Spotlight falls on drugs sector

Date: 18/12/1997

By Chris Johnstone

INDUSTRY Commissioner Martin Bangemann is preparing to give a high priority to the pharmaceuticals sector next year amid industry warnings of a twin threat to its future.

The industry says it is facing a loss of competitiveness compared with the US and stepped-up pressure on its profit margins through increasing parallel sales of drugs across EU borders.

Bangemann's officials are expected to deliver a communication on the state of the pharmaceuticals sector in the first half of the year. However, while a recent round table of companies and governments sponsored by the European Commission highlighted the problems, there was little agreement on the way forward.

The Frankfurt round table at the start of this month focused on the issue of parallel imports - the transfer and resale of drugs from EU countries where prices are low, mostly in southern Europe, to where they are high, mostly in the North.

Big drugs companies say the practice is increasing and claim they are losing valuable revenue which should be paying for past research on new products and paving the way for fresh innovation.

Parallel imports are a natural by-product of a pharmaceuticals market compartmentalised by different national pricing policies for drugs, with governments directly or indirectly the biggest buyers. As a result, there is no single market for the sector.

Two fresh factors are set to increase the strain still further: the admission of new countries from central and eastern Europe, where drugs will have to be sold at discount prices or risk excluding large parts of the population, and the likely start of drug sales via the Internet.

These issues will be the main focus for the continuing tripartite consultations between companies, governments and the Commission.

The prospect of parallel imports from new EU members is already beginning to worry Europe's big drug firms. Meanwhile, governments are starting to focus on the dangers of electronic commerce.

Germany has already approached Bangemann asking him what steps he can take to stop the sale of drugs on the Internet, a phenomenon which threatens to make national pricing policies irrelevant. But Bangemann is not keen to take any action, arguing that no workable solutions to the problem are evident.

The Commission is, however, seeking to step up its scrutiny of drug pricing - a move which has been greeted with caution by pharmaceutical companies and governments.

They have called for further discussions about the objectives of a proposed new drugs observatory, which the Commission is supporting in a bid to get more independent information about drug prices and existing profit margins for companies.

Governments and firms are suspicious that the Commission is trying to revive proposals for more price convergence of drugs within the EU, an aim which the Frankfurt round table refused to endorse.

For its part, the Commission is coming under increasing pressure to tackle some of the market distortions caused by the existence of national price fixing in a supposed single market.

A recent ruling by the European Court of Justice involving chemical giant Merck said "distortions caused by different price legislation in a member state must be remedied by measures taken by the Community authorities".

There are some signs that drugs prices are converging in the EU. But exchange rate differences can disrupt this trend.

The European Federation of Pharmaceutical Industries' Associations (EFPIA) says the strengthening of the British pound has encouraged parallel importers to target this market increasingly, pointing out that the UK has experienced a 15% increase in parallel imports over the last year.

A recent report by consultants NERA estimated that nine companies - active mostly in Denmark, Germany, the Netherlands and the UK - lost around 113 million ecu in 1996 as a result of parallel imports. Most of the losses stemmed from sales of drugs which were still under patent.

The UK, Germany, France and Italy account for nearly 75% of all pharmaceutical spending in the EU, with Germany and France accounting for just over half of the total Union market.