Magazine Article | April 29, 2014

An Introduction To Pharmaceutical Parallel Trade In Europe

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By Suzanne Elvidge, Contributing Editor

Parallel trade, the free movement of goods across Europe from lower-value to higher-value markets, has had a major impact on the European pharmaceutical industry since the 1970s.

Parallel trade is viewed rather differently by pharmaceutical companies and parallel traders, and this made for some contrasting perspectives at the SMi Group’s 8th Parallel Trade conference, held in London in February 2014.

WHAT MAKES PARALLEL TRADE POSSIBLE?
The legal framework behind parallel trade dates back to the 1957 Treaty of Rome. While patents can protect against parallel trade in other markets, it cannot be forbidden within the EU. This is because of the free movement of goods, one of the basic tenets of the EU, explained Eric Noehrenberg, director of public affairs for market access at Shire and conference chair.

The EU has established a policy of ‘community exhaustion’ of most forms of IP. This means that once a firm has put the drug on the market in any EU country, it may not prevent the sale of that drug within the EU by any other firm by claiming a violation of patent rights or trademarks, under most circumstances,” says Noehrenberg.

What makes parallel trade a feasible business model is the price differential across the EU. This can be driven by local pricing legislation, such as the capping of drug prices in Greece or through price negotiation with manufacturers as has happened in Germany. Fluctuations in currency values for EU member states not using the Euro also can make them targets for sourcing or selling parallel-traded drugs.

Traditionally the source countries (those with the lowest prices) have been Greece and Spain, but the destination countries do fluctuate. For example, according to Noehrenberg, there was an increase in the share of parallel imports in pharmacy sales in Denmark, Ireland, Netherlands, and Sweden between 2009 and 2011 and a decrease in Latvia and the United Kingdom. Finland, Norway, and Germany remained stable.

“Overall figures can be misleading, as there is strong variation among products and markets. For example, some products are more than 90% parallel imported into Denmark,” Noehrenberg adds.

THE BIRTH OF PARALLEL TRADE
As discussed by a number of the presenters, the first parallel-traded drug was imported from the U.K. and sold in the Netherlands in 1975 by Adriaan de Peijper, a Dutch importer. While the drug was authorized in both the U.K. and the Netherlands, de Peijper did not have the product-marketing approval documents or the batch records, which resulted in a legal battle. He argued that he had not been able to access the documentation, and the case was referred to the European Court of Justice (ECJ). The ECJ said that demanding the documentation was unnecessarily restrictive and thus ruled in favor of de Peijper. Following the case, the European Commission produced a text outlining the basic principles for an abbreviated form of marketing authorization for parallel trade, including that the drug must have the same active ingredient, route of administration, and therapeutic effect. The information included with the drug package should also ensure that it’s traceable.

As an example of an early adopter of the parallel-trade business model, the story of EurimPharm started with a cough. German pharmacist Andreas Mohringer, on vacation in the U.K., bought a bottle of cough medicine and saw that it cost a third of the identical product at home. This gave him the idea of creating a company to import pharmaceuticals from lower-cost countries to Germany, a highercost destination.

In 1975, he founded EurimPharm with a loan of about $3,000 from his parents. He started by importing Valium and repackaging it in his living room, but his homemade packaging infringed copyright laws, and he was taken to court. After this, he made sure that the packaging complied with trademark laws. In the late 1970s, Mohringer was able to give up his day job, and by 2011, he had around 500 employees repackaging 6 million prescription drug packs a year.

PARALLEL TRADE: DIFFERENT PERSPECTIVES
The debate at the conference became quite lively over the upside and downside of parallel trade when viewed from both the trader’s and the pharmaceutical company’s perspective. The global squeeze on national healthcare budgets as a result of the financial downturn and the aging population has provided an opportunity for parallel importers. Namely, they argue that their presence in the market results in patients having access to lower-cost drugs. This is of particular benefit in countries with lower GDPs or in countries where patients pay or co-pay for their own drugs. The traders also say that they address access inequalities across Europe by exporting drugs that would not otherwise be available in given markets.

