Monthly Archives: July 2019

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How are the prices of drugs fixed and controlled in Ecuador?

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drugs-price

This article summarizes the system for setting and controlling the prices of drugs for human consumption[1] and points out some observations made by the pharmaceutical sector to such system with regard to the possible reform of Executive Decree 400.

Pricing

The pricing of drugs corresponds to the National Council for Fixing and Reviewing the Prices of Drugs for Human Use and Consumption (hereinafter, the “Council”).

The Council sets the prices in accordance with the Regulation for the Pricing of Drugs for Human Use and Consumption (hereinafter, the “Regulations”). This Regulation foresees three pricing regulations: regulated, direct, and released as explained below.

1. Regulated Pricing Regulation

This regulation establishes a ceiling price for each market[2] segment of strategic[3] and new drugs[4].

For registered[5] drugs considered strategic, the ceiling price shall be the equivalent to the median of the retail prices of the private market of the participating drugs in the corresponding market segment, excluding those prices considered atypical. Drugs with retail prices lower than the ceiling price will not be able to increase their prices.

For new drugs, the Council must decide beforehand whether it is a strategic drug or not. If the drug is strategic, the therapeutic advantage of such shall be analyzed:

  • If there is no therapeutic advantage, the ceiling price shall be determined based on a drug-economic analysis between the drug and the existing therapeutic alternatives.
  • If the drug has a therapeutic contribution, the marketing price of the same drug in other countries (at least three) shall be considered, and its ceiling price shall be the equivalent in national currency to the average price of the three lowest reference prices adjusted by the purchasing power parity.

In this case, the Council has a maximum term of sixty (60) days from the submission of the request to issue a reasoned resolution determining the market segment to which the drug belongs and the maximum price at which it may be marketed.  If this is not done within that period of time, the price proposed by the applicant[6] is deemed fixed until the Council comes to a resolution.

2. Direct Pricing Regulation

The Direct Pricing Regulation is an exception and consists of the Council’s unilateral determination of the prices of drugs for human use and consumption.

The Council applies this regulation in the following cases:

  • When the sale prices to the public to which the drug is marketed have exceeded the ceiling for the corresponding market segment established by the Council.

The new price shall be calculated according to the formula below, where P * is the price fixed directly by the Council, A is the ceiling price according to the market segment to which the drug belongs, and B is the effective price at which the drug was marketed.

P * = A2 / B

In this case, the drug will be subjected to Direct Pricing Regulation for a period of three (3) years.

  • When the sale prices to the public to which the drug is marketed under the regulated pricing have been increased annually in a higher percentage than the accumulated inflation of the year.

If this is the case, the Council shall set as the new selling price, the price at which the drug was already being marketed minus the last annual increase recorded for that drug. The drug will be subjected to Direct Pricing Regulation for a period of two (2) years.

  • When drugs classified as new and strategic are marketed without prior fixation of ceiling prices by the Council.

To calculate the ceiling price, It shall be considered if the current sale price of the drug exceeds or not its price defined by its market segment.  In the first case, whenever it is a new drug, the new price shall be obtained based on the formula indicated in letter a); in the second case, the price at which the offender was marketing the drug shall be set as the sale price.

In both cases, the drug being the cause of infringement will be subjected to Direct Pricing Regulation for a period of three (3) years.

  • When the prices and information provided to the Council are not true and there is an intention to hide, omit and / or falsify information with the purpose of deceiving the State and / or obtaining any particular benefit.

In this alternative, the price to be set will be the one corresponding to its market segment as per the last price revision carried out by the Council. If the Regulated Pricing had been applied, the price shall be reduced by ten percent (10%) for each year or period in which the drug was sold at a price set based on non-truthful information, or up to a maximum of 70% reduction.

The offender will be subjected to Direct Pricing Regulation for twice as much the time he committed the infraction.

In the event of committing the same offense again in any of the aforementioned cases, the Direct Pricing Regulation will be applied to the importer, national laboratory or distributor for an additional period of five (5) years.

