Is parallel trade a malaise or cure?

Date: 25/07/02

By Khaled Diab

AS the EU prepares to expand eastwards, new battle lines are being drawn in the confrontation over national price-setting for prescription drugs - and in the cross-border parallel trade it engenders in the light of free movement of goods across the single market.

Parallel traders, or wholesalers who transport cheap drugs across the EU, say their business embodies the free market ethos lacking in the patented industry.

They claim they are performing an important public service for national health services, the taxpayer and individual patients.

But drug firms argue that price-setting sits awkwardly with the concept of a free and open market and say the parallel trade is a symptom of this malaise.

They complain the trade is costing them dearly in lost revenue that should be pumped into research and development (R&D), which has allowed the US to pull ahead of Europe in the innovation stakes.

'We're a couple of years away from expanding to the east and what's going to happen?' asks Brian Ager, director-general of pharmaceutical industry group EFPIA.

'Medical products will flood back west,' Ager said, arguing that this would rob drug firms of revenue desperately needed for expanding research budgets and may cause shortages in the source country.

EFPIA estimates that the parallel trade is already costing drug firms over €3.5 billion - about 5 of the total market - each year in lost sales and knocking €1 billion off their bottom line. Meanwhile, research budgets for drug companies, which have doubled in the last decade, are suffering from diminishing returns with the increasing complexity of the science and regulations involved.

Parallel traders question the industry's maths and say drug firms make a large enough profit.

They say that they help combat the monopoly drug firms enjoy with their patents and offer savings.

'Pharmaceutical companies make double-digit profits, making it one of the most lucrative industries in the world,' says Donald Macarthur, secretary-general of the European Association of Euro-Pharmaceutical Companies, a parallel traders' umbrella group. 'And there's no evidence that parallel trade hurts R&D,' he adds. Macarthur estimates that parallel traders save the British taxpayers alone €100 million, as well as hundreds of millions more euro across Europe.

He suggests drug companies should divert some of their huge marketing budgets, which he says outstrip R&D spending, to the development of new drugs.

As the EU prepares to expand eastwards, new battle lines are being drawn in the confrontation over national price-setting for prescription drugs - and in the cross-border parallel trade it engenders in the light of free movement of goods across the single market. Article is part of a European Voice survey on pharmaceuticals.