challenging since your responsibility is at a regional level. Which of the markets do you need to spend most time on and, from a regulatory point of view, which one is the most problematic?

ET: These days, it would be Hungary. We have a lot of very good lawyers and a large team for example in the Czech Republic. If something really big comes up then I would get involved but generally I know I have a strong team and I let them get on with it.

From a regulatory point of view, currently Hungary is the most problematic and it is all the most worrying to see that other Governments such as those of the Czech Republic and Poland have taken a liking into what the Hungarian one has done and are thinking of following their example.

HL: In Hungary we have seen a lot of changes with the introduction of the Széll Kálmán plan, which most GCs are not happy about.

What part of the plan gives you the most headaches?

ET: How long do you have? I believe it to be extremely painful

and extremely damaging, especially in the long run. To offer some background information, Teva has 3 divisions in Hungary, manufacturing, marketing and wholesale. The plan introduced very hefty taxes making it basically impossible for pharmaceutical companies to promote their products. This is based on the notion that pharmaceutical companies are greedy and ‘evil’.

The idea is that the new Government measures should stop us promoting our products so that people buy less and, as a result, cut some of the Government’s spending. This rather simplistic approach is based on the notion that the reason people buy so many pharmaceutical products is not the health state of the population but that we promote our products too much. Unfortunately whoever was responsible for writing the changes in the law was probably under quite some pressure and did not have a lot of time to draft the law properly. The way the law is phrased is very far from ideal.

When we got it for the first time we spent hours reading it simply because there were many sections that could be read in many different ways. It is a very uncertain piece of legislation. At the same time, the fines and other sanctions that can be imposed for breaching the law have been considerably increased. It is really a very tough balancing exercise at the moment.

HL: Will this plan impact your clients?

ET: Yes. There have also been radical changes made to the reimbursement system. Obviously, the aim was to reduce the

Andrékó Kinstellar Euromedic refinancing Kinstellar advised Euromedic Group (a pan-European medical services provider) on the EUR 250 million refinancing of the group including related regulatory and employment law advice.

Johnson & Johnson competition law advice Kinstellar advised and represented Johnson & Johnson (a global healthcare products manufacturer) in cartel proceedings at the Hungarian Competition Office regarding Vision Care products including related regulatory advice.

Gide Loyrette Nouel D’Ornano Iroda

Balkan advice

operations

sale

Gide Loyrette Nouel, with the active participation of its Budapest office, is currently advising an important European distribution group on the potential sale of its operations in the Balkans, including Romania, Serbia, Bosnia and Kosovo.

Advising on the creation of regional joint venture Gide Loyrette Nouel Budapest is currently advising a Swiss investment group on the creation of a regional joint venture structure operating the wholesale and the distribution of a clothing brand in Hungary, the Czech Republic and Slovakia.

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dence. When I applied for the role, I was replying to a job advert that only said ‘multinational pharmaceutical company’. I had no idea it was Teva. Moreover, after I learned it was Teva, I did not even know much about the company. At the time, 2004, the Teva brand was not so widely known. On the other hand, what did help was the fact that at times I can be a bit of a hypochondriac so, even then, I already knew quite a bit about various medical conditions and pharmaceutical products.

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burden on the State health fund as far as possible. To achieve this, for certain products they introduced a so-called blind bidding system. Now, every 6 months each pharmaceutical manufacturer puts in a bid for the next few months based on the price of their products.

“Of course, the Government is under a lot of pressure to cut costs but it is very frustrating to be singled out (along banks or other "bad people").”

This system has recently resulted in extremely low prices being offered in some cases, especially by smaller companies. They won the bid because of the low prices and the problem I see in this is that in a few months we might see that these companies will not have the capabilities to supply the market while the largest

manufacturers have lost their reimbursements on their products.

HL Usually, companies in regulated industries companies are invited to provide input for such changes. Was this the case?

ET: There was some consultation but it was carried out under the form of receiving a 300 page draft on a Friday evening and with a request to provide comments by Monday morning.

This obviously impacted the quality considerably. Of course, the Government is under a lot of pressure to cut costs but it is very frustrating to be singled out (along banks or other "bad people").

HL: I noticed your patent department is separate from your legal department. Why is that?

ET: Patents are actually very important to us. Not necessarily because of R&D - though the

patent group does support the R&D department as well. It is very important for our business development side since every time we want to launch a new product, the first test that it has to pass is whether the original patent period of the originator has expired.

This is a fairly complex exercise.

There are patents in many countries and there is no unified patent system between all of them so the time when you can launch a patent differs from market to market and when you look at your pipeline you need their know-how.

It is a very different team in a lot of respects. They are patent attorneys who, opposed to lawyers who are either pharmacists or chemists by education and then take a separate course to become a patent attorney. There are not that many cross-overs either. Rarely, corporate lawyers will work together with them when [knock on wood] we

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would have a litigation but other than that we operate separately.

HL: When were you most proud to have been working with Teva?

ET: Whenever I have been to Israel, Teva’s home country. It is a great feeling because there it is seen as a national treasure. It is THE flagship company. I am not really sure what to compare it with because if I compare it to MAV it does not really cut it.

Whenever I enter Israel and I am asked for the purpose of my visit I tell them I am working for Teva and the way they look at me is indescribably uplifting.

HL: What would you recommend to any lawyer considering going in the pharmaceutical industry?

ET: It helps if you have an interest in the industry itself. You will need an ability to adapt and to research a lot but, passed that, it will really be worth it.

d r. Ju d i t M i s ko l c i - L e g a l D i r e c t o r - S a n o f i - Ave n t i s HL: In your view, what are the top characteristics needed to be a good GC? JM: I consider the role of a GC totally different than the role of a free-lance lawyer or a lawyer working at an independent law firm, since being an in-house lawyer means that you live together with the company. A GC has to be able to understand the diverse needs of the business, including logistics, R&D, manufacturing, regulatory affairs, HR, finance etc. One is also expected to meet you interPAGE 5

nal requirements and give clear, company-focused, relatively short answers instead of citing the complicated rules in a “strange” legal language. The GC frequently has to give answers immediately in the meetings when questions are raised and immediately evaluate the possible risk.

