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The Euro Value Applied to Pharmaceutical Prices was increased by 36.77%

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The Euro Value Applied to Pharmaceutical Prices was increased by 36.77%

Posted | Updated by Insights team:

Publication | Update:

Jan 2023
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On 14 December 2022, the presidential decree numbered 6546 (“Decree”) amending the Decision o...

On 14 December 2022, the presidential decree numbered 6546 (“Decree”) amending the Decision on Pricing of Medicinal Products for Human Use (“Decision”) was published in the Official Gazette numbered 32043. 

With the provisional clause added to the Decision, the effective date of the changes made in real source price or ex-factory price as per Article 10 of the Communique on the Pricing of Medicinal Products for Human Use, was determined to be the publication date of this Decision for the year 2022.

Subsequently, it is regulated that the value of 1 Euro in terms of Turkish lira to be used in the pricing of the medicinal products for human use shall be increased by 36,77% in December 2022. It has been stated that while this increase is being applied, the netting transaction regulated in Article 3/3 of the Decision will not be applied and the said increase will be valid one day after the publication of the Decision. The increase in question will become effective one day after the publication of the Decree.

In subparagraph 3 of the provisional clause, it is regulated that the exchange rate value determined for December 2022 will also be continued to be valid for the year 2023 and no revaluation will be made for the year 2023. As a final note, in accordance with the amendment of the exchange rate, the price scales stipulated in the Decision were updated; the threshold value for price protected products has been determined as TRY 37.10 while it has been determined as TRY 19.39 for other products in line with the change in the exchange rate.

Evaluation

The exchange rate has been updated for the 3rd time this year.

In accordance with Article 2/2 of the Decision which is still in force, the value of 1 Euro in Turkish Lira to be used in the pricing of medicinal products for human use; is determined by multiplying the annual average Euro value, which will be calculated based on the daily Euro exchange sales rate realizations of the Central Bank of the Republic of Turkey, which is indicative of the previous year, announced in the Official Gazette, by the adaptation coefficient determined as 60%. The Price Evaluation Commission meets within the first 45 days of each year and announces the value of 1 Euro to be used in the pricing of medicinal products for human use.

In this regard, on 14 February 2022, the Turkish Medicines and Medical Devices Agency (“Agency”) Price Evaluation Commission raised the Fx rate to be used in pricing of the drugs to be 6,2925 TRY as of 19 February 2022. Afterwards, on 8 July 2022, 1 Euro value in Turkish Lira is increased by 25%. The new Fx rate is to be valid as of 10 July 2022 is TRY 7,8656. With this last change made before the end of the year the value of 1 Euro determined as 10.75 TRY.

It is known that the reference price and fixed exchange rate practice, which has been applied for many years in Turkey, is challenging for all sector stakeholders. Increasing the fixed Euro rate for the 3rd time is some consolation, but it might be considered as not enough. With the new regulation, the provision stating that there will be no revaluation in 2023 is worrying in the face of currency uncertainties and cost increases. On the other hand, we know that changes were made in the Decree in favour of or against pharmaceutical companies in the past years, with the provisional articles in question. Although these amendments are made in order to close the difference between the actual exchange rate realized due to exchange rate fluctuations and the exchange rate applied by the Agency, the frequent adjustments made with the Presidential decisions on the drug prices pose a problem regarding the predictability of the current legislation.

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Forecast methodology

The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure. We aim update our market forecast to include the latest market developments and trends.

Forecasts, Data modelling and indicator normalisation

Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:

  • Cambridge Econometrics (CE)

  • The Centre for Economic and Business Research (CEBR)

  • Experian Economics (EE)

  • Oxford Economics (OE)

As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.

Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.

Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pre­tax revenue and its total bought­in costs (costs excluding wages and salaries).

Forecasts of GDP growth: GDP = CN+IN+GS+NEX

GDP growth estimates take into account:

  • Consumption, expressed as a function of income, wealth, prices and interest rates;

  • Investment as a function of the return on capital and changes in capacity utilization; Government spending as a function of intervention initiatives and state of the economy;

  • Net exports as a function of global economic conditions.

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Market Quantification
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.

Revenues

Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.

Industry Life Cycle Market Phase

Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:

  • Nascent: New market need not yet determined; growth begins increasing toward end of cycle

  • Growth: Growth trajectory picks up; high growth rates

  • Mature: Typically fewer firms than growth phase, as dominant solutions continue to capture the majority of market share and market consolidation occurs, displaying lower growth rates that are typically on par with the general economy

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The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.

The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.

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The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.

Elasticities
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the consumer’s budget tend to have greater elasticity.
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Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.

Prices
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.

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