Azerbaijan Pharmaceutical Pricing Regulations

The pharmaceutical market in Azerbaijan has been undergoing significant changes in recent years, particularly in the area of pricing regulations. For international pharmaceutical companies looking to enter or expand their presence in this market, understanding the pricing policies is key to your go / no go decisions. 

Let us review Azerbaijan’s current pharmaceutical pricing rules and regulations, recent amendments, and their implications for international manufacturers. 

Azerbaijan’s Pharmaceutical Pricing Framework

Azerbaijan has implemented a comprehensive price regulation system for state-registered medicines, overseen by the Tariff (Price) Council. The Council is responsible for setting both wholesale and retail prices for pharmaceuticals, with the objective of balancing affordability and access for consumers while ensuring a sustainable supply from manufacturers.

Key components of the pricing framework include:

1. Reference pricing system
2. Wholesale and retail price controls
3. Regular price reviews and adjustments
4. Monitoring and enforcement mechanisms

The reference pricing system is a central pillar of Azerbaijan’s pharmaceutical pricing regulations. Each year, the Tariff Council selects at least five reference countries from different regions to determine reference prices. 

As of 2023, the reference countries include:

• Turkey
• France
• Italy
• Spain
• Portugal
• Greece
• Poland
• Hungary
• Bulgaria
• Slovenia

Manufacturers or their authorized representatives must submit detailed pricing declarations and supporting documentation to the Tariff Council for price regulation. 

This includes information such as:

• State registration certificates
• GMP certificates
• Audited financial statements
• Pharmacoeconomic data
• Treatment cost comparisons

The Tariff Council then calculates the wholesale and retail prices based on the reference prices and regulates mark-ups along the supply chain. Prices are reviewed on a quarterly basis, with provisions for extraordinary reviews in response to factors such as currency fluctuations exceeding 5%.

Detailed Description of the Azerbaijani Pharmaceutical Reference Pricing System

Here is a more detailed summary of how the Tariff Council in Azerbaijan calculates medicine prices using the reference pricing system:

1. Selection of reference countries:
   1. Each year, the Tariff Council selects at least 5 reference countries from different regions to determine reference prices.
   2. As of 2023, the 10 reference countries are: Turkey, France, Italy, Spain, Portugal, Greece, Poland, Hungary, Bulgaria and Slovenia.
   3. Any changes to the reference country list are announced 2 months in advance.
2. Determination of reference prices:
   1. The reference price is set as the average of the 5 lowest prices for the medicine in the reference countries.
   2. If the medicine is manufactured in the EU (excluding reference countries), US, Canada, Japan, Australia, Israel, Norway or Turkey, the reference price is calculated as the average of the 5 lowest prices without further adjustments.
   3. For medicines from other countries, an additional coefficient is applied to the average reference price.
3. Calculation of wholesale and retail prices:
   1. The conditional wholesale price is calculated from the reference price, taking into account the official exchange rate of Azerbaijani manat to USD.
   2. Specific formulas in Microsoft Excel are used to calculate the final wholesale and retail prices, incorporating allowed mark-ups.
   3. The price of the control mark is added to arrive at the final prices.
4. Price review frequency:
   1. Medicine prices are reviewed by the Tariff Council on a quarterly basis.
   2. Extraordinary price reviews can be initiated by the Council itself or in cases like currency fluctuations exceeding 5%.
5. Manufacturer obligations:
   1. Manufacturers must submit pricing declarations and supporting documents like state registration certificates, GMP certificates, financial statements, etc. to the Tariff Council.
   2. If reference prices decrease by over 5%, manufacturers must re-submit pricing declarations within 3 months.

Briefly, Azerbaijan uses external reference pricing, selecting the average of the lowest 5 prices from 10 reference countries, and then applies conversion rates and regulated mark-ups to arrive at final wholesale and retail prices. The system aims to keep prices in check through frequent reviews and re-referencing.