Communication skills are very important as well, because the in -house counsel is part of an organism and a GC not only provides effective legal support, but makes decisions day by day.

Therefore he/she needs to be able to justify the solution chosen.

HL: Why did you choose to practice law in-house?

JM: Joining the Sanofi Group as an in-house lawyer four years ago was a once-in-a-lifetime opportunity for me in my career path and it was a radical change as I had worked before as a member of a law firm which worked for TEVA industrial site.

I was also seeking new challenges at that time. As the Legal

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HL: What aspect of the GC role do you find most challenging? Why? How do you cope with it?

JM: Sanofi has four affiliates in Hungary, pursuing very complex activities, including R&D, manufacturing, wholesaling, distribution, promotion and clinical trials, employing more than 2000 people altogether. The legal department is responsible for the legal support of all kinds of activities. Taking everything into account, the most significant challenge for me is to provide appropriate legal background for each unit while harmonizing with the corporate guidelines and Hungarian regulation in every field of the company.

“..we had to learn how to “read between the lines” of the statements of the regulating bodies’ representatives.”

Moreover, reacting quickly to the fast and sometimes unexpected changes in the regulation is essential in order to be able to meet all the requirements of the law. I have to be proactive with regards to implementation of the pharmaceutical and other relevant regulation It is also well-known that this industry is heavily regulated in every manner, and ethical behaviour, compliance, and transparency are of the utmost

importance to the Group. I’m not saying that it is easy to cope with, but with continuous “follow-up” and “readiness” it can be manageable.

HL: Why did you choose the Pharma sector? What gets your blood flowing when talking about this industry?

After graduation I started to work for an agricultural cooperative. However, I felt that it was not really my “dream” so I took the first opportunity to change and joined Biogal Pharmaceutical Works (known today as TEVA Pharmaceutical Works). From that point on, my life was connected with the Pharma sector: I’m continuously keeping my eyes on the relevant news. Since we try to be proactive and always be sure that we follow what is happening in the course of preparation of regulations, we had to learn how to “read between the lines” of the statements of the regulating bodies’ representatives.

HL: As a General Counsel for a major pharmaceutical company, you must receive countless proposals from law firms.

JM: Yes, I receive proposals regularly from different law firms. However, my options are limited by the Group’s guidelines. We only work with some of the preferred firms and our first step is always to see that there really is a need. We turn to an external law firm only in case of workforce shortage or when the risk is high and the particular project requires special experience and knowledge.

HL: What do you look for when you choose what law firm to outsource work to?

JM: The chosen law firm must possess the following features: appropriate experience, in-depth knowledge of the pharmaceutical industry, reliability, deadline keeping and co-operative attitude.

HL: What do you definitely not like to see in a proposal?

As I have mentioned above, we need clear, comprehensible, “easy-to-digest” analysis for the colleagues involved in the decision-making process. As a result, I am really unsatisfied when I have to “translate” it for them to make it clear, because it is rather time-consuming.

HL: What do you find to be the biggest regulatory challenge in the Pharma industry in Hungary?

JM: One important aspect is predictability. Every company finds it very important to plan ahead. When regulations and tax burdens change even within one business year planning becomes very difficult. Moreover the introduction and increase of surtaxes creates a competition handicap for us not only internationally but also within the group, as group projects may be implemented in other countries where the conditions are more favourable.

A good example is the R&D incentive: a 20% abatement was introduced in 2007 which was then increased to 100%; but before the 100% could become effective an amendment negated the use of the abatement, the

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Horváth & Partners DLA Piper DLA Piper advises Albany Molecular Research Institute DLA Piper in Hungary is advising Albany Molecular Research Institute, Inc., a major US biotechnological company, on establishing its Hungarian presence by acquiring the sole ownership of a Hungarian biotechnological company including the assistance in its restructuring of the subsidiaries (spin off, merger, transformation) and daily operational issues. We also drafted internal patent regulation for the Hungarian subsidy of Albany Molecular Research, Inc. Continuous legal advice concerning filing and protecting of patents of the client.

Financing Hankook

subsidiary

of

DLA Piper in Hungary is advising a club of banks, led by Raiffeisen Bank Zrt., in relation to the English and Hungarian law aspects of the financing of the local subsidiary of Hankook Hungary, the Korean tire manufacturing giant.

Kajtár Takács HegymegiBarakonyi Baker & Mckenzie Successful representation in competition proceedings We successfully represented a major Italian-based pharmaceutical company in a proceeding before the Hungarian Competition Office initiated due to alleged unfair commercial practices via pharmaceutical advertisements to patients. We also regularly advise the same client on wide range of pharmaceutical regulatory matters (product promotion, wholesale and retail sale of medicines etc.).

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Director of the company I am not an outsider but I have real relationship with my colleagues that I really enjoy.

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Of course, we are given the opportunity to comment on new bills and new laws and submit our proposals, in most of the cases in cooperation with other pharmaceutical industry stakeholders and, when that is done properly, transparency and predictability is achieved. Unfotunately the system is far from ideal and does not always work out that way.

HL: Without a doubt, the industry took a considerable hit as a result of the measures put in place by the Széll Kálmán plan. How did this affect your work and how do you expect it will in the long-term?

JM: The Széll Kálmán plan and the rest of the measures affecting the health sector cause legal statutes to change all the time and impose more and more restrictions on the budget. I think we have to coexist with this in the coming years. The greatest challenge in the continuouslychanging legislative environment is the sustenance of operations.

Commonplace but more and more true to our days: Only change is constant.

HL: There are many aspects to the Széll Kálmán plan.

Which one in particular are you most passionately opposed to and/or keen on and why?

