On average, big pharmaceutical companies spend around 20% of their budget in research and development of new drugs. For smaller companies, the effort can be even higher, up to 50% of their budget is invested in R&D.
It is understandable that pharma companies try to maximise the return on their investment once the new drug is put on the market – but their interests often collide with the interest of the society as a whole. South America is particularly attentive to the issue of cost of medications and the panorama is highly regulated when it comes to pricing new pharmaceuticals.
Pricing Limits in Brazil
In Brazil, Pharma companies are not free to determine the market price of the drugs they developed. The sale of pharmaceuticals is allowed once the product has been approved by ANVISA’s Regulation Chamber of the Drug Market (Câmara de Regulação do Mercado de Medicamentos or CMED). CMED establishes the maximum selling price for the drug in accordance with the rules on reference pricing. Brazil was the first country in South America to introduce reference pricing.
In this system, the price is fixed by referring to the prices of equivalent drugs in other countries so-called external referencing or to the price of the equivalent drugs already marketed in Brazil.
According to the “Resolution 2”, issued in 2004, if the drug is innovative, that is, CMED recognises that there is evidence that the new product is superior to existing standard therapies, then the rules on external referencing apply. Therefore, the medicine’s price will be equal to the lowest price in this group of 11 countries: Australia, Canada, Spain, USA, UK, France, Greece, Italy, New Zealand, Portugal and the country of origin.
Pricing Regulations in other South American Countries
In 2012, Colombia adopted a similar system to decrease the price of medications that had a big impact on the public health budget and were already marketed in the country. Colombia set a group of 17 countries: Argentina, Australia, Brazil, Canada, Chile, Ecuador, France, Germany, Mexico, Norway, Panama, Peru, Portugal, Spain, UK, United States and Uruguay. The price of the drug had to be equal to the one practised in countries in the “third quartile” of the list. In other words, the prices of the drug marketed in the reference countries are ranked from lowest to highest – and the price in Colombia will be equal to the one of the countries which rank around 12 or 13 on the list.
Similarly, in Ecuador, the Decreto 400/2013 establishes that the price of new medicines that offer an improvement on existing therapies will be fixed through the system of reference pricing. In particular, the Health Ministry can refer to the price used in the countries belonging to MERCOSUR (Argentina, Brasil, Paraguay, Uruguay and Venezuela) and ALBA ( Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Grenada, Nicaragua, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines and Venezuela, Suriname). Price for the new drug will be the equal to the average of the 3 lowest prices set in those countries.
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