Global Insight Perspective | |
Significance | Brazilian regulator CMED has confirmed a derisory increase in drug prices for 2007-08, but denies claims that some firms are ignoring the controls. |
Implications | The measures confirm the agency’s hawkish stance, while the government has also introduced a mandatory discount on medicines dispensed in the public sector. |
Outlook | Drug-makers are starting to chafe at the ongoing price freeze and the system’s failure to provide a premium for innovative products, but little change in official attitudes is likely. |
The Brazilian drug pricing regulator CMED has confirmed that prices in the private pharmaceutical market will be subject to a maximum rise of 3.02% between March 31 2007 and March 31 2008. For therapeutic classes where generic alternatives have a lower market share, the rises will total 2.01% and 1%. The latter rise will apply to almost all patented medicines commercialised in the country. This rise—based on a so-called “productivity factor”—excludes a calculation for consumer price inflation in the 12 months to February 2007. When this is included, the maximum overall rise amounts to little more than 3%.
Brazil: Maximum Price Rises for 2007-08 | ||
Generic Market Share | Productivity Factor | Total Rise incl. Inflation |
0-15% | 0% | 1.00% |
15-20% | 1.01% | 2.01% |
> 20% | 2.01% | 3.02% |
Sources: Tendências, Global Insight research | ||
This year’s price caps will effectively continue a price freeze that has been in effect since late 2003. Manufacturers have consistently argued that annual price adjustments have so far failed to reflect the real impact of inflation, currency devaluation and other market factors on medicines costs. The ”productivity factor”—which attempts to reward increases in output—is also weighted according to output growth in other areas of the economy that are not driven by epidemiological or other factors that are unique to pharmaceuticals. There are few incentives for patented medicines.
Despite the industry’s gripes, CMED insists that the increase in the international value of the Brazilian currency, the real, has lowered costs for manufacturers in real terms and that margins are therefore robust. Many domestic firms would agree, given that their business mostly consists of finishing imported generic active pharmaceutical ingredients (APIs). The situation is less positive for innovator firms that are active in the less commoditised therapeutic segments or who source their own APIs.
Claims of Price-Busting Rebutted
Meanwhile, CMED has taken time out of its busy schedule to rebut claims that some firms are making a mockery of its price controls. In a press release, the agency denounces comments from consumer group Idum as “phoney”, and refutes the group’s claim that some 526 formulations exceeded their price caps by as much as 49% in 2006-07. The statement notes that 172 of these products were exempted from price controls anyway, and that another 291 either simply terminated earlier discounts to wholesalers and retailers or lost their entitlement to tax breaks during the 12-month period. However, the agency confirms that six of the rises are being investigated. Since price controls were first introduced in 2003, CMED claims to have successfully prosecuted over 90 cases of price-busting and to have imposed multimillion-dollar fines.
New Discount on Public Sector Medicines Introduced
Aside from the allegations that price caps are being exceeded in the private pharmaceutical market, CMED has now confirmed that it will introduce price cuts in the public sector market. From this week onwards, a 24.69% discount will apply on medicines made available in the public sector treating HIV/AIDS, cancer and long-term chronic diseases, as well as products derived from blood.
The two major procurement schemes that will be affected are the Exceptional Medicines scheme for chronic diseases and the Sexually Transmitted Diseases/AIDS programme, which are respectively funded at US$730 million and US$1.08 billion for 2007. CMED notes that the public sector currently accounts for around 25% of the Brazilian pharmaceutical market. A list of medicines that will be subject to the cuts will be published within 90 days.
Outlook and Implications
Taken together, the measures illustrate that pharmaceutical pricing policy is hardening in Brazil, and that regulators are taking an intransigent attitude to the legitimate complaints of manufacturers. This not only reflects cost pressures in the public sector, but also an explicit policy for genericisation of the pharmaceutical market as part of a long-term attempt to improve the affordability of medicines. The one bright spot for research-based firms had been an expansion in the public sector market for innovative medicines, but officials now seem determined to expand their bargaining power and constrain potential margins in this area too.
Related Articles
- 14 March 2007: Survey Finds Unauthorised Price Rises in Brazil’s Drug Market
- 13 March 2007: R&D Firms Threaten Legal Action Over Brazilian Procurement Reform
- 29 December 2007: Brazil Sets National Reference Price for Drug Tenders
- 27 December 2007: Government of Brazil Outlines Drug Procurement Funding, Mulls New Quality Rules