Parallel Trade in Europe and the US: The challenges facing pharma

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Publication Date: 2006-04-21

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Since the beginning of this decade, parallel trade levels of pharmaceutical drugs in the US and Europe have risen to some of the highest levels ever seen, exerting additional pressure on the profitability of pharmaceutical companies. As a result, it has become ever more important for pharmaceutical companies to take action to limit the impact of this.

Scope

In-depth analysis of the present situation of parallel trade in Europe and the US, including an examination of the impact of the new accession states

Evaluation of the future of parallel trade in Europe and the US, including analysis of the key factors that impact this

Case studies examining strategies used by the leading pharmaceutical companies to restrict parallel trade

Recommendations on how companies can optimize their strategy to tackle parallel trade effectively

Report Highlights
Illegal drug importation into the US is in decline. Pharmaceutical companies have successfully restricted the supply of drugs to the main culprits in Canada who have been selling drugs to Americans, and the recent introduction of Medicare Part D has reduced the number of people without drug coverage.

The legal framework supporting parallel trade in the EU has restricted the actions pharmaceutical companies' can take to restrict parallel trade, but Bayer's legal victory on the Adalat case in 2004 has provided companies with an opportunity to take action that can effectively restrict parallel trade without infringing EU law.

The 2004 EU enlargement has not caused a rise in parallel trade yet, mainly because of the derogation that prevents parallel exportation of many branded drugs from 8 of the new countries. The effect of this on new accession states and future accession countries will erode over time, which is expected to cause a gradual rise in EU parallel trade.

Reasons to Purchase

Assess the commercial implications for your business of parallel trade in the US and EU

Get up to speed with recent development in the parallel trade situation in Europe and the US

Understand how to optimize your strategies to tackle parallel trade

CHAPTER 1 OVERVIEW OF PARALLEL TRADE - page 10
- What is parallel trade? - page 10
- Conditions for parallel trade - page 11
- Implications of parallel trade - page 12
  - Price convergence of drugs - page 12
  - Parallel trade drives down pharmaceutical companies' profitability - page 13
    - Is parallel trade damaging innovation? - page 13
    - Will companies stop launching products in parallel exporting countries? - page 13
  - Does parallel trade compromise the safety of drugs? - page 14
    - Parallel trade provides an opportunity for counterfeit drugs to enter the supply chain more easily - page 14
CHAPTER 2 DRUG IMPORTATION IN THE US - page 16
- Introduction - page 17
  - Further legislation has been passed to legalize drug importation, but implementation is no closer - page 18
    - The problems associated with the legalization of drug importation - page 19
- US consumers are evading the law and importing prescription drugs from abroad - page 20
  - Route of illegal importation - page 22
    - "Foot traffic" - the traditional route to buy foreign prescription drugs - page 24
    - Foreign Internet pharmacies sell foreign drugs directly to US citizens - page 24
    - Storefront pharmacies have now collapsed - page 26
- Key drivers of drug importation - the search for cheaper drugs - page 26
  - State initiatives to drive importation of prescription drugs - page 26
    - Officially sponsored websites listing Canadian Internet pharmacies - page 27
    - I-SaveRx Program - helping residents buy drugs from Europe - page 27
    - Vermont sues the FDA for not permitting drug importation from Canada - page 27
  - Driving factors for drug importation from Canada - page 28
    - Canadian pricing system - page 28
    - Price of patented drugs are cheaper than the US - page 29
    - Top-selling generic products tend to be cheaper in the US than in Canada - page 31
- Key resistors of drug importation - the safety of drugs is being compromised - page 33
  - Many foreign Internet phamacies operate in a regulatory loophole - page 34
  - Rogue Internet pharmacies - a high percentage of Internet phamacies that claim to be Canadian are not really Canadian - page 36
  - Counterfeits entering the supply chain - page 36
- Strategies for manufacturers to tackle drug importation - page 37
  - Supply management strategies - page 39
    - Canadian Internet pharmacy export sales to the US have declined - page 39
    - Internet pharmacies are turning to other countries to find drugs to sell to US citizens - page 40
    - Shortages of supply of prescription drugs in exporting country - page 41
  - Anti-counterfeiting technologies - page 41
  - Pricing strategies - page 42
  - Legal challenges - page 43
  - Programs for the uninsured - page 44
  - Public awareness campaigns - page 46
  - Use of different packaging - page 47
  - Use of different brand names - page 48
  - Datamonitor's recommendations - page 49
- Future outlook for drug importation - page 50
  - Drug importation is expected to decline - page 50
    - The doughnut hole in Medicare Part D coverage may drive some participants in the scheme to drug importation - page 51
    - Supply restrictions will continue to restrict drug importation - page 53
  - Legalization of drug importation unlikely - page 53
CHAPTER 3 PARALLEL TRADE IN EUROPE - page 55
- Introduction - page 56
- Legal and regulatory framework - page 56
  - Regulatory framework - page 58
    - Parallel importation of centrally-authorized products - page 58
    - Parallel importation of nationally-authorized products - page 59
  - Repackaging and relabeling - page 60
    - Notification of the trademark owner - page 61
  - The derogation of accession states - page 61
- Country-level trends in parallel trade in Europe - page 62
  - Present situation - page 62
    - Parallel importation in the UK is suspected to be higher than the data indicates - page 64
    - The high level of parallel import penetration in the UK and Netherlands is driven by financial incentives for pharmacists - page 65
    - Parallel importation in Germany is driven by the imposed quotas - page 66
    - UK parallel importation fell in 2005 because of PPRS price cuts - page 67
    - Impact of the accession of 10 new member states on 1 May 2004 - page 70
  - The future outlook of parallel trade in Europe - page 73
    - Driver: Impact of the recent EU enlargement will increase as the derogation erodes - page 75
    - Driver: Further expansion of the EU is on its way - page 76
    - Driver: Government changes may drive further parallel trade - page 77
    - Resistor: Greece introduces reference pricing against the three lowest EU prices - page 79
    - Resistor: Wholesaler horizontal and vertical consolidation may put increased pressure on parallel distributors - page 80
    - Resistor: The impact of new distribution channels - page 81
- Strategies for manufacturers to tackle parallel trade in the EU - page 82
  - Supply management is the most effective approach - page 84
    - Legal case study: Bundesverband der Arzneimittel-Importeure and Commission of the European Communities vs Bayer - page 84
    - Further victory for drug manufacturers' supply quota systems in France - page 85
    - GSK Syfait case - the ECJ fails to issue a final judgment on the abuse of a dominant position - page 86
  - Pricing strategies are unlikely to be profitable moves, although Pfizer's dual pricing system may change this - page 87
    - Modulation of future PPRS price cuts - page 88
    - Dual pricing systems - page 88
  - Legal challenges by drug manufacturer's rely on intellectual property rights - page 92
    - Guidance on the extent a parallel importer can repackage and relabel expected shortly - page 93
  - Use of different packaging and brands in member states may deter parallel trade - but the effect is limited - page 95
  - The 'do nothing' approach is risky - page 95
CHAPTER 4 APPENDIX : SUPPORTING DATA - page 96
- Definitions - page 96
- Glossary of terms - page 96
- Supporting data - page 97
- Conferences attended - page 98
- Reference - page 98
- Exchange rate - page 100