JM: I hail the recognition that the present healthcare system is not sustainable on the long run but I cannot agree with those that largely blame pharmaceutical industry for the problems. I disagree with a non-transparent drug financing system causes part of the money to go to the drug companies. These are exaggerations.

I agree with the importance of prevention and believe in solidarity where pharmaceutical stakeholders take part together in the struggle to educate people on healthy living. On the longer term this may be an important contribution to reducing healthcare costs. Not incidentally Sanofi slogan is „from drug company to health provider”

“Commonplace but more and more true to our days: Only change is constant.”

HL: Which aspect of the Széll Kálmán legislation do you think should be revisited due to its impact on the end consumer, the patient?

JM: Governments, and not only in Hungary, are making attempts to reduce drug budget expenditure and patient burdens. But the

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cost cutting measures should not be allowed to reach the point where merely fiscal considerations prevail in healing.

Kajtár Takács HegymegiBarakonyi Baker & Mckenzie

Patients must get the most effective therapy. Laying stress on fiscal aspects has dangers for patients: for example if a medicine that a patient has been taking for a long time is lost by price competition and delisted, the patient has to be switched to another drug that may be less effective or even harm his organism.

We advised a major US-based biotech company in connection with regulatory questions (e.g. wholesale licensing questions, medicine donation, clinical trial template agreements, etc.), including the revision of the standard operating procedures (e.g. Sponsorship Policy, Policy on the Interactions with healthcare professionals, Donation Policy) to ensure compliance with applicable Hungarian laws and ethics rules.

HL: Both in Europe and in the US, politicians have been pushing aggressively for Sanofi to lower drug costs or expand generic licensing. What are the forefront issues when we speak about pricing of pharmaceutical products in Hungary?

this system negotiation.

JM: As I mentioned, the focus is on medicine price cuts and there is strong support to cheaper generic products. Hungary has a rather complicated reimbursement system - in effect compelling manufacturers to go in for tough price competition. The OEP keeps reviewing the prices ex officio to ensure cost efficacy and adherence to budget, and the companies make their price bids through an electronic system. In

Advising biotech company

there

is

no

The challenge for us is obvious when a product with a new active ingredient is being reimbursed in a new indication, because in this case a so-called subsidy-volume contract has to be concluded. Contract conclusion is preceded by thorough negotiations, but the legal frames are given. The essence of the contact is that the manufacturer has a payment obligation towards OEP according to reimbursement outflow generated with the included medicine, by this manufacturers contribute to reducing public burdens upon the inclusion of a new medicine making it possible for the patients to buy modern therapies on affordable price.

( M y ) Wo r d O n T h e G r ap ev i n e RE: On The GC Grapevine - Energy Edition Simandi Bird & Bird is experiencing activity in the area of traditional energy sources with increased interest in gas & oil exploration and exploitation in the region. This fall's hot topic will be the new support scheme for renewable energy sources, the so-called

"METÁR", which will replace the "old" mandatory takeover and subsidising system ("KÁT"). "METÁR" is expected to play a major role in meeting the mandatory targets for renewable energy by 2020 in Hungary.

Zsófia Szerda Head of Energy and Real Estate in Hungary Bird & Bird

If you would like to comment, reply or add your viewpoint on any of the articles or the publication overall, write to us at GCG@legalisglobal.com to share your views with the GC community.

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legal regulation being inconsistent with the implementing rules.

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d r. G e r g ő B u d a i - L e g a l D i r e c t o r - P f i z e r

HL: I’m sure our readers are interested in learning a bit about your background at first...

GB: I had a very international upbringing. My father is in the diplomatic service and my mother is a chemical engineer, so I got to live in a few places around the world at a relatively young age.

Like many Hungarian boys, I played our national sport, waterpolo, throughout my school years, which I still enjoy as a pastime. When I started law school I worked at a popular radio station writing commercial jingles and subsequently a sightseeing boat company in Budapest. I really enjoyed these jobs,

but when it was time, I did turn to the legal side of the professional arena.

wouldn’t be who I am today. It was really an excellent learning and working experience.

During my university years, I spent my professional practice periods at the Hungarian Constitutional Court as a clerk to Justice István Bagi, and afterwards at a midsized local law firm. My first real legal job was at White & Case, where I started as a 4 houra-day intern. I ended up spending 7 years with the firm, during which time I had very interesting international assignments and cases. Amongst others, I got to work in Washington D.C. and spent 6 months in White & Case’s Brussels office on a secondment. That was particularly interesting as it was the time of Hungary’s accession to the European Union making it a great experience. While I did study quite a bit of European law at university, having the chance to actually work with EU law in practice and work with clients in the European Court of Justice or before the European Commission or Parliament was absolutely phenomenal. I’m really thankful to White & Case and especially István Réczicza as well as other colleagues, as without them, I

Transitioning to a pharmaceutical company was not necessarily the obvious choice, although, while in private practice, I did represent pharmaceutical companies and the Association for Innovative Pharmaceutical Producers.

In fact we won a major case for the Innovative Association. The Government at the time introduced a price decrease and price freeze which we were able to argue against in front of the Constitutional Court and have it annulled within a record 3 month period, one achievement that I am very proud of to this day. The pharmaceutical industry was, however, only one of the areas I worked on while at White & Case. For example, I was involved in several privatisation transactions, and various energy and infrastructure deals, as well as considerable local and international litigation and arbitration.

Paul Revere Elementary School Bocksai Istvan Elementary School

HL: Why did you decide to move in-house?

GB: During my time as an external counsel I had the opportunity not only to work with the best

Kerek Utca Elementary School Szilagyi Erzsebet High School

Robert F. Wagner Junior High

1983

1985

Budapest

New York

1988

1990

Budapest

1991

attorneys, but also to work with a number of in-house counsels and legal advisors. I always perceived them as having a much closer relationship with the business due to their daily work and interactions with the company’s board. Having a better understanding of the specific company’s needs meant that they provided more business friendly advice. On the other hand, as an outside consultant, you are brought in for a very specific project and, as a result, have a more limited perspective on the issues at hand. Ultimately, I wanted to get to the point where I could truly understand an industry and, without the insight you gain as an in-house counsel, it would have been much harder.

