Parallel Trade's Emerging Image Crisis

Parallel trade involves the crossborder trade of a given product in parallel to a manufacturer's official supply chain in that country. With respect to pharmaceuticals, the trade is a controversial issue in Europe and has led to several legal battles. Parallel traders purchase medicines at low prices in one country (often in southern Europe) and then subsequently resell the product at higher prices in another country. Companies seeking to create a profit from price differentials have been active since the 1970s when trademarks and patents were considered not to be lawful obstacles for repackaging and resale (1). However, parallel trade has surged as the EU has widened and created more opportunities for profit. Recently, it was suggested that price differentials of just 10% between EU member states was sufficient enough for pharmaceutical traders to make a profit (2).

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Although pharmaceutical manufacturers are firmly against parallel trade, there is little they have been able to do to prevent it. Parallel trade of goods, including pharmaceuticals, is based on the EU principle of free trade (3), which means that there should not be any obstacle to the free movement of goods between individual EU member states. The legalities of parallel trade also depend on what is known as the "exhaustion of intellectual property rights." Basically, commercial exploitation for a given product is considered to have ended in the EU after the product's first sale (4), meaning that the original manufacturer cannot actively prevent another party, such as a parallel trader, selling exactly the same product within the EU and benefiting commercially.

The European Federation of Pharmaceutical Industry Associations (EFPIA) acknowledges the benefits of the EU principle of free trade, but believes that its application to the field of pharmaceuticals is not appropriate (3). Manufacturers have frequently argued that public safety could be compromised through parallel trade because products are not following the intended supply chain with its builtin measures for quality assurance. Indeed, EFPIA has often highlighted examples of safety and quality issues arising from parallel traders' handling of pharmaceutical products (3).

Parallel traders angrily reject accusations by pharmaceutical companies that their activities compromise patient safety. The European Association of EuroPharmaceutical Companies (EAEPC) states that its members add value to society by introducing price competition and that precautions are taken to guarantee product safety (2). They consider arguments from certain pharmaceutical companies as part of a smear campaign to suppress their activities (5). Ironically, the EAEPC has recently collaborated with EFPIA and other parties in the pharmaceutical industry on a joint European stakeholder model to prevent falsified medicines from entering the European supply chain and improve patient safety (6).

Unfortunately for pharmaceutical companies, rulings concerning parallel trade by the European Court of Justice have tended to leave enough room available for parallel traders to continue. Even when decisions appear favourable to pharmaceutical companies, they are not final and appeals can continue. For example, to deal with the issue of parallel importation, GlaxoSmithKline (GSK) adopted a dual-pricing mechanism in its Spanish distributor agreements. The company charged one fixed price for products sold domestically and a higher price for products sold outside Spain. At first, a ruling from the European Commission went against GSK, primarily because its agreement was considered to restrict trade between member states. Appeals led to the European Commission's ruling being partially annulled, leading to optimism among pharmaceutical companies that their views on parallel trade were finally being listened to. However, it turned out that the partial annulment centred mainly on the fact that GSK's arguments for their dual pricing system had not been properly addressed. Consequently the case continues. Although pharmaceutical companies continue to mount legal challenges against parallel trade whenever possible, there is a feeling that success is unlikely.

Parallel traders on the defensive

Although parallel trade has received backing from the legal establishment, opinions from the industry may be changing. One of the complaints from pharmaceutical companies has been that parallel trade can lead to product shortages in certain countries as medicines are diverted elsewhere (3). Such views have relied on anecdotal evidence and so have easily been countered by parallel traders, who have blamed manufacturers for product shortages (7). However, the ongoing eurozone crisis in Greece and a parliamentary report in the UK have provided the sort of evidence that the pharmaceutical industry has needed to directly link parallel trade with shortages.

Greece. Austerity measures have placed huge pressures on the healthcare system in Greece. Traditionally, the country has always been a lowpriced market, but in 2011, the Greek government cut drug prices further to reduce the country's medical expenditures. These price cuts have led to a documented surge in parallel trade out of the country (8). Faced with domestic customers, including hospitals, who cannot afford to pay for medicines, many wholesalers have turned to the European market to make a profit. The PanHellenic Association of Pharmacists has reported that 500 commonly used drugs are now in short supply (8). These include products for hypertension, gastroenterological disorders, cancer, kidney diseases and painkillers, placing patients in a dangerous position.

Greece's National Organisation for Medicines (EOF) has become so alarmed at the situation that it has launched a hotline for reporting shortages and tried to introduce a temporary ban on the export of 28 identified medicines (8). Since March 2012, wholesalers have been required to submit their sales per product and per client to EOF. This information is to be used to provide guidance on how to distribute the drugs. The EOF has also begun to electronically tag medicines to track usage, identify shortages and control parallel exports (9). So far, these official measures have failed to counteract the shortages and have been beset by other problems. In April, the electronic tracking system had to be taken offline as hackers uploaded around 1.5 million fake prescriptions (9).

