Savings - Is it not just the distributors themselves who profit ?
Parallel distribution can only exist if there is market. And demand would only exist if the prices offered by parallel distributors were sizably lower than those for the domestically sourced products. So it is beyond any doubt whatsoever that, according to economic logic and rationale, there must be a saving for the practice of parallel distribution to exist.
But parallel distribution actually delivers substantial direct savings to governments, national social insurance schemes, sickness funds, other third-party payers and, in the case of co-payment systems, the final consumers.
It also supports the wholesale and pharmacy systems in many countries across the EU. As a result, a number of governments require pharmacists to inform patients of the availability of cheaper equivalents, or to supply these on their own initiative. On occasion these will be generic products, but they can also be parallel distributed products.
Of course, distributors, wholesalers and pharmacies, just like manufacturers or any other company, exist as private business to make a profit and at the very least to earn enough money to run their business. It would be wrong to criticise them for running a business for profit.
The real difficulty in assessing the benefits is the complicated pharmaceutical chain and the differences of the regulatory approach across the EU which makes comparison hard.
Savings - But the cost reductions obtained by the distributors don't benefit society, do they ?
Yes they do. This happens in various ways
- Reimbursement costs are less for lower priced parallel-distributed versions - this benefits all taxpayers. In Germany, one of the largest PD markets in the EU, parallel distributors must place the medicine on the market 15% or €15, cheaper than the same product placed on the German market by the original manufacturer; this has a direct impact on the reimbursement by sick-funds.
- The patient pays less and may, in some cases, be able to afford better and newer medicines. If the product is partially reimbursed, the patient´s out-of-pocket contribution is lower. If, as happens with an increasing number of 'lifestyle medicines', such as Viagra, there is no public reimbursement at all, the consumer's direct savings can be considerable.
- Price competition between the domestically sourced product and the parallel distributed medicine, as well as price competition between different parallel distributors, leads to a downwards price spiral which benefits everyone in society.
Parallel distribution companies themselves create value in society:
- EAEPC member companies are all locally-owned small and medium-sized enterprises. As well as offering competition to direct imports, the parallel distribution sector is itself highly competitive, with up to 30 distributors actively trading per country, each offering different terms.
- Together they provide employment to thousands of semi-skilled staff, often in areas where other employment opportunities are limited. Management is highly qualified, with extensive experience often gained in the pharmaceutical industry or in community pharmacy.
- Many firms also have a strong platform to participate in the development of generic medicines, a sector that - with the active encouragement of several national governments - is forecast to grow strongly over the next decade, enhancing price competition with patent-expired molecules to the benefit of payers. To further extend the continuum, some parallel distributors have evolved into fully-fledged pharmaceutical companies, with a portfolio that includes original products and investment in innovative R&D.
- Parallel distribution generates wealth by increasing distribution flows, through job creation and enhanced competition.
Safety - Isn't parallel distribution unsafe ?
Parallel distribution is 100% safe. In fact, parallel distributors actually add an additional layer of safety to the distribution chain.
Legal and regulated parallel distribution in medicines is a highly safety-conscious business. The EAEPC strongly promotes its parallel distribution best practice guidelines to underscore members' commitment to fully comply with all national and European regulatory requirements.
The medicines traded by parallel distributors are products of the original manufacturers, often from the very same plant that produces the domestically sourced versions. Parallel distributed products are either exactly identical, or contain only very small differences in colour or inert excipients, differences which the regulatory authorities verify have no therapeutic consequences. If a manufacturer criticises a parallel distributed product it amounts to criticism of its own product.
Parallel distributors often find defect products when checking incoming products from the original manufacturer. Indeed, in one isolated case in the UK, several years ago, the authorities actually found a fake product via the normal testing procedures employed by a parallel distributor before release to pharmacies took place. In practice, the only checks made on a medicine after it leaves the manufacturer are those conducted by parallel distributors.
Generally speaking, most parallel distributors find spoilt products or medicines not suitable for public sale, and filter these out.
A parallel distributor depends on his or her reputation for safety and ethical behaviour. There is no additional risk from parallel distribution as compared to the normal distribution channel. Stories to the contrary are the product of fantasy.
Safety - Doesn't parallel distribution make counterfeiting more likely ?
Counterfeiting is a completely different subject to parallel distribution. Figures for 2004 in Europe from the European Commission show that counterfeit medicines are on the rise.