HL: Looking back at your in -house experience, was it the right call?

GB: After almost 6 years at Pfizer, my answer is a definite “yes”. For me, working as a Legal Director is pretty much like running your own law firm because you have so many different aspects, or practice areas. The difference is that you have one client, who you have to

Peter Pazmany Catholic University, Doctor of Law and Political Sciences University of Pretoria Intern Law and Human Rights Cou 1998 1995

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know inside and out. You need to deal with regulatory issues, mergers and acquisitions. competition, labor law, civil law, litigation, etc.. In fact, I used to love working in litigation and, even today, I like to stay close to this classic attorney function.

I know every day I will be faced with at least one question or issue that will be truly challenging. This comes as a result of the variety of work, the innovative nature of the company, as well as, unfortunately, a result of the legal environment of the industry in Hungary at the moment. And when I say at the moment, I mean the last 3 years.

HL: “Classic attorney” function?

GB: Well, when I was growing up, and this might sound a bit like a cliché, a lawyer was someone in a courtroom, arguing in front of judge and jury. Litigation is the classical place where a lawyer can truly present. Sure, you also have that to a certain

“In fact, I used to love working in litigation and, even today, I like to stay close to this classic attorney function.”

extent in a negotiation process, but for me, it is not nearly as engaging or stimulating. As for reviewing documents, sure that can be interesting but it is not really the exciting part. That is why even today, time permitting, I take almost every opportunity to represent Pfizer in front of a court or authority.

HL: Well, I guess it is a good (or bad) thing you have the opportunity to do this often then. Talking about your function at Pfizer, what makes for a good LD in your mind?

GB: I think the best way to describe it is by using the mission statement of Pfizer’s legal division: Deliver competitive advantage by understanding our businesses, managing risks, and inspiring our colleagues to drive creative and useful legal solutions.

I think that has everything necessary to describe a good LD. You need a very strong level of legal knowledge combined with a very good understanding of the business. On one hand, the role of a General Counsel - or Legal Director as we say it - is to safeguard the company from issues arising from non-compliance or outside challenges. On the other

hand, enabling business is the most important aspect of the role since, in my view, a good Legal Director is one that tells you how you can do or achieve something or reach a business goal as opposed to just someone saying “no” or “you can’t do that”. Of course sometimes you do have to say no, but finding solutions creative and legally compliant solutions - is extremely important, and you always need to be able to stay ahead of the game and try to shape the upcoming regulatory changes and the environment.

HL: The idea of creative thinking is interesting as most people imagine lawyers thinking along the lines of ‘this is the law in black on white and you cannot meddle with it’.

GB: Don’t get me wrong. There are a lot of things which are very clear cut with regards to what you can and cannot do, and of course I would never give advice that is not compliant with existing regulation. What I mean by being creative is that, when someone puts a business need forward, the need has to be met.

The real challenge is being able to blend that need with the regulatory requirements into one

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consistent solution. We have to be committed to raising the bar by challenging traditional thinking and ways of operating. We recognize that our ability to provide the best legal service depends on how well we listen to colleagues and engage with them to solve problems and seize opportunities together. As Amy Schulman says, where lawyers add value is not in giving the answers that everybody already knows, but giving the answer that nobody has thought about.

HL: Before we move into the industry specific issues, we are always curious what a Legal Director looks for when evaluating different proposals from law firms.

GB: Pfizer has an innovative outside counsel program called the Pfizer Legal Alliance (or PLA in short, started by Amy Schulman, Pfizer’s global General Counsel).

The Pfizer Legal Alliance is a collaborative partnership between Pfizer and 17 law firms that aims to transform the way legal services are delivered and valued. These firms have agreed to work on a flat-fee basis, which is established at the beginning of each calendar year, and to provide counsel to the company on a wide range of matters.

Associate to Senior Associate at White & Case Clerk at Hungarian Constitutional Court

Secondment with White & Case Brussels

2000

2004 2001

Budapest PAGE 9

Legal Director - Hungary at Pfizer 2007

Brussels

Budapest

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“..where lawyers add value is not in giving the answers that everybody already knows, but giving the answer that nobody has thought about.”

This is something unique, and it has proven quite effective in securing quality external counsel - who if need-be work with each other. Of course this program stems from the U.S., and these firms are not present everywhere in the world, so occasionally, we do need to look at other firms and we make those decisions locally.

When we need to secure external counsel outside the scope of the PLA, we look for law firms that are practical, with good knowledge in the relevant practice area. When I say practical, I mean to say that it is annoying when you receive 20 pages of admittedly beautiful legal analysis when you simply needed a straight-forward short answer.

While I would be delighted to read interesting legal analysis (which has a beauty of its own) and emerge into questions of academic importance (and we must find the time for that sometime!), unfortunately, in today’s world, you have to deal with so much information on a daily basis, that you simply don’t have the time to indulge.

On the other hand, there are a few things that many firms present in proposals that don’t have such a significance. For example, firms like to put forward a large number of lawyers. That I feel is almost never relevant when compared to their expertise level. Another thing I tend not to follow is all the different awards or rankings that they showcase when doing a pitch. Don’t get me wrong, I don’t mean to devalue these at

all, but what really matters for me is the day to day interaction that I have with these firms. I simply think it is hard to truly asses a firms value without firsthand experience.

HL: Looking at the pharmaceutical industry specifically, the first natural question is why did you choose it when you moved in-house?

GB: We need to go back in time for a bit to answer that. As I mentioned, I loved working in litigation and, while I was working at White & Case, one of the most interesting litigation cases that I worked on was focused on this industry (it revolved around reimbursements and claw backs from the National Health Insurance Fund).

Throughout the case, I practically had to learn the industry inside out. I found it challenging and interesting and I was kind of drawn into this world.

