Incoming parallel trade creates general price erosion, benefiting all buyers in all markets, by bringing an important, dynamic competitive element to bear, especially in the price uncompetitive patent-protected segment, the part of the market that generics cannot reach.
There is an absence of competition in the medicines market, especially on price. As such, innovative medicines generally retain a high - even dominant - market share.
The availability of a parallel-traded medicine, or even the threat of them, can result in lower prices for the domestic equivalent. The resultant savings are almost certainly much larger than those achieved by parallel trade directly, but are difficult to quantify.
A 2003 study by the York Health Economics Consortium, nevertheless found that "parallel trade [...] generates indirect savings by creating competition, where otherwise there is none, and thus forcing pharmaceutical manufacturers to reduce the prices of domestically sourced products".
- Denmark - in 1997 independent market researcher Medica Consult calculated that the downward spiral of prices through alternating price reductions by manufacturers and parallel traders led to annual savings of more than €50 million.
- Finland - a study by the University of Kuopio in 2001 modelled a hypothetical case in which manufacturers decided to react to lower parallel trade prices. This resulted in potential savings of between €5.2 million and €17.3 million. Ismo Linnosmaa & Taru Karhunen: "Parallel Imported Pharmaceuticals in Finland", 30 November 2001, Center for Pharmaceutical Policy and Economics, University of Kuopio
- Sweden - a study from the Research Institute of Industrial Economics in 2001 found that the prices of Swedish brands subject to competition from parallel trade increased less than other products during the period 1995-1998 Mattias Ganslandt & Keith E Markus: Parallel Imports of Pharmaceutical Products in the European Union, 2001, Working Paper No 546, the Research Institute of Industrial Economics, Stockholm. (Working Paper available on Website)
- UK - in a joint Department of Health/ABPI study into competitiveness of pharmaceutical supply in the UK in 2002 all hospital pharmacists interviewed said that parallel trade "had resulted in some affected manufacturers reducing their prices" Department of Health/ABPI: PPRS - The Study into the Extent of Competition in the Supply of Branded Medicines to the NHS", December 2002, London.
- Italy - a version of Daflon, a treatment from Servier for venous disease - was launched in June 2002 at a 5% discount to the domestic product price. The pricing of Daflon is free from government interference. Faced with competition from parallel trade, for the first time in almost 15 years Servier's Italian subsidiary did not increase the price of Daflon in 2003
Some pharmaceutical manufacturers engage in aggressive price-cutting policies to eliminate competition from parallel trade. Patients and taxpayers have saved annually about €4.7 million in Denmark and about €2.7 million in Norway on Losec - an anti-ulcer drug - as parallel trade has pushed the product's price down to a level corresponding to that charged in other European countries.
Finally, Germany and the Netherlands, where reimbursement for multi-source products with reference pricing schemes is capped, are able to set lower reimbursement ceilings when parallel-traded versions are available.