3. Released Pricing Regulation

This rule applies to those drugs that are not classified under the Regulated Pricing or the Direct Regulated Pricing. Their prices will be freely determined; the holder of the health registry must notify the Council the price of the respective drug on a bi-annual basis.

Pricing Control

No drug can be marketed at a retail price above the ceiling price set by the Council.  Therefore, the retail price of all drugs must be printed in their secondary packaging permanently.

To ensure compliance with the ceiling prices set by the Council, the National Agency for Health Regulation, Control and Surveillance – ARCSA performs field checks on a regular basis.  When a breach is identified, the ARCSA notifies the Technical Secretariat of the Council which will issue a reasoned report to the Council, so that the latter may apply the Direct Pricing Regulation as appropriate.

Additionally, when the Council receives a complaint about the breach of ceiling prices, it will notify its Technical Secretariat to verify its existence.  In the event that such breach was verified, the Council will apply the Direct Pricing Regulation.

Observations

The Regulation has been object of commentaries and questions on the part of the pharmaceutical sector because it considers that the regulation does not respond to the reality of the market, to the development of the pharmaceutical industry, and/or to the interests of the consumer.

In 2017, PhRMA[7] concluded that the Ecuadorian government’s price control represents a barrier to access the market.  According to PhRMA, the Regulation might have caused uncertainty in the pharmaceutical industry because, among other things, the scope of its application or the criterion according to which medicines will be categorized as strategic under the Regulated Pricing Regime is not clear.

PhRMA also pointed out that in respect to drugs classified within the same therapeutic area, the price system does not adequately take into account differences in quality, efficacy or safety. These factors would affect the quality of medicines in Ecuador, threaten the patient’s safety, and reduce the incentives to introduce innovative medicines in the Ecuadorian market.

The observations made by PhRMA are not alien to the local opinion. Several representatives from the pharmaceutical sector consider that the term “strategic medicine” should be eliminated and another simpler and clearer term should be included; one that stablishes directly when the price of a drug must be regulated or released.  In addition, PhRMA proposes to recognize pharmaceutical technological innovation as an element to differentiate the prices of drugs that, although sharing the same active ingredient or fixed dose of active ingredients or pharmaceutical form with other medicines, they include, for example, new devices that facilitate their posology and administration.

In relation to the Regulated Regime, it was pointed out that drugs with sale prices to the public lower than the ceiling price set by the Council cannot increase their sale price. The effect of this provision is the “creation” of two groups of medicines that must compete in the market with different ceiling prices, despite sharing the same active ingredient or combination of active ingredients, the same pharmaceutical form up to the first level of disaggregation and the same concentration.

This provision has caused the industry to maintain the existence of a “double ceiling” and to question the convenience of applying different prices to drugs that correspond to the same market segment, “punishing” those who offered a drug at a price lower than the one fixed by the Council subsequently.

Regarding the application of the Direct Pricing Regulation, specifically when a drug is sold at a price higher than the one set by the Council, it is highlighted that the holder of the health registration of the drug only finds out about the alleged breach when notified with the Resolution that unilaterally fixes the new ceiling price, without having the opportunity to exercise its legitimate defense and present the corresponding discharges before the application of the sanction regime.

In view of the above, the willingness of the Presidency of the Republic and the Council to hold meetings with the pharmaceutical sector in order to analyze the reforms needed to the Regulation is commendatory.

