Parallel Trade a Victim of Brexit Collateral Damage

A lesser-noticed side effect of Brexit is its impact on parallel trade in medicines. Lesser-noticed, and perhaps lesser-lamented in the drug industry, since most pharmaceutical manufacturers have long opposed the very concept of agile middlemen extracting value from the price differences across Europe’s patchwork quilt of distinct systems, divergent prices, but united in a single market.

Of course, parallel trade will continue as before across the borders of the 27 remaining member states after Brexit. But parallel business across the Channel is going to face more than 19 miles of salt water as a barrier-because the principle of free circulation of goods in a single market falls an obvious victim as soon as a country drops out of the European Union (EU). And that is going to have repercussions on both sides.

‘No-deal’ scenario

On the (highly likely) assumption that the UK leaves the EU on March 29, the disruption is likely to be all the greater, since the departing country has for decades been a happy hunting ground for parallel traders, who have been energetically supplying and sourcing products there.

A joint statement in February from the European Commission and the European Medicines Agency (EMA) says unequivocally that in the event of a “no-deal” Brexit, which was still a possibility as of press time, “parallel trade of medicines sourced in the UK is, in practice, no longer possible as of the withdrawal date.”

Parallel trade of medicinal products in the internal market is possible in particular because of two factors, the statement explains. One is that trademark rights are “exhausted”-that is, they no longer provide grounds for opposing supply, once the rights holder places the product anywhere in the internal market. The other is that the summary of product characteristics and the labeling of medicinal products have to be identical (apart from issues of language used).

But after UK withdrawal, neither of these conditions will obtain; the rules for exhaustion of trademark rights will no longer apply to products placed on the UK market, and the terms of the marketing authorization will differ.

The consequence is an immediate stop to around €600 million worth of medicines that are currently exported from the UK to the EU every year.

The UK authorities don’t quite seem to have woken up to this-or have chosen simply to ignore it. Their January guide to what a “no-deal” Brexit means for medicines states clearly: “EU exit does not mean that parallel imports of medicines will cease.” But they can say this only because the UK focus is limited to medicines flowing in the other direction, that are imported into the UK from the EU-a trade estimated to be worth about €1 billion a year. The UK says it can choose whether or not to allow parallel imports; citing the World Trade Organization’s 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights (better known by its acronym of TRIPS), it claims it is entitled to choose what rules govern exhaustion of trademark rights.

The UK has decided on what it calls a “temporary fix.” “If there’s ‘no deal,’ the UK will unilaterally align to the EU exhaustion regime from exit day, to provide continuity in the immediate term for businesses and consumers and ensure that parallel imports of goods, such as pharmaceuticals, can continue from the EU,” it says. Meanwhile, “We’re currently considering all options for how the exhaustion regime should operate after this temporary fix,” and “any substantial changes to the exhaustion regime will occur only after a full research program and consultation.” 

The UK will also juggle the authorizations so that the other condition is satisfied, and it will unilaterally provide a soft regime at least until 2020.

Export issues

That appears, for the moment, to satisfy the UK government-which, of course, benefits from parallel importing from the EU, to the extent that it can reduce the costs of UK drug supply. As the UK acknowledges in its January guidance, “Parallel import of medicinal products is an important route of supply for medicinal products in the United Kingdom and provides cost savings to the NHS across the UK, as well as alleviating supply issues.”

What it does not resolve is the impasse for trade in parallel exports out of the UK and into the EU. Nor does the EU give much sign of wanting to help out there either. It will allow duly authorized UK-sourced medicines brought into the EU27 before withdrawal to circulate on the EU27 market. 

But the guidance makes crystal clear that EU law “does not cover export or import of the product from third countries” and the UK will be a third country, as from its withdrawal, with or without a deal. “Moreover, as of the withdrawal date, central marketing authorizations (that is, issued after an EMA procedure) cease to be valid in the UK.” 

So as of the withdrawal date, the EU rules “no longer apply to medicinal products sourced in the UK for the purpose of parallel distribution in EU27.”

Industry worries

The UK drug industry’s main lobby group, the Association of the British Pharmaceutical Industry (ABPI), has repeatedly pointed out how seriously European drug supply is threatened by Brexit-particularly since around 40 million patient packs go from the UK to the EU every month, and some 2,500 authorizations, representing around 350 products, are held by UK-based companies. In addition, there are valuable medicines that are manufactured only in the UK. 

ABPI’s main concern is the interests of its membership among drug manufacturers, not parallel traders. But what it argues about drug supply is valid for all trade, whether it is direct or parallel.

“The regulatory arrangements for medicines and medical devices are complex and changes to this regime may have an impact on supplies cross Europe. ‘No deal’ or a deal between the UK and the EU that does not

address future cooperation on medicines and medical technologies could put public health at risk,” ABPI said as fears of a ‘no-deal’ scenario intensified. “Certain medicines and medical technologies may be delayed in reaching patients or may even become unavailable to patients if no solution for medicines and medical devices is found during the Brexit negotiations,” it went on.

The bottom line is that-irrespective of anyone’s views on the desirability of parallel trade-Brexit could be about to deliver a blow to what has been a flourishing supply of parallel imports out of the UK and into the EU. Parallel traders’ sufferings may not provoke much sympathy. Nor perhaps will the cut in adventitious profits that some wholesalers or pharmacists in the EU will experience. But reduced supplies out of the UK could well mean that patients in Europe-and to some extent the organizations that pay less for parallel-traded medicines-find they are innocent victims of Brexit.

Reflector is Pharmaceutical Executive’s correspondent in Brussels