From the pharmaceutical company’s perspective, parallel trade reduces their income from the higher-value markets, which cuts their return on investment and therefore, the amount they can plow back into the development of new drugs. This in turn, potentially reduces the number of alternative drugs that are available to patients and payors in the future.

In the lower-price source markets, according to the opponents of parallel trade, traders who buy up stock from pharmacies, hospitals, and wholesalers may reduce stock levels to a point where local patients have trouble accessing drugs (see The Rising Problem Of Parallel Trade in Life Science Leader March 2009). This imbalance of supply and demand can lead to price increases, which have an impact on both patients and payors. However, the increased demand in these regions does, at least, help to offset the pharma company’s losses in the higher price countries.

“Initial price-setting and reimbursement levels are established in light of market conditions in specific national markets so that patients in those markets can have sufficient access to the medicines they need. Parallel trade upsets this delicate equilibrium designed to meet patients’ needs for timely access to medicines,” says Noehrenberg.

The patient also brings a perspective to parallel trade. In a discussion about ethics, a number of presenters and delegates reported patient concerns, including drugs that arrived in boxes with foreign language text; tablets that were different colors, shapes, or doses; or blister packs with labels over the foil that made the packaging harder to handle for older patients with less-nimble fingers.

ROUTES TO MANAGING PARALLEL TRADE
As Janice Haigh, practice leader, market access for Europe at Quintiles, explained, there are three different approaches to managing parallel trade — through price, friction, or volume. An example of the price approach has been used in Spain, where manufacturers have given wholesalers a discount if they can show that all of their sales are within the country’s borders.

Managing by price can be uncertain for a number of reasons. Reducing or removing price differences across countries in Europe will reduce parallel trade, but it can affect the ability to get reimbursement and may adversely affect poorer markets by pricing drugs out of the market. Some companies have tried using dual-pricing strategies, for example, through rebates, but this can get complex.

The friction approach, which aims to make drugs from cheaper markets less attractive to higher-cost markets, includes changing pack sizes or doses, or supplying simpler or lower-cost forms to markets where drug prices are lower. This is unlikely to deter traders, increases the cost of manufacturing and supply, and reduces the attractiveness of the drug in the local market. The friction approach can also include legislation. For example, in April 2013, the Romanian healthcare minister blocked the parallel export of oncology medications, in response to trade in 2012 that exceeded €.5 billion.

Another friction approach is through collaboration. An example of this is a direct-to-pharmacy sole distributor agreement, such as that signed by Pfizer and UniChem in the U.K. in 2007, despite a last-ditch attempt to block the agreement from a number of wholesalers.

"[Parallel Trade is] about getting the right products to the right place, locally."

TIM HAMMOND
Head of Global Pricing and Tendering at LEO Pharma

The simplest approach to managing parallel trade is by controlling the amounts of a drug that are in the market so that the excess is not available for traders. This has the added advantage of creating manufacturing efficiencies. However, not everyone agreed with this approach. According to Donald MacArthur, global pharmaceutical business analyst for JustPharmaReports, control of parallel trade means that drugs are taking a lot longer to arrive to pharmacists in the U.K. because the process is longer and more complicated. He added that limiting supplies and suppliers leads to shortages, not parallel trade.

THE FUTURE OF PARALLEL TRADE
What does this mean in the United States? This form of parallel trade is unique to Europe and its free movement of goods, and so the major impact for U.S.-based companies is likely to be a reluctance to launch drugs in lowercost markets in Europe. However, there have been attempts to allow similar approaches to parallel trade between the U.S. and Canada.

The challenge for the future of parallel trade will be to create a balance that benefits both patients and companies, with decisions based on research rather than anecdote. “It’s about getting the right products to the right place, locally,” says Tim Hammond, head of global pricing and tendering at LEO Pharma, as part of a lively debate at the conference. “We are here for the benefits of patients, and so we need better data and more dialogue.”

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