HL: In general, what do you find to be the most challenging aspect of working in this industry?

GB: As strange as it may seem, the unpredictability. Regulations change virtually every month and change dramatically at least every year, if not more. To illustrate this, take one of the most important pieces of legislation governing our industry, the Pharma Economic Act. Since its enactment by Parliament in 2006, it has been amended substantially at least 25 times.

These amendments have occurred at all levels, from promotional rules to applicable taxes or fines, and even to regulatory structures. An ever-changing regulatory environment is challenging but after a certain point it simply goes against the basic principle of the rule of law, and while we have a dedicated legal

team, how small pharmacies, physicians, or even consumers and patients keep track of it all, I do not know.

Even on our end, it is not enough to just keep track of all the new regulations. If we did that, all our work would be purely reactive. We need to closely monitor every proposal and, within the applicable legal framework, we try to influence the process and provide our input to shape the environment. The bottom line is that we need to be on top of every piece of draft legislation from the moment it comes into the pipeline.

“..the Pharma Economic Act. Ever since its enactment by Parliament in 2006, it was amended substantially at least 25 times. “ HL: There is a lot of buzz at the moment about the recent Széll Kálmán Plan.

GB: It is one of many changes in the past 5 years. Like many things in life, it is not black or white. Every few months we have to adjust to changes that never really lived out their life before they were changed again.

I agree that Healthcare needs reform, and there are certain elements pointing to true correction and reform. However, there are also many elements that are of purely financial, cost-saving, and cost reduction nature, and for true reform you would need investment in public healthcare, investment that is not financed solely by the Pharma companies.

HL: Let us dissect it a bit as it is a very comprehensive legislative package. Which aspect of this plan do you believe will damage companies the most?

GB: Unfortunately I cannot pick only one, but I will limit it to

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two. The damage, however, is not only to the companies, but ultimately to society. One is that two years ago, Hungary introduced a very good R&D incentive plan for the Pharma industry (which allegedly is identified as one priority in terms of boosting the Hungarian economy), according to which, out of only the industry-specific extra taxes, companies would receive a tax deduction if they invested in certain types of research and development, like basic research or phase I, II and III clinical trials.

Knowing the experience and the level of research at the Hungarian academic institutions, Pfizer invested in this opportunity and invested significant funds in R&D in Hungary. Unfortunately, this tax incentive was cancelled as of July 1, 2011 and, on top of it, it was cancelled with a retrospective effect going back to 2010.

Again, if you look at it from a legal perspective, a new piece of legislation coming into effect with a one year retrospective effect is unheard of and against the very idea of the rule of law.

This I find detrimental to society as well as to the rule of law itself, not to mention the companies and all the scientists and universities that would have potentially benefited from this tax incentive, or members of society that would have benefited from the research results. At the same time, the move will also impact the country’s credibility and will cast a shadow over investor trust.

The other measure is the sales representative tax changes.

Originally this tax was introduced in 2007 and, back then, all the pharmaceutical companies reduced the number of their sales representatives considerably.

Now this tax has doubled from 5 million HUF to 10 million HUF per year per sales representative.

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Initial numbers indicate that at least 1000 people industry-wide will be made redundant as a result and we are talking about highly qualified people who were paying a considerable amount in personal income and social security taxes, ultimately making the Government lose out much more on the long run than they expect to earn via these taxes. Quite literally it will turn out to be a case of putting some additional money in one pocket while loosing much more from another

“..a new piece of legislation coming into effect with a one year retrospective effect is unheard of and against the very idea of the rule of law. “ HL: In light of the R&D tax incentive cancellation you mentioned, is it realistic to expect more and more partnerships between pharmaceutical companies aligning their efforts in R&D? GB: I believe this is a natural process that is going to gain momentum globally, not just in Hungary. It is extremely expensive to develop a new product with numbers reaching 3 to 4 billion dollars before a product is launched so I do expect a growing trend towards such partnerships. Further, the research scene is changing, and nowadays its not about one big blockbuster product, but advancing research step by step to find cures.

HL: What are the positive elements of the plan launched on July 1?

GB: I believe the single most important benefit is the fact that Gyemszi’s, the new regulatory body for the industry and the NAV’s (National Tax and Customs Authority) scope and authority were strengthened in PAGE 11

combating wonder pills and counterfeit medication. The results are already significant and can be seen weekly in the news media.

HL: I know you have quite a few interesting stories involving counterfeits.

GB: Indeed. The one product that is most threatened by counterfeits is one of our erectile dysfunction products. As strange as it is, due to the applicable legislation, I cannot say the name in this interview. A good example of “sensible” legislation. We fight counterfeits on a daily basis as they hurt our bottom line of course, but that is nothing compared to the health risk to patients. We need to make the general population aware of the huge dangers that come with using such products. We found fake pills that contained brick powder and food paint, and those were the happy scenarios. In certain cases we even came across illegal narcotics and wall paint on the pills (discovered when the patient’s hands and tongue turned blue), and we even received calls reporting hallucinations. We naturally want to investigate these cases with our global security group, but usually when we ask “where did you buy the pills” the immediate reaction is ‘well..I would rather not tell you’. When we ask for the batch number, from the very first couple of digits we know instantly we are dealing with a counterfeit product.

Counterfeiting pharmaceuticals is big. The return is bigger than on illegal narcotics and the prison sentences are significantly shorter for the time being.

Also, every now and then we receive phone calls from border police and customs that they discovered counterfeits coming in from Australia, China, and

India, sometimes transiting through Western Europe to make the packages less suspicious. One time a huge shipment of pillows came in from a country in Asia. Some were full of pills, others had blisters, and others had the information leaflets and the hologram stickers.

All separately, as they say, “to be assembled” .

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introduced, which offer much better protection. The only existing problem that I would identify is that the Patent Protection Office’s processes are still quite slow. For example, we had a patent claim that lasted from 1994 until 2010.