The UK. In May 2012, the British Parliament's All-Party Pharmacy Group (APPG) published a report calling for restrictions on the practice of parallel trade (10). APPG states that the UK has been experiencing shortages of prescription medicines available on the UK's National Health Service for four years and that exporting by speculators, although legal in the EU, is responsible for this occurrence. In compiling its report, the APPG heard evidence of vulnerable patients not receiving the medicines they needed, including patients with mental health problems, epilepsy sufferers, diabetics and pregnant women. Although the APPG recognised that the Department of Health had tried to prevent shortages by informing supplychain participants of their obligations to maintain a supply and issuing best practice guidance, they concluded that none of the measures had succeeded. In 2010, the Department of Health held a Ministerial summit to address the issue and announced that the UK's Medicines and Healthcare products Regulatory Agency (MHRA)would tackle the shortages. It was also announced that action would be taken against those in the supply chain who were not fulfilling their supply obligations. However, the APPG pointed out that the MHRA has little market data to determine which products are in short supply and who is exporting them. The APPG was highly critical of the Department of Health, believing that many personnel were resigned to the current state of affairs and even blamed the problems on the previous government rather than trying to act and remedy the situation (10).

The evidence that the APPG gathered regarding parallel trade impacting drug supply appears compelling (10). For example, the group heard that demand for Novartis' Emselex (darifenacin), for overactive bladder syndrome, rose to 350000 packs over a fivemonth period, vastly outstripping any possible UK patient demand. In fact, it was calculated that this amount was equivalent to an astonishing 26-year supply of the drug. The APPG also heard directly from pharmacists who described how the situation was causing stress to their patients, as well as excess work for staff in trying to source medicines in short supply. According to the report, many pharmacists were spending on average between two and five hours a week sourcing out-of-stock medicines.

The APPG has called for immediate action from the government to ensure patient safety. First of all, it has asked the government to unequivocally state that patient health must come before meeting legal obligations concerning the free movement of goods in the EU. In addition, the government has been recommended to examine EU law to determine exemptions that will allow it to prevent current medicines shortages caused by parallel trade.

The APPG has noted that the French government has been facing a similar situation and is examining measures that would place restrictions on the export of medicines. Because France also has to contend with the same EU legal constraints regarding the free movement of goods, it would be logical for the UK government to review the French proposals and see whether they could be employed to ensure that patients in the UK are not deprived of medicines.

Summary

Parallel trade continues to irritate pharmaceutical companies in Europe, who view the trade as unfair competition and a danger to public health. To date, the EU legal position regarding the free movement of goods has enabled parallel trade to continue despite frequent court battles with pharmaceutical manufacturers. Naturally, parallel traders have cited such cases as highlighting their legitimacy and have rejected criticism of their business. However, emerging information is associating parallel trade with drug shortages in different EU countries. If patient safety is considered to be a risk, then the public will not accept the stated view of parallel traders that their business adds value to European healthcare by providing competitive prices. In fact, they could be seen as benefiting financially while patients struggle to access prescribed medicines. Parallel trade representatives have yet to issue a response regarding current EU drug shortages, but they will need to react quickly as pharmaceutical companies will cite such information as evidence of their previous warnings of the perils of parallel trade.

References

1. T. Staton, "Austria racks up millions from parallel trade in EU" (Fierce Pharma, 2012).www.fiercepharma.com, accessed 14 June, 2012.

2. J. Kilick, "Parallel trade in Europe - the tide is turning" (Brussels Legal, 2012). www.brusselslegal.com, accessed 14 June, 2012.

3. EFPIA, "Parallel trade" (EFPIA website, 2012). www.efpia.eu, accessed 14 June, 2012.

4. C. Heath, "Parallel imports and International trade" (World International Property Organisation, 1999). www.wipo.int, accessed 14 June, 2012.

5. European Association of Euro-Pharmaceutical Companies, "Cutting the costs of medicines in Europe" (European Association of Euro-Pharmaceutical Companies website, 2012). www.eaepc.org, accessed 14 June, 2012.

6. European Association of Euro-Pharmaceutical Companies, Anon (2012). "EAEPC-EFPIA-GIRP-PGEU working for better patient safety" (European Association of Euro-Pharmaceutical Companies website, 2012). www.eaepc.org, accessed 14 June, 2012.

7. European Association of Euro-Pharmaceutical Companies, "What challenges do parallel distributors face?" (European Association of Euro-Pharmaceutical Companies website, 2012). www.eaepc.org, accessed 14 June, 2012.

8. GaBI Journal, "Greece drug shortages" (GaBI website, 2012). http://gabi-journal.net, accessed 14 June, 2012.

9. Pharmaceutical-Technology, "Greece hit with essential medicine shortage caused by mounting drug debt" (Pharmaceutical-Technology website, 2012). www.pharmaceutical-technology.com, accessed 14 June, 2012.

10. APPG, "APPG Medicines Shortages Report" (APPG website, 2012). www.appg.org.uk, accessed 14 June, 2012.