parallel trade: an overview of current issues in the trade

It's Value

The PPDI exists in the absence of price harmonisation of pharmaceutical products within the European Union. Such harmonisation seems unlikely for the foreseeable future.

Various estimates of the value of the trade circulate within the market, but no definitive figure is available even from the largest market research firms.

Key reasons for the absence of such key raw data include disagreement within the pharmaceutical industry about the point in the supply chain at which the trade should be valued and the wide variety of discounts given by members of the innovative industry as part of their marketing strategies but not reflected in published figures.

The BAEPD believes the figure should be a straightforward calculation of the landed cost of imports. This is simply:

Wholesaler price + transport + insurance x the number of units.

Pricing

In all member states within the EU, it is the national government which controls or substantially influences the pricing of pharmaceutical products; only in the United Kingdom now is there considerable control retained by the manufacturer. The degree of government involvement by countries such as Germany and the Netherlands, which traditionally also enjoyed an element of free pricing, has significantly increased in recent years.

In July 1999, the government announced that a 4.5% cut in pharmaceutical prices had been agreed between the government and industry as a renegotiation of the PPRS (Pharmaceutical Pricing Review Scheme).

However, this agreement is essentially "historic" as it has been put together on the basis of the current NHS drugs bill and range of medicines. All the manufacturers need to do is to discount the prices of older therapies, especially those subject to competition from BAEPD members, whilst keeping prices high for the latest products. BAEPD, therefore, are doubtful how much taxpayers will really benefit and think it likely that the NHS drugs bill will in reality go up rather than down. The only real effect is likely to be to freeze out pharmaceutical distributors from the distribution of many key lines.

Product Characteristics

Licensed pharmaceutical products which are imported by members of the PPDI are identical in all respects to the branded version marketed by the originator in the country into which it is imported. All such products require a Product Licence (PI) which is a "piggy-back" authorisation granted by the competent regulatory authority, the MCA, after extensive checks to ensure that the imported drug is therapeutically the same as the domestic version.

Consumers

The market is also different from others, for example, in that the person who chooses the product to supply is not the same as the ultimate consumer, as the decision is taken by a General Practitioner or other medically qualified person. The source of supply is controlled in that medicinal products for human consumption can only be obtained through a registered pharmacy.

The United Kingdom government has traditionally claimed to maintain neutrality on the issue: however, the political clout of the ABPI has undoubtedly had an impact on its thinking.

Thus the parallel trade in pharmaceuticals is different from other markets: the imported medicinal product is not a copy; does not vary in any respect from the original; and is manufactured normally by the originator himself or by their licensee to the approved product specification.

Regulation

Members of the PPDI operate within a heavily regulated environment: to some extent the scope of the regulations governing their activities is understandable in that their products are destined for entry into the pharmaceutical product supply chain with the consequent implications for public health, an area which governments have traditionally seen as being one for their involvement.

The regulations presently in force for the non-Original licence holder are far stricter and all embracing than those which exist for the originator. Thus, for example, Bayer may import ADALAT Retard from Germany, which it can then immediately place in the market whereas a PPDI member importing the therapeutically identical product from Germany has to comply with a complete set of procedural rules before he can allow the product to enter the supply chain.

The Likelihood Of Future Change

Despite the confrontational attitude and approach adopted by the research based industry, a trade which started as a small entrepreneurial activity from the back of a few pharmacies has grown into a mature industry employing several thousand people operating throughout the European Union.

Despite continued and repeated overtures from the PPDI, there are few signs of any change of direction in policy or attitude by the innovative companies towards the parallel importer. The occasional smaller multinational may send out a positive signal but the larger companies appear determined to try to curtail the growth of the PPDI as much as they can. Further legal cases appear inevitable. These will simply sustain the income of lawyers and do nothing for either the promotion of public health or the quality of life for the citizens of the EU.

However, it would appear that market integration is a long way off so far as the in-patent product sector is concerned. The innovative industry is determined to maintain the healthy profit ratios it enjoys in the northern European countries. With governments unlikely to relinquish control of pharmaceutical pricing, and with generic substitution resisted by vested interests, the future of the parallel trader would appear strong, allowing the benefits flowing from the existence of the PPDI to continue to support drug cost containment objectives.

The British Association of European Pharmaceutical Distributors
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