List of Tables
Table 1: Evaluation of three generics bought by the FDA from an Internet pharmacy failed on a number of tests - page 34
Table 2: Product patents were introduced in eight of the accession states between 1991 and 1994 - page 62
Table 3: Incentives for parallel importation in the six main parallel importing European countries - page 65
Table 4: Summary of the economic impact of parallel trade, based on the ESRC, LSE and YHEC studies - page 78
Table 5: EEA countries - page 97
Table 6: Exchange rates*, 2004 - page 100

List of Figures
Figure 1: Generalized distribution chain for parallel traded pharmaceutical products - page 11
Figure 2: The number of state and federal bills introduced in Congress proposing the legalization of parallel drug importation has dramatically risen over the last four years - page 18
Figure 3: Foot traffic traditionally accounted for the majority of cross border sales of prescription drugs from Canada to the US, however, foreign Internet pharmacies have become more popular after their emergence - page 23
Figure 4: Average ratio of Canadian prices to Median International Prices of patented drugs, 1987-2004 - page 29
Figure 5: Ratio of average Canadian patented drug prices to foreign drug prices, 1987, 1997, 2004 - page 30
Figure 6: The high level of competition for major generic products in the US drives the price down - page 32
Figure 7: Main strategies available to drug manufacturers to tackle the current illegal importation of prescription drugs in the US - page 38
Figure 8: A large section of LillyAnswers' website discusses the risks of drug importation - page 45
Figure 9: Lilly ICOS devotes a whole section on its Cialis website on how customers can avoid counterfeit Cialis drugs - page 47
Figure 10: Benchmarking anti-drug importation strategies - page 49
Figure 11: Although Medicare D provides some coverage of prescription drug costs, beneficiaries will still have to contribute - page 52
Figure 12: Legal framework of EC law supporting parallel trade in the EU - page 56
Figure 13: Parallel trade rose substantially in Europe between 1998 and 2002, particularly in the UK, Sweden and Germany - page 63
Figure 14: Parallel import penetration across selected European countries in terms of value in 2004 - page 64
Figure 15: Parallel import penetration in Germany, 1997-2004 - page 67
Figure 16: ARB case study: selective use of PPRS price cuts to UK packs with high parallel import penetration drove down parallel importation - page 68
Figure 17: Sales of locally-sourced Aprovel and Amias rose sharply in 2005, while parallel imports fell - page 69
Figure 18: The accession countries have a high penetration of generics, compared to some of the most common parallel exporter countries - page 72
Figure 19: Wholesalers are vertically integrating into offering pre-wholesale and pharmacy activities - page 81
Figure 20: Main actions that drug manufacturers can take to limit parallel trade in Europe - page 83

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Parallel Trade in Europe and the US: The challenges facing pharma

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