Mario Fernández
Asociatte at CorralRosales
mfernandez@corralrosales.com

[1] Decree 400 (Second Supplement to the Official Registry 299, 29-VII-2014).
[2] According to literal n) of Art. 2 of the Regulation, the market segment refers to medicines that correspond to the same active ingredient or combination of active ingredients, to the same pharmaceutical form up to the first level of disaggregation and to the same concentration.
[3] Strategic medicine is considered to be one that meets the criteria established by the Council through Resolution No. 07-2014. Through Resolution No. STLM 16-660, the Council authorized the publication of the FAITH OF ERRATAS of Resolution No. 07-2014.
[4] According to literal l) of Art. 2 of the Regulation, a medicine is considered new when: (i) a drug whose active ingredient or fixed-dose combination of active ingredients is not commercialized in the Ecuadorian pharmaceutical market; and, (ii) a drug whose active ingredient or fixed-dose combination of active ingredients is commercialized in the Ecuadorian pharmaceutical market and it requests pricing in a concentration or pharmaceutical form different from those already commercialized in the country.
[5] According to literal k of Art. 2 of the Regulation, a registered drug is understood to be those whose active principles or combinations of active principles have already been registered with the Health Authority and / or previously commercialized in the national market, under any pharmaceutical form, pharmaceutical concentration, commercial presentation, denomination or brand.
[6] According to the literal or Art. 2 of the Regulation, an applicant is understood to be a duly authorized natural or legal person who requests the Council to set the price of a medicine for human use or, when that is not possible, notifies the price for sale to the public.
[7] Pharmaceutical Research and Manufacturers of America (PhRMA). “Special 301 Submission 2017”. En: http://phrma-docs.phrma.org/files/dmfile/PhRMA-2017-Special-301-Submission.pdf. Pages. 121 a 124. Ibidem.

LexLatin – CorralRosales promotes two partners and area leaders in Quito

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DETAILS

DATE: 11-07-19

CORRALROSALES IN THE NEWS:: 

–Andrea Moya
–Felipe Samaniego

MEDIA: LexLatin

The Ecuadorian company CorralRosales announced the appointment of Felipe Samaniego and Andrea Moya as new partners in regulatory and tax practices respectively. The firm now has a total of nine partners.

Samaniego is the leader of the regulatory group. This group is comprised of professionals and specialists in different fields such as veterinary, pharmacology, food and additive. Moya is in charge of the tax area which is made up of three professionals.

Both specialists told LexLatin about their promotions. Andrea Moya said that in this new challenge, she is focused on continue being a leading team in the analysis of complex operations including cross-border transactions, trading of international production units, and tax planning for companies wishing to operate in Ecuador.

At the same time, Samaniego stressed that he accepts the challenge of consolidating the firm as a benchmark for regulatory matters in the country. To achieve his goal, he assured that he counts with a regulatory team that combines industrial experience and in-depth knowledge to advise foreign mass consumption companies seeking to enter the Ecuadorian market and local manufacturers too about the schemes that best suit their needs and allow them to have control over their products as well.

About our new partners

Felipe Samaniego has more than three years of experience in the area of regulatory law, with emphasis on matters related to food law, advertising, consumer goods, pharmaceuticals, chemicals, biologicals, agricultural, cosmetics, hygiene, food and beverages. He also handles issues of foreign trade and quality standards.

Some of the companies assisted in the regulatory area are Roquit Benckiser, Pacari, Clorox, Ferrero, Nestle Ecuador, and Grupo Familia.

Before joining Corral Rosales in 2009, Felipe was a legal assistant at Ernst & Young. He also worked at Tobar & Bustamante in 2006. He graduated from University of the Americas (Mexico).

Andrea Moya has specialized in the tax area for more than a decade. She has extensive experience in consultancy matters and in the representation of clients in administrative and judicial processes leading the definition of strategies and generation of tax structures both local and international.

The client portfolio of the tax area Andrea leads includes Panamanian Aviation Company (Copa Airlines), Ferrero, Marriot International Hotels Inc., General Motors, Terpel-Comercial Ecuador Cia. Ltda., Nestle Ecuador SA, among others.

Andrea graduated as an attorney from the Pontificia Universidad Católica del Ecuador and holds a Master’s Degree in Tax Law from the same university. She also holds a Master’s Degree in International Tax Law from New York University (NYU).

If you want to read the news, press here

What you need to know about purchase orders

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purchase-orders

The purchase process, especially in large companies, has become a complex process in which it is necessary to give specific answers that are legally supported in the shortest possible amount of time. It is usual to require a contract for each transaction, but this delays the purchase processes. Purchase orders used effectively can contribute to run a more dynamic business and to save time and money.

But, what is a purchase order?

A purchase order is a document that a buyer sends to a seller in which the scope and details of the services or products required and accepted by the parties are specified. Generally, pre-established forms or documents are used to better specify data and references. They usually have the title “Purchase Order” printed.