HL: Since Pfizer has such a wide global footprint, what role do you, as a GC for “..due to the applicable legislation, I Hungary, play in the patentcannot say the name in this ing processes?

interview. A good example of GB: Most of our patents are “sensible” legislation. “ created globally. There are a lot Unfortunately the Hungarian regulatory system is not about treating patients as “adults”. It aims at limiting information to patients so they have to go on the internet and look for it from other jurisdictions and sources in foreign languages. How that is beneficial, I really don’t know.

The regulators often use the reasoning that pharmaceuticals are dangerous and can be abused and one can kill oneself with them. Under this logic, we should not sell knives and buses and trains should not run either.

I’m really hoping that this mentality will change and patients will be treated as adults who can receive valuable information and make judgments based on that.

HL: Patents play a major role and many see it as one of the biggest headache in the industry. What could be improved in Hungary to mitigate this?

GB: I think that, in Hungary, over the past few years a lot has been done. Prior to EU accession, only process patents were in place. This simply meant that if you would simply stir a mix from right to left as opposed to the other way around you could copy the exact mix needed to produce the patented drug. Since 2004, product patents have been

of them through the discovery process. Our primary role in the legal team here, when it comes to this issue, is patent enforcement.

HL: When were you most proud to be working for Pfizer?

GB: Luckily, it happens often.

One proud moment was when we concluded a number of research agreements and partnerships with Hungarian universities and academic institutions. Another was the launch of the Distribution and Logistics Centre for CEE here in Hungary which involved a massive amount of work and coordination. Last but not least, and this occurs regularly every time we launch a new product that will touch millions and save or considerably improve their lives, one cannot help but feel proud to be a part of a company that is truly making a difference. If I would want to be a bit sarcastic, I’d say I could tell you that I’m very proud of a new product developed recently for lung cancer, but I can’t, due to the applicable promotional rules, as if I named the product, and you published it, we would both be in for a huge fine.

Since the interview, in addition to Hungary, Gergő became Legal Director for the Czech Republic and Romania.

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The Széll Kálmán Plan puts increasing pressure on pharmaceutical companies dr. Ildikó Csák, Réczicza White & Case LLP While pharmaceutical companies have been quite adaptable to the continuous changes in the regulatory environment, the measures that have been put in place as part of the Széll Kálmán Plan caused a major stir among pharmaceutical companies, as well as their employees.

1. Main measures As of July 1, 2011, the Hungarian government implemented the following measures affecting pharmaceutical companies:

“..several companies have calculated their 2010 R&D expenditure assuming a reclamation of 100%, however, due to the retroactive legislative changes, many companies will only be able to reclaim 20-50% or nothing at all, causing significant losses to the affected companies.

i.increase of the tax payable by pharmaceutical companies on the sale of subsidized products from 12% to 20%; ii.increase in the fee paid for the registration of pharmaceutical sales representatives; iii.introduction of more stringent regulations relating to promotional activities (notification obligations, increased fines, etc.), and iv.retroactive legislative changes regarding the deduction of R&D spending.

While all these measures have had a significant impact on pharma“Due to the effect of the ceutical companies, the legislative changes regarding the deduction changes on their of R&D spending may be the profitability and together most onerous and controversial.

with the increase of the sales representatives registration fees, pharmaceutical companies may be forced to reconsider their investments in Hungary.”

made with respect to the sales representatives they have employed; in the amount of their total adjusted R&D expenditure (“R&D Costs”) as shown in their year-end accounts.

In order to qualify for the allowance, the taxpayer should have incurred R&D costs in the amounts exceeding 20% of the proportion of the amount of state subsidy received under the social security reimbursement scheme based on the sale of pharmaceutical products sold in pharmacies, and the manufacturer price or import price of the same products (the “Comparative Data”).

The allowance could be claimed monthly in the form of a reduction of the payment obligations in subsections (i) and (ii) above, starting from the fourth calendar month of the year following any given year when the qualifying R&D Costs were incurred up until the full amount of the R&D Costs have been credited. This means that the allowance with respect to the qualifying R&D spending of 2010 was to be claimed in 2011 in the form of a deduction from the monthly payments, up to the amount of payments made on the same grounds in 2010.

Comparative Data, as opposed to the 20% threshold applicable as per the old rules. If the R&D expenditure is less than 70%, but more than 30% of the Comparative Data, the allowance is restricted to 50% and 20% if the R&D expenditure is below 30%, but over 20% of the Comparative Data.

The amendments have also caused the R&D allowance to lose effect as of January 1, 2012, closing the above R&D Costs related tax incentives from the end of the year.

4. Implications The amendment reduced the extent to which the allowance may be claimed in comparison to the allowance which was available under the legislation in force in the tax year when the qualifying R&D spending was affected.

In view of the laws in effect prior to July 1, 2011, several companies have calculated their 2010 R&D expenditure assuming a reclamation of 100%, however, due to the retroactive legislative changes, many companies will only be able to reclaim 20-50% or nothing at all, causing significant losses to the affected companies.

3. R&D tax incentive as of July 1, 2. R&D tax incentive prior to 2011 By way of an example, a pharmaceutical company deducted 100% July 1, 2011 The new measures reduce and Since January 1, 2010, marketing authorization holders have received a reduction of up to 100% of (i) monthly payments they have made with respect to their subsidized turnovers and (ii) monthly payments they have

eventually eliminate the R&D tax allowance.

As of July 1, 2011, market authorization holders may only receive the same allowance if the amount of R&D Costs incurred in 2010 exceeds 70% of the

of R&D expenditures from its tax payment obligations starting January 1, 2010 in its accounts.

Accordingly, the company calculated it would be refunded HUF 2.8 billion of the payments made in year 2010 and another HUF 0.4 billion for January-March of PAGE 12

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this year. Based on the retroactive legislative changes, however, such company will be able to reclaim only 50% instead of 100% of the R&D expenditure or HUF 1.4 billion for the 2010 calendar year, and will not be able to reclaim any payments made after January 1, 2011.