But there has not been one single proven case in Europe to date where counterfeit drugs have entered the legitimate European supply chain due to parallel distribution. The German Federal Health Ministry has verified that not one single confirmed case of a counterfeit medicine has ever come through the parallel distribution chain. The UK Secretary of State for Health Jane Kennedy stated in July 2005 that:
"There is no evidence to suggest that licenced parallel trade provides any more of an opportunity to introduce counterfeit medicines into the country over non-parallel traded products."
The key to a good understanding of counterfeit medicines lies in the correct application of the definition. The WHO defines a counterfeit medicine as a product "which is deliberately and fraudulently mislabelled with respect to identity and/or source. Counterfeit products may include products with the correct ingredients, wrong ingredients, without active ingredients, with insufficient quantity of active ingredient or with fake packaging."
In practice, a counterfeit medicine can be fake that contains false or incomplete ingredients which present a danger for patient safety. It may also be a well-copied medicine with exactly the same chemical compound as in the original, hence without risk for the patient, but made in breach of patents and trademark rules.
The EAEPC and its members are far from complacent about the threat of counterfeit medicines and are actively engaging with industry and policy-makers to advance the anti-counterfeit debate in Europe. For example, the EAEPC participated in the anti-counterfeiting seminar organised by the Council of Europe in September 2005. The association also participates in current review of pharmaceutical distribution channels in Europe undertaken by the the European Commission.
The EAEPC and its members fulfil their moral and legal obligations under existing EU law on counterfeiting. The EAEPC fully supports all initiatives to combat counterfeit medicines at a national, European and international level. It resents the attempt to link legal and legitimate parallel distribution to the wholly illegal practice of counterfeiting.
Safety - Aren't patients confused and frightened by foreign language packs ?
The labelling of parallel-distributed medicinal products is fully in accordance with EU and national legislation. This includes provisions for a label and a patient package insert in the local language, whose texts have been approved by the regulatory authority and subject to review by the manufacturer prior to commercialisation. Indeed often the parallel distributor will provide clearer and better labelling than the manufacturer and the package leaflet is an exact copy of the leaflet the manufacturer itself places inside the medicine boxes.
The manufacturing site and manufacturing specification of the parallel-distributed version are often the same as for the domestic version. The latter is also known as the direct import, with which parallel imports compete. The products are either identical, or with very small differences which have, according to the national regulatory authorities who license parallel distribution, no medical consequences.
Competition - Doesn't parallel distribution cause supply shortages ?
There is no evidence to suggest that parallel distribution leads to shortages in the exporting country.
Manufacturers and wholesalers are obliged by EU legislation to guarantee the uninterrupted supply of medicines at all times in the home market. Wholesalers are also obliged by "public service obligations" in national law and through their codes of practice to keep sufficient stock to be able to promptly supply pharmacies with medicines in their local market first before selling for export.
Shortages in Europe are often created by manufacturers themselves by imposing supply restrictions. By cutting supplies to wholesalers who they suspect are also selling for export, manufacturers seek to impede parallel distribution of their products. In one prominent example the Greek Competition Authority said in 2004 that shortages of certain medicines seen in Greece from 2001-2003 were directly caused by a decision by GlaxoSmithKline to refuse to supply wholesalers with these products.
This evidence is backed up by a study from the American Society of Health-System Pharmacists, which analysed the American market. It found that the most frequent reason for shortages in the US are manufacturing problems (28%) and the discontinuation of supply by manufacturers (20%).
Supply-restrictions by manufacturers that aim at eliminating parallel distribution are illegal because they seek to partition the single European market and distort competition in the distribution of medicines. Wholesalers without access to certain products cannot substitute them because the pharmacy must dispense the product that the doctor has prescribed. If the wholesaler cannot provide the medicine it will eventually go out of business. A recent legal study by the EAEPC analyses the legal and economic context of supply-restrictions, concluding that EU competition law should be fully applied to ensure fair competition in the distribution of pharmaceutical products in the EEA area.
Competition - Isn't parallel distribution the same as exporting national price controls ?
The European Court of Justice has stated quite clearly that existing price differences cannot justify derogation from the principle of free movement of goods, even if such differences result from price controls imposed by member states (Merck vs. Primecrown, ECJ cases C-267/95 & C-268/95).