The legal value of a purchase order

When a buyer generates a purchase order by formally accepting an offer or proposal from the seller, a binding contract is generated for both parties.

For this reason, it is important to know that the purchase order protects both the buyer and the seller, against any eventuality or controversy, depending on the terms and conditions established in the offer and the purchase order.

Electronic purchase orders

Many companies are now using electronic purchase orders, where the whole process is carried out through a platform. This platform is a centralized system in which the purchase documents are registered. This system is convenient because it saves time and paperwork.

For this type of transactions, it is recommended to have an Electronic Transaction Agreement[1].

What must a purchase order contain to be valid?

The more specific and detailed the purchase order, the more secure the transaction will be. It is recommended that at least it contains the following:

  • Identification of the parties (buyer and seller);
  • Detail of products and / or services;
  • Quantity;

Electronic Transaction Agreement: its purpose is to establish the principles and rules applicable to those cases in which the contractual parties offer or accept products and / or services electronically. The recently published Commercial Code regulates electronic transactions, indicating that they are fully valid and effective (Arts. 238 to 247). Regarding contracts, Art. 76 defines the Electronic Services Commercial Contract as: “(…) the agreement of wills between a provider and a user for the authorization of an electronic system or platform that allows the performance of any activity, commercial, financial, or service transaction to be provided by the same provider or a third party ”.

  • Price;
  • Payment form;
  • Delivery details (when and where).

How do purchase orders facilitate business?

  • They generate fewer complications in the negotiation of a contract.
  • Legal representatives save time since the purchasing department has been designated to issue such documents.
  • They are an excellent mechanism to maintain proper monitoring of transactions.
  • They allow having a better control of the budget.
  • With electronic purchase orders you save time, paperwork and signatures, in addition to having an electronic record of all transactions.
  • Provides both vendors and buyers with a supporting contractual document with full legal effect.

Should a contract be signed after a purchase order has been issued?

It is not necessary or convenient. The purchase order is a full value contract; signing a contract duplicates documents unnecessarily.

Should the purchase order contain contractual terms and conditions?

The purchase order may or may not contain contractual terms and conditions. However, when the offer presented by the seller is solely economic and no previous contractual terms and conditions have been agreed, it is convenient to include at least basic terms and conditions in the purchase order.

However, if there is a proposal by the seller that contains contractual terms and conditions, it would be advisable to negotiate the conditions in that document and not include others in the purchase order, thus avoiding having two documents with different terms and conditions.

When you are going to start a business relationship with a new supplier, it is recommended to agree on the terms and conditions that apply to all transactions from the beginning, so it is not necessary to establish new terms and conditions in each transaction.

What problems could the purchase orders generate?

Incomplete or defective purchase orders can generate conflicts as exemplified in the following cases:

  • The content of the purchase order contradicts the terms and conditions of the offer or proposal.
  • The document is not specific enough in the basic content and there is no clarity in the scope of purchase.
  • The terms and conditions of the purchase order differ from those of the offer without determining the ones that prevail.
  • A purchase order is used as an award letter and the signing of a contract is subsequently required.

What are the differences between a purchase order and an invoice?

They are totally different documents. However, both contain similar characteristics and information since they contain the details of the commercial transaction carried out.

  • The purchase order is issued by a buyer and contains the details of your request.
  • The invoice[2] is issued by the seller and indicates all the details of the merchandise or service and its payment.

María Isabel Torres
Asociate at CorralRosales
mtorres@corralrosales.com

[1] Electronic Transaction Agreement: its purpose is to establish the principles and rules applicable to those cases in which the contractual parties offer or accept products and / or services electronically. The recently published Commercial Code regulates electronic transactions, indicating that they are fully valid and effective (Arts. 238 to 247). Regarding contracts, Art. 76 defines the Electronic Services Commercial Contract as: “(…) the agreement of wills between a provider and a user for the authorization of an electronic system or platform that allows the performance of any activity, commercial, financial, or service transaction to be provided by the same provider or a third party ”.

[2] Invoice: proof of sale that proves the transfer of goods or services. In addition, the invoice serves in the tax law to establish the tax base of certain taxes.