The rules setting out the qualification criteria for the allowance

changed as of July 1, 2011, in a way which implies that the new rules also apply to allowances taxpayers have qualified for based on their closed tax years.

The legislative changes, while they aim to fulfil the Hungarian government’s drug cost containment plans, have an adverse effect on the pharmaceutical industry. Due to the effect of the

changes on their profitability and together with the increase of the sales representatives registration fees, pharmaceutical companies may be forced to reconsider their investments in Hungary, reorganize their operations and lay off a large number of their employees, which will most likely have an impact on Hungary’s unemployment rate as well as its economy.

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As the Hungarian government is determined to reduce its annual drug-reimbursement bill by more than HUF 100 billion by 2013, additional stringent measures are expected to be taken in the future.

Phar maceutical companies facing new challenges due t o t h e a m e n d e d r e g u l a t i o n o f p r o m o t i o n a l a c t ivi t i e s . dr. Dóra Petrányi, CMS Cameron McKenna Pharmaceutical companies’ promotional activities must be reviewed in order to comply with the new regulations of the Medicinal Thrift Act (Act No. XCVIII of 2006) which came into force as of July 1, 2011. Since entering into force, the relevant authority issued public guidelines on the interpretation of the regulations in order to assist companies in its implementation.

The bomb on the need to modify “It is not clear from the Hungarian legislation regarding wording of the Medicinal pharmaceutical companies’ promotional activities exploded early Thrift Act whether any this year when a Hungarian health changes that occur after care professional (“HCP”) attendthe notification would ing a “professional event” in Thaineed to be reported to the land died in the swimming pool of a luxurious hotel – the HCP’s Authority.” attendance was sponsored by a generics company also present “..fines up to HUF in Hungary.

500,000,000 (approx.

EUR 1,800,000) can be imposed on the marketing authorization holder or the manufacturer in case it does not comply with the regulations”

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This accident caught not only big media attention but also put substantial pressure on the legislators to modify the laws on Pharma companies’ promotions. We below summarise the major changes of the new legal regulations.

1. What is an “event”?

Országos Gyógyszerészeti Intézet, “Authority”) about sponsoring an The definition now includes not educational and/or professional only third party organized events event at least 30 days prior to the but also events organized by the event. pharmaceutical companies.

It is not clear from the wording of 2. Restriction on the location of the Medicinal Thrift Act whether the event any changes that occur after the The Medicinal Thrift Act clearly notification would need to be prohibits pharmaceutical compa- reported to the Authority; nies from sponsoring or organis- however, this question was ing professional or scientific answered by the Authority’s events at locations where the statement published on Septemrelevant resources and/or exper- ber 9, 2011 (“Statement”) accordtise connected to the object or ing to which any change in the subject matter of the event are data already submitted to the Authority needs to be reported as not available. soon as possible regardless of the 3. Obligation to notify the au- fact that the second report will take place within 30 days of the thority on sponsoring an event event. Further, the Statement also The most significant administra- addresses the absence of regulatotive impact that pharmaceutical ry clarity in the Medicinal Thrift market players face in the pro- Act, namely the question of motional field is the obligation to whether the pharmaceutical notify the competent Hungarian market players may support an authority (that is the National event when the need to sponsor Institute for Quality and the event arose within less than Organizational Development in 30 days. The Statement stipulates Healthcare and Medicines, in that in such cases, a pharmaceutiHungarian: Gyógyszerészeti és cal company may sponsor the E g é s z s é g ü g y i M i nős é g - é s event but must report its intenSzervezetfejlesztési Intézet, tion immediately to the Authori-

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ty also verifying the reason for the delayed notification.

4. Promoting or not promoting that is the question The same regulations also increased the sales reps taxes to double the original amount. Due to the doubling of the already high sales reps taxes, Pharma players are considering cuts to the number of their sales representatives or modifying their roles, by limiting the activities to those of non-promotional type interactions.

According to the Statement, such employees may carry out logisti-

cal tasks including the recording of orders, delivering brochures etc. as those are not considered promotional activities according to the Statement.

At the same time, the Authority emphasizes that it is highly unlikely for a non-registered colleague of a pharmaceutical company to provide only information on OTC products to the HCPs which information are already available for the consumers and the reveal of which is not considered a promotional activity in line with Section 5 of the Promotional Decree (Decree No. 3 of 2009 (II. 25.) of the

Minister of Health).

With respect to such information flow, the Authority assumes the promotion of a medicinal product as – according to the Statement – the interest of the motivation to order and use the given medicinal product can be established behind such activity. This assumption will have to be demonstrated against by the companies that decide to maintain the logistics in-house.

5. Higher fines for violating the regulations on promotions Pharmaceutical companies shall

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face higher fines for violations of regulations on promotional activities. According to Section 19 (2) d) of the Medicinal Thrift Act, fines up to HUF 500,000,000 (approx. EUR 1,800,000) can be imposed on marketing authorisation holders or manufacturers not complying with the regulations on promotional activities. Lower value fines can be imposed on others, including distributors, who will face a fine of up to HUF 25,000,000 (EUR 90,000) and sales representatives up to HUF 5,000,000 (EUR 18,000) for violating the regulations on promotional activities.

E x t r a P h a r m a S e c t o r Ta xe s i n H u n g a r y : A n E u r o p e a n O ve r v i ew a nd I n t e r p r e t at i o n I s s u e s dr. Helga Bíró & dr. Gergely Riszter, Kajtár Takács Hegymeg i Barakonyi Baker & McKenzie EU member states? What are some of the key issues raised by this new legislation?

1 The Extra Taxes

1 July 2011 brought about the increase of taxes imposed in Hungary on pharmaceutical companies as part of the Government's reform package.

