Parallel trade: Is pharma fighting a losing battle?

The industry has little choice but to find its own entirely legal solution to the problem

Parallel trade has become the bete noire of the European pharmaceutical industry. At the heart of the problem, the industry is caught between two seemingly immovable objects -- the right of EU member states to set individual price levels, and the European Commission’s pursuit of any business that obstructs the free movement of goods. IMS data suggest that by the end of 2002, 20 per cent of all UK prescriptions dispensed will be parallel imports. So is the industry fighting a losing battle, and if so, can it learn to live with parallel imports?

IMS data show parallel imports into the UK grew 38 per cent in 2001. ‘‘The increase in parallel trade, now costing the UK-based industry some 1 billion pound a year, is severely restricting our trade success in pharmaceuticals,’’ said ABPI director general, Dr Trevor Jones. These views have been echoed by many of the highest profile pharmaceutical chief executives, including AstraZeneca’s Sir Tom McKillop (also president of EFPIA) and Pfizer’s Hank McKinnell, whose Lipitor is one of the most heavily parallel imported product into the UK. The industry’s chief objection to parallel trade is that it undermines the often hard-fought pricing agreements achieved in Europe, and erodes the profits needed to fuel the research and development of new, often life-saving medicines.

The European Competition Commission carefully examined and then dismissed this argument, put forward in a legal case by GlaxoWellcome in defence of its dual pricing system in Spain. It is also suggested that companies should cut back their marketing budget to compensate for parallel trade which may appear far fetched. Thus, the industry has little choice but to find its own, entirely legal solution to the problem.

The anti-parallel trade tactic most widely practiced by manufacturers is the quota system. Pharmaceutical companies strictly limit the supply of medicines to a market to match normal demand, in an attempt to starve the parallel traders of the surplus stock they need to trade. However, this, like many other spoiling tactics, looks doomed. The European Commission has already indicated it will review the industry-wide practice, and seems certain to curtail it or outlaw it altogether.

Donald Macarthur, secretary general of European parallel traders association EAPC, says parallel imports undoubtedly save the NHS money, despite the lack of clarity. ‘‘You can’t pull out the parallel trade component because neither the DoH or the PSNC will actually give a breakdown,’’ he says.

Minimising the effects

More often, the leading companies and their biggest selling products are disproportionately targeted. IMS data show 50 per cent of parallel trade is accounted for by just 12 products, with just four companies bearing the brunt of 60 per cent of all parallel imports.

The pharmaceutical companies are trying out various strategies to minimise the effects of parallel trade. Dr Trevor Jones recently revealed that a group of leading companies is now funding a special investigative taskforce to combat opportunistic ‘cowboys’ who operate pharmaceutical import businesses on the fringes of the law.

The next major battle to be fought will come with the eastwards expansion of the EU, which pharma has long feared could herald a flood of cheap imports from countries like Hungary and Romania into western markets. This time, the industry looks set to have its way, with a ‘derogation’ (ie, exception) to EU rules banning parallel imports from the 10 new member states for a transitional period of upto 15 years.

The accession treaty does not, however, exclude parallel trade from west to east, and this could in fact be a viable proposition for the importers; the business often confounds simplistic understandings of the internal market. Clearly, parallel imports are a highly emotive issue, with everyone - the industry, the parallel importers and the Commission - all claiming they are representing the best interests of Europe’s health systems and economies.

Perhaps the most emotive issue for companies to resolve is that these are their own products, seemingly hijacked by parallel traders and turned against them. Regardless of the considerable doubt surrounding its value to European health systems, parallel trade seems here to stay. In the absence of an industry argument that politicians find compelling, individual companies will have to develop the most effective coping strategies available to them.

—Courtesy:Pharmafocus