The Ministry of Economy is responsible for monitoring compliance with the regulated prices, and penalties may be imposed for non-compliance. Retail prices must be printed on the packaging of medicines or otherwise incorporated as approved by the Ministry.

Azerbaijan’s pharmaceutical pricing framework is designed to control costs for consumers and the healthcare system while providing a predictable environment for manufacturers. However, the system has also faced challenges, such as delays in price approvals and the need for greater flexibility to accommodate market dynamics.

Recent Amendments and Their Implications

In September 2023, Azerbaijan introduced significant amendments to the Law “On Medicines” that have brought some needed changes to the pharmaceutical pricing system. These amendments aim to address some of the challenges faced under the previous system and create a more market-oriented approach.

One of the key changes is the shift from fixed prices to price ceilings. Previously, the Tariff Council set fixed prices at both the wholesale and retail levels, which manufacturers and pharmacies were required to adhere to strictly. 

Under the new regulations, the Council now sets maximum prices, allowing companies to sell their products at any price below the ceiling.

This increased pricing flexibility is expected to have several implications for international manufacturers:

1. Enhanced competition: With the ability to set prices below the regulated ceilings, manufacturers can now compete more effectively on price and adapt to market conditions.
2. Improved market access: The new regulations may encourage more international manufacturers to enter the Azerbaijani market, as they have greater control over pricing and can potentially offer more competitive prices.
3. Potential for increased market share: Manufacturers who can leverage the pricing flexibility to offer attractive prices while maintaining profitability may be able to capture a larger share of the market.

Another significant change introduced by the amendments is the simplification and acceleration of the drug registration process. The registration timeline has been reduced from over nine months to a maximum of four months. 

This streamlined process is anticipated to have several benefits:

• Faster market entry for new medicines
• Improved access to innovative treatments for patients
• Increased attractiveness of the Azerbaijani market for international manufacturers
• Increased competition to keep prices in check

The introduction of electronic prescriptions that specify active substances rather than brand names is also expected to impact the pharmaceutical market. This move aims to reduce dependence on specific brands and promote the use of generic alternatives. 

For international manufacturers, this may mean:

1. Increased competition from generic manufacturers
2. Pressure to demonstrate the value proposition of branded medicines
3. Potential opportunities for local manufacturing or partnerships with Azerbaijani companies

To illustrate the potential impact of these changes, consider the following statistics:

• In 2022, the Azerbaijani pharmaceutical market was valued at approximately $1.2 billion, with a growth rate of 7% compared to the previous year.
• Generic medicines accounted for around 60% of the market share in terms of volume, while branded medicines held a higher share in terms of value.
• The streamlined registration process is expected to lead to a 20-30% increase in the number of new drug applications submitted by international manufacturers.

As Dr. Farid Aliyev, a leading expert on Azerbaijan’s pharmaceutical industry, states:

“The recent amendments to the pricing regulations are a significant step towards creating a more competitive and attractive market for international manufacturers. By allowing pricing flexibility and simplifying the registration process, Azerbaijan is signaling its commitment to fostering a dynamic and innovative pharmaceutical sector.”

International pharmaceutical companies that can adapt to these changes and leverage the opportunities they present will be well-positioned to succeed in Azerbaijan’s evolving pharmaceutical market.

Make the Best of Azerbaijan Pharmaceutical Pricing

Azerbaijan has implemented comprehensive pharmaceutical pricing regulations centered around reference pricing and price controls. While the system aims to balance affordable access for patients with reasonable profits for manufacturers, it has faced issues like approval delays. 

The recent amendments introducing price ceilings, faster registration timelines, e-prescriptions and other changes are a major step towards a more market-oriented approach. 

For international pharmaceutical companies seeking to enter or expand in Azerbaijan, understanding and leveraging these dynamics will be key to succeeding in this promising market. 

With strong local experience and contacts, Delta Medical’s Baku office can provide invaluable guidance on pricing strategies, regulatory nuances, and securing the necessary approvals.