What are those taxes? And how do they compare to the taxes imposed on pharmaceutical companies operating in some other

Hungary now imposes three types of extra taxes on the pharma sector. First, there is the so-called "sales rep tax" payable in respect of each medical sales representative engaged by a pharmaceutical company to perform medicine promotional activities ("MSR"). The amount of that tax has doubled, from HUF 416,000 to HUF 832,000 per month (the "Rep Tax").

The amended Medicines Act also increased the payment obligations of pharmaceutical companies relative to the total amount of reimbursement in respect of each of their products which is reimbursed by the national health insurance system, from 12% to

20 % (the "20% Tax").

Further, in case of a deficit of the pharmaceutical budget, pharmaceutical companies marketing reimbursed products in Hungary must pay a contribution, depending on the amount of the budgetary overspend.

2 An EU Overview The amount of the extra taxes imposed on pharmaceutical companies in Hungary seems to be unprecedented in Europe.

A brief survey of Baker & McKenzie Pharma industry(1) and tax lawyers practicing in several European Union countries revealed that no tax is paid for MSR in any of the surveyed countries. In most of the EU countries surveyed, no extra taxes are imposed on Pharma companies at all. With the

exceptions of Belgium, Spain and Poland. Belgium taxes the turnover of pharmaceutical companies; the amount of the tax varies each year, but tends to be about 1% to 1.3% of the Pharma company's turnover. Spain imposes an extra tax on pharmaceutical companies, for annual sales volume derived through Spanish pharmacies; the amount of the tax varies between 1.5% and 2%.

Pharmaceutical companies may be entitled to reduction of the above taxes in case of R&D activities both in Belgium and in Spain. Similarly to Hungary, in Poland the government has recently introduced a new tax for pharmaceutical companies which must be paid for increased spending of the pharmaceutical budget (which is determined by the Polish government annually).

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constant changes of the law, the tax benefits are inconsistently applied and their applicability is highly uncertain.

3 Certain Interpretation Issues Regarding the Rep Tax

Although there are plenty of other instruments that governments may use to control public expenditure on pharmaceutical products - from reference pricing through co-payment to various risk-sharing instruments (and most countries apply those measure) - it is clear that Hungary has probably the greatest variety of such measures, including the highest level of extra taxes imposed on pharmaceutical companies.

Although the Medicines Act also provides for certain limited exemptions from or reductions of the special pharma taxes, due to

Given the high tax burden to which they are exposed, pharmaceutical companies often creatively interpret the provisions of the Medicines Act on the Rep Tax, particularly because the language of the Medicines Act on the Rep Tax gives rise to questions of interpretation regarding its applicability.

For example, one such question is the circumstances under which the Rep Tax must be paid. Article 36 (4) of the Medicines Act says the Rep Tax must be paid (i) in respect of each person engaged (either through an employment contract or a contract for services) by a pharmaceutical company; (ii) who is registered as a MSR by the competent authority (GYEMSZI-OGYI); (iii) in respect of his/her promotional activities. This wording gives rise to the question of whether the Rep Tax must be paid for periods

during which a person is employed by a company but he/she does not carry out promotional activities; e.g. during a longer vacation period or during an induction training program.

A recent opinion from the tax authority (the "NAV") sheds some light on the possible interpretations of Article 36 (4) of the Medicines Act. The NAV pointed out that the tax payment obligation primarily depends on the actual tasks of the employee; i.e. whether the employee is engaged in the promotion of medicinal products. If the employee's employment duties change (e.g. the employee is no longer engaged in pharmaceutical promotion but deals with administrative tasks within the company), the company must notify the change to the GYEMSZI-OGYI and request the deletion of the employee from the register of MSRs. However, if the employee's employment duties do not change, the company will be exempt from the payment of the Rep Tax only during those periods expressly listed in Article 38/A of the Medicines Act (e.g. the duration of sick

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leave, maternity leave or the period of unpaid vacation, etc.) but will be required to pay the Rep Tax in all other circumstances during which the employee may be absent from work for a certain period of time (e.g. during a longer vacation period).

In case of induction training programs organized for new employees, it is advisable that company's employment documentation, such as labour contracts and job descriptions, make it clear that the employees will start actual promotional activities only following completion of a training program. As well, employees should also be registered as MSRs at the GYEMSZIOGYI only following completion of the training.

The Medicines Act will likely give rise to other practical interpretation issues in the future.

Notes: (1) The survey included the UK, Germany, Spain, Sweden, the Czech Republic, Poland, Belgium, Austria and Italy.

T h e n e x t is s u e o f “ O n th e G C G r ap ev i n e ” w i ll f o c u s o n th e B a n k in g a n d F in a n c e S e c to r s . He re a re s o m e way s you c a n g e t involve d :   T h e G rap ev in e p ic k : R e c om m e n d a g e n e ra l c ou n s e l t o b e f e a tu re d a s th e “ G rap ev in e p i c k ” ;   C om m e n t on a r t ic l e s a n d / or in te r v iew s f e atu re d in th e G C G. You r in p u t w i ll b e p u blis h e d u n d e r th e “ ( M y ) Wo r d on th e G rap ev i n e ” s e c ti on ;   W r i te t o u s at G C G @ le g a l is g l ob a l .c om . We a re a lway s h ap py t o h e a r f r om ou r re a d e r s .

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The information herein does not constitute legal advice or opinion. Legalis will not be held responsible for any liability arising from the use of any information provided in this publication.

We would like to thank those who contributed to this publication: 

dr. Eszter Tőrők



dr. Judit Miskolci



dr. Gergő Budai



dr. Ildikó Csák



dr. Dóra Petrányi



dr. Helga Bíró



dr. Gergely Riszter

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The editors: Orsolya Endrefi Associate Director - Emerging Europe and Latin America Legalis m: +36 20 916 2252 @: orsolya.endrefi@legalisglobal.com Radu Cotarcea Marketing Manager - Emerging Europe and Latin America Legalis m: +36 20 969 6410 @: radu.cotarcea@legalisglobal.com http://legalisglobal.com/