Global Report: Still Waiting

The legal position on parallel trade in Europe remains ambiguous after the European Court of Justice (ECJ) failed to make a decision in a case brought by Greek pharmaceutical wholesalers against GlaxoSmithKline (GSK). In an attempt to cut down on the re-export of cheap medicines from Greece into more expensive countries, GSK had refused to meet the orders from Greek wholesalers in full. The competition commission in Greece referred the case to the ECJ, but the court has now decided that it has no jurisdiction in the area—and is thus, unable to make a ruling—leaving the legal position as unclear as ever.

Sarah Houlton, PhD

Figures from the European Federation of Pharmaceutical Industries and Associations indicate that parallel trade in Europe last year amounted to close to €5 billion. Industry was hoping for more clarity on the issue. "This is better than a negative decision, though we hoped for a positive one," says Jean-François Dehecq, CEO of Sanofi-Aventis.

Meanwhile, the traders' association, the European Association of Euro-Pharmaceutical Companies (EAEPC), said that it, too, would have preferred the ECJ to take a position. "We had hoped it would give a clear European signal that the behavior of GSK in Greece was anticompetitive, as well as dangerous for patient health," says Hans BØgh-SØrensen, EAEPC's president.

Parallel trade is a huge issue for European pharma companies. The European Union's single market means that there should be free movement of all goods across national borders. However, the market for medicines is not as simple as the chocolate market, for example. Chocolate makers can set their prices according to market forces, so there is little incentive for traders to buy up stocks in one country and sell them in another. But the governments in individual states set medicine prices. So traders can buy up supplies from wholesalers in one country, where government-controlled prices are low, and then sell them at a profit in a country where the prices are higher.

Traders claim that parallel distribution of medicines between EU member states generates substantial savings, both direct and indirect, for patients. Manufacturers, however, disagree. "The parallel traders do not invest or employ in the industry," says Schering's CEO, Hubertus Erlen. Essentially, the cut the traders take is pure profit on their part, being siphoned off from the pharmaceutical value chain, and giving pharma companies that actually discover and make the medicines less money to reinvest in further R&D.

One potential solution may be forthcoming from Spain, the source of a large amount of the parallel-traded drugs. Article 100, the country's medicines law, allows for all pharmaceutical products to be traceable. This makes it possible to tell what has been sold where, and whether it was used in the country of purchase or re-exported.

Until now, this had not been implemented because of a lack of resources, but in December, Pfizer announced that it plans to implement a dual-pricing model, where the price it charges depends on whether the medicines are exported or sold to patients in Spain. As a result, the Health & Consumption Ministry proposed a new draft regulation developing article 100, which would further control traceability of the medicines from the pharma company to the patient.

The Health & Consumption Minister claims the aims of this new draft would be to ensure a sufficient supply of medicines to cover the Spanish market, and to increase the transparency of the distribution process for pharmacovigilance purposes.

"Companies will be able to establish a European price, and an internal price, which will be used by the social security system," says Jorge Gallardo, CEO of Spanish pharma company Almirall. This way, wholesalers will have to pay the drug companies more for medicines that will be sold outside the country, and the extra margin will disappear. "It could help solve the parallel trade issue," Gallardo says. "We hope other countries in Europe will follow suit."

"This [legal] reform may create the possibility to implement the dual price system," says Elizabeth Planell, an attorney with Baker & McKenzie's Barcelona office. "The laboratory would be able to check whether the medicines sold to wholesale distributors are supplied in the Spanish market or sold abroad, and to identify the distributor or pharmacy involved in parallel-trade activities. They could thus decide to apply different prices for medicines to such distributors, depending on whether or not the medicines are supplied to patients in Spain."

Sarah Houlton, PhD,is Pharmaceutical Executive's global correspondent. She can be reached at sarah@owlmedia.co.uk