While only a minority of Member States still exerts direct price control on new prescription medicines at the level of the factory gate, all 25 now employ various techniques, primarily via the reimbursement system, to curtail the growth in publicly-funded pharmaceutical expenditure.
Some of the tougher measures have been applied recently in the traditional free markets of Denmark, Germany, the Netherlands and the UK. Paradoxically, some formerly low-price countries, like France, Italy and Spain, are now awarding higher prices than previously, due to the adoption both of 'average European price' formulae by the authorities and of 'European price corridor' strategies by multinational companies.
Competition - Isn't parallel distribution unfair competition to manufacturers ?
Parallel distribution increases the effectiveness of the European medicines market. And it is a pro-competitive solution to keep costs of medicines in Europe in check. In fact, it is often the only form of competition that a patented brand faces in an otherwise monopolistic market. A Commission spokesperson said in April 2004 that "we think parallel imports are a good thing".
Parallel-distributed products are, by definition, brands produced only by multinational groups. The overall European sales volume of a corporation is unaffected. Indeed, because parallel-distributed products are more affordable to European payers, usage of a brand may even increase. Sales decay at or around patent expiry may also be delayed. With patients continuing to receive their familiar, proven brand, rather than a generic copy, compliance with the treatment regime is likely to be better maintained.
Competition - Doesn't parallel distribution erode the profits of the big pharmaceutical companies ?
The argument that parallel distribution has a significant impact on pharmaceutical companies´ profits is exaggerated. Some big pharmaceutical groups have maintained that parallel distribution takes away €5 billion a year from the industry´s revenue or profits. This is a myth. While this figure may approximate to the total value of sales of parallel distribution in Europe, it does not represent losses to pharmaceutical companies. All parallel distributed products are purchased from the manufacturers, which have presumably included a decent profit margin.
It would be wrong to suggest there is no loss of sales for the pharmaceutical companies. But this is a fraction of €5 billion and, by providing competition, parallel distribution delivers a good deal for the payers of medicines, be they governments, social security systems or consumers.
In addition, the profits of the biggest multinational pharmaceutical manufacturers continue to grow. Most of the big pharmaceutical companies achieved double-digit growth rates in 2003 and with profit margins ranging from 11% to 25% the research-based pharmaceutical sector is amongst the most profitable of all industries in spite of research spending. At the same time, pharmaceutical companies ' spending on sales and marketing in Europe is growing. Between 2002 and 2003, spending in Germany increased by 25%, in Spain by 26% and in Italy by 20%.
This is good news and should be encouraged. But to hear pharmaceutical manufacturers blame parallel distribution for their lack of ability to invest in R&D stretches the boundaries of incredulity.
Competition - Doesn't parallel distribution prevent the development of new innovative drugs ?
Big research-based pharmaceutical companies continue to complain that the competitive effect of parallel distribution limits their ability to invest in research and development (R&D) because it reduces their profit.
However, diversion of sales from one European country to another has not led to the research-based industry cutting back on R&D. According to the manufacturers´ body, EFPIA, spending on pharmaceutical R&D in Europe grew more than three fold from 1985 to 1999. In the UK alone - Europe's largest destination for parallel distribution - R&D spending by the pharmaceutical industry increased by 108% between 1990 and 1998.
Recent decisions by pharmaceutical companies to re-locate R&D centres were not taken as a result of parallel distribution, but to get access to the best scientific talent. There is no proof that research and innovation in Europe has suffered from parallel distribution. Indeed recent decisions by smaller biotech companies and others to invest in the UK would seem to suggest that the opposite is the case.
Our modern society needs modern, innovative medicines which are affordable and hence accessible to the widest possible number of people.
In reality many of the "new" products on the market are not innovative. A Public Citizen study from 2001 found that, at most, only about 22% of the new medicines brought to the market in the past two decades were innovative products that represented important therapeutic advances. Two thirds of the drugs approved from 1989 to 2000 were modified versions of existing medicines or even identical to those already on the market, rather than truly new medicines. Most "new" and expensive medicines provide only limited or No Added Therapeutic Value.
And it is clear that the majority of R&D funding still comes from public sources, as this table shows - "Myth vs. Reality".
Investment in R&D is important. But rather than parallel distribution, decisions on investing in it are much more likely to be governed by the research environment (more favourable in the US than Europe), the availability of government subsidies (higher in the US than in Europe), tax incentives and well-qualified scientists (more available in the US).