Controversial report spells doom for EU pharmaceutical parallel trade industry
This article was originally published in RAJ Devices
Should the recommendations of an unashamedly one-sided, recently-released report be taken up by the European Commission’s Directorate General for Enterprise and Industry (DG Enterprise), the pharmaceutical parallel trade industry could cease to exist. The report, published by the consultancy group Europe Economics in May 2008, but only made public by DG Enterprise this month, has resolutely backed calls for a ban on repackaging and relabelling.
The report notes that prohibiting both repackaging and re-labelling, would dramatically reduce the volume of parallel trade and adds that the initial social impacts of this option would include the loss of jobs and income for those involved in this sector. There would be possible increases in prices paid by healthcare providers in importing countries and other distributors currently profiting from parallel trade – including exporters, wholesalers and pharmacists – would lose income, it continues.
And the report specifically picks out Malta as a country that could be adversely affected by such a ban. This is because income per head in the country is much below the EU average, and its health service would presumably find it very hard to negotiate proportionately lower prices unless it were legally possible to guarantee that the medicines would not then be exported.
But in spite of these two relatively “minor” disadvantages – and this certainly depends on your perspective – the benefits of a ban on repackaging and relabelling are infinite, the report would seem to state.
Estimates place the current annual value of sales by parallel traders at some €4.9bn, corresponding to roughly 150 million packets of medicines, which, due to their advantageous pricing, are predominantly patented drugs. The most substantial importers of these parallel-traded products in the EU are Germany, the UK, the Netherlands, and Sweden. Their combined population is about 170 million people, and their average income per head in 2007 is estimated by Statistical Office of the European Communities (Eurostat) to have been about €32,000.
Referring to the “problems” caused by parallel trade, the report maintains that they have arisen as unintended consequences of EU policies designed to promote the free movement of goods. It concedes, therefore, that they are not caused by poor standards of work by parallel traders, nor by the policies of the pharmaceutical industry, nor by weaknesses in the regulatory systems applied in the importing Member States. But the report adds that the aims of the Commission must be to: ensure a high level of safety of medicinal products throughout the EU, while avoiding unjustified restraints to the free movement of goods; eliminate the risk of incorrect package leaflets; establish sound arrangements for pharmacovigilance and for supervision/inspection; improve transparency of the distribution chain and ensure effective product recalls; reduce the risk of counterfeits; and reduce the risk of product shortages.
Parallel trade is leading to prices for medicinal products in different Member States becoming more similar, says the report. Known as “price convergence”, its is phenomenon that is seeing health service providers in lower-income Member States pay significantly more than they would otherwise have to pay, it claims. This is because prices will not converge to the level of the most efficient producer but to a level that results from negotiations between patent holders and purchasing authorities in the major (richer) national markets, the report suggests.
Were parallel trade to lead patent-holders to charge a single price throughout the
EU, this would be substantially problematic for lower income Member States, the report stresses. For example, a course of treatment costing €1,000 would represent only about 3 per cent of average annual GDP per head in the major importers – Germany, the UK, the Netherlands and Sweden – but 12.5% for the 100 million EU citizens whose average incomes are significantly less than half the EU average. This would likely adversely affect nine Member States, including Bulgaria, Romania, Lithuania, Latvia, Poland, Slovakia, Hungary, Estonia, and the Czech Republic.
Furthermore, repackaging and re-labelling of medicinal products – as practiced by the parallel trade industry – bring an inherent risk to the safety of patients, which is increased when existing regulatory requirements are not effectively applied or enforced or when they are not exhaustive, it adds. Patients are routinely presented confusing and often inaccurate packaging and information leaflets, and as there are thought to be about 150 million parallel traded packages of medicines each year, a conservative estimate is that 20% of these may include out of date package leaflets or be misleading in other ways, the report suggests. At the same time, it notes that there are occasions on which a parallel trader identifies faults in the original packaging and is able to rectify these.
The report adds that patient safety may also be impaired by parallel trade because: packages have been opened (the significance of this statement has not been qualified) or not kept at the right temperatures; there is no effective system of pharmacovigilance for parallel traded products; and in line with an European Court of Justice (ECJ) Ruling, Member States could be obliged to license the parallel import of medicines with a non-common origin while the burden of proof for confirming or not confirming the bioequivalence of the parallel import to the product with the marketing authorisation would remain with the regulatory authorities.
Whilst the report then goes on to acknowledge that there is no firm quantitative evidence about the likely present or future extent of these risks to patient safety, it adds that they cannot be dismissed as unimportant.
And it continues in the same vein, maintaining that, a number of product recalls are initiated because of what the regulators classify as mistakes by parallel traders – about 7% of all recalls in 2006. It adds that “it must be assumed” that some mistakes go undetected. It also claims that a number of generic manufacturers have applied for parallel import licences now that the standards of proof of bioequivalence appear to be lower for parallel trade than for generics
The report maintains that therefore a ban on repackaging and relabelling would offer significant benefits, including an improvement in the safety of medicines for patients and in access to medicines in Member States where incomes are low. Additionally, it would have no significant financial or other disadvantages for patients whose medicines are paid for by national health services or insurance schemes, it argues. This is due to the fact that parallel trade as such does not benefit patient choice or access to affordable medicines in any Member State, the report maintains. The major importing Member States are all able to set reimbursement prices at acceptable levels without relying on parallel trade to reduce them, it points out. In the high-income importing Member States, therefore, parallel trade is highly unlikely to reduce prices to patients, few of whom pay directly for the medicines they are prescribed.
And the report adds that, unlike in other markets, there is no possibility that parallel trade in patented medicines could improve product quality, because there is by definition no competition in the production of each patented medicine. On the contrary, to the extent that packaging and labelling of parallel traded products is inferior from the perspective of patients the quality of products is reduced, it suggests.
A ban on repackaging and labelling would reduce regulatory and other administrative costs. It would improve the efficiency of the distribution chain and contribute to the Lisbon strategy of improving the competitiveness of the EU economy, says the report. It would also bring with it perhaps smaller, but still significant advantages, the report claims, including the reduction in the amount of environmental waste.
Somewhat amusingly, the report also concludes that a policy option of prohibiting repackaging and re-labelling would not prevent parallel trade. This is based on estimates that one third of packs are repackaged and two thirds relabelled. The report suggests that many countries in the EU share a common language and so parallel trade between these countries could continue. This seem remarkably implausible, because parallel traders base their income on the differing prices, and these are not likely to be significant in high income countries that share the same language such as Germany and Austria, or France and Belgium. It also suggests that Sweden and Finland share a common language and so parallel trade can continue between these two countries. The report fails to acknowledge that the number of Swedish-speaking people in Finland represents only 5.6% of the total population.
EU Enterprise and Industry Commission Günter Verheugen, well-known as a major antagonist of the parallel trade industry, may be running his hands with glee of this report, but it would seem to contain many unsupported claims. But there are two major factors he may want to consider. The first is that he will be leaving office next year and the next commissioner may harbour different view towards the parallel trade industry. Secondly, parallel traders all over the EU will not fail to point to the Article 23 of the EC Treaty that provides for the free movement of goods, and will no doubt be knocking on the door of the ECJ.