| Author (Person) | Carstens, Karen |
|---|---|
| Series Title | European Voice |
| Series Details | Vol.10, No.13, 15.4.04 |
| Publication Date | 15/04/2004 |
| Content Type | News |
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Date: 15/04/04 THE European Court of Justice struck a blow to the global pharmaceuticals industry that will make it easier to sell discounted drugs across the EU. At least that is how a recent ruling by the Luxembourg-based court has been interpreted by some observers of the patchwork of price systems for branded drugs in EU member states that has spawned the 'parallel trade' industry. But Donald Macarthur, secretary- general of the European Association of Euro-Pharmaceutical Companies (EAEPC), which represents parallel traders, said some of these initial interpretations have been overblown. "This case has extended the boundaries of parallel trade," he said of the 1 April ruling, which found German practices blocking some cut-price imports to be illegal. "But it's a very specific judgement on a very specific case, so it's not going to increase the scope of parallel trade," Macarthur added. "This decision is not going to open the floodgates, although it is an interesting one and it does bring the debate forward." The nemesis of many drugs companies is the parallel trader, a wholesaler who takes advantage of price differentials in pharmaceuticals by buying and repackaging them in one member state where they are cheaper and selling them in another where they are more costly. Such traders often purchase products at a cheaper price in southern Europe and sell them at a markup in the north. The practice, which pharmaceuticals firms have been battling against since the 1970s, is allowed if granted authorization from national governments - and this is where the legal battle lines tend to be drawn. "Parallel importing rules are set nationally," Macarthur explained, and are based on a 1982 European Commission communication on the practice. It "sets the ground rules" for a so-called abbreviated marketing procedure, under which the primary requirement for a parallel trade company is to prove that the drug it is marketing is the same as the original branded pharmaceutical. A new Commission communication updating the original one was published on 19 January. "It stresses the legality of parallel trade and reminds EU countries that any obstacles to inter-state commerce and the proper functioning of the single market should be removed," said Edwin Kohl, president of the EAEPC and chairman of German parallel trade company Kohlpharma. But he also called on the Commission to go even further by cracking down on member states with "legislation impeding parallel trade", including Austria, France, Germany, Greece, Italy and Spain, which have measures in place that "are in clear contravention of EU law". In the 1 April court ruling, it was decided that the EU's free movement rules (Articles 28 and 30 of the EC Treaty) preclude a parallel import marketing application being rejected because effectively identical products in the source and destination countries fail to have the same common origin. In 1994, the Bonn-based Federal Institute for Drugs and Medical Devices (BfArM) denied a request by Kohlpharma to market a Parkinson's disease treatment, Jumex, brought in from Italy, citing safety concerns. It also refused the Kohlpharma request on the basis that the approval procedure for parallel imports can only be used if the medicines have a common origin, are produced by members of the same corporate group, or the original authorizations to independent companies are pursuant to licence agreements with the same licence issuer. So Kohlpharma took its case to the Court of Justice, claiming Germany already was allowing the sale of a similar product, Movergan, made in Finland. Kohlpharma said its product should qualify because it contained the same active ingredient as Movergan. But as the active ingredient was provided on the basis of a 'supply agreement' rather than a 'licensing agreement' there was no common origin, according to BfArM. However, in case law relating to parallel imports, Kohlpharma argued, the court did not establish the condition of identity or origin as a binding principle, but merely took it into account. The court supported Kohlpharma, declaring Germany's ban illegal. Discounters should be entitled to a "marketing authorization for the second medicinal product without any risk to public health" and "refusal to issue a marketing authorization to the second product cannot be justified on the grounds of protecting public health if that refusal is based solely on the fact that the two medicinal products do not have the same origin", the judges said. Parallel traders claim their business embodies the free-market ethos lacking in the patented industry and that they are performing an important public service for national health services, the taxpayer and individual patients. But European manufacturers argue the trade is losing them revenue that could be pumped into research and development. This has allowed the US to pull ahead in the innovation stakes. Yet the cost of drugs and the role of cheaper imports are issues on both sides of the Atlantic. In the US, drug makers are fighting the reimportation of cheaper medicines from Canada, where there are price controls. Such reimportation is illegal, but increasingly common. The George W. Bush administration is resisting efforts to allow the imports, claiming they could pose a risk to public health. The European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents 43 drug makers, claims that companies keep most of the profits from the resale. EFPIA argues that prices in the sector are largely determined by national governments and therefore "do not reflect the normal interactions of supply and demand". It estimates that parallel trade costs drug firms up to €4.5 billion - more than 5% of the market - in lost sales each year, taking Û1-2 billion off bottom lines. But parallel traders question the industry's mathematics and say drug firms make a large enough profit. They insist they help combat the monopoly drug firms enjoy with their patents and offer savings. One study commissioned by the EAEPC and conducted by the UK's University of York found that, in 2002, total estimated direct savings from parallel trade to patients and health care budgets in five EU countries - Denmark, Germany, Sweden, the Netherlands and the UK - amounted to Û635 million. But another study, by the London School of Economics, found that although the overall number of parallel imports is on the rise, health-care stakeholders are seeing few of the expected savings. In addition, it determined that profits from parallel imports accrue mostly to the benefit of the third-party companies that buy and resell these medicines. EFPIA Director-General Brian Ager has argued that all member states feed parallel trade because they intervene in pharmaceutical markets to keep prices down. These regimes can change almost daily, meaning today's target for traders may be replaced by another the day after. "We are staring at a moving target," Ager said. "They cherry pick, then they may come in and decimate a particular product line." The European Court of Justice ruled on 1 April 2004 that the German practice of blocking some discounted pharmaceuticals is illegal. |
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| Subject Categories | Business and Industry, Internal Markets |
