Parallel Trade in Europe and the US: The challenges facing pharma

CHAPTER 1 OVERVIEW OF PARALLEL TRADE 10
What is parallel trade? 10
Conditions for parallel trade 11
Implications of parallel trade 12
Price convergence of drugs 12
Parallel trade drives down pharmaceutical companies’ profitability 13
Does parallel trade compromise the safety of drugs? 14
CHAPTER 2 DRUG IMPORTATION IN THE US 16
Introduction 17
Further legislation has been passed to legalize drug importation, but implementation is no closer 18
US consumers are evading the law and importing prescription drugs from abroad 20
Route of illegal importation 22
Key drivers of drug importation – the search for cheaper drugs 26
State initiatives to drive importation of prescription drugs 26
Driving factors for drug importation from Canada 28
Key resistors of drug importation – the safety of drugs is being compromised 33
Many foreign Internet phamacies operate in a regulatory loophole 34
Rogue Internet pharmacies – a high percentage of Internet phamacies that claim to be Canadian are not really Canadian 36
Counterfeits entering the supply chain 36
Strategies for manufacturers to tackle drug importation 37
Supply management strategies 39
Anti-counterfeiting technologies 41
Pricing strategies 42
Legal challenges 43
Programs for the uninsured 44
Public awareness campaigns 46
Use of different packaging 47
Use of different brand names 48
Datamonitor’s recommendations 49
Future outlook for drug importation 50
Drug importation is expected to decline 50
Legalization of drug importation unlikely 53
CHAPTER 3 PARALLEL TRADE IN EUROPE 55
Introduction 56
Legal and regulatory framework 56
Regulatory framework 58
Repackaging and relabeling 60
The derogation of accession states 61
Country-level trends in parallel trade in Europe 62
Present situation 62
The future outlook of parallel trade in Europe 73
Strategies for manufacturers to tackle parallel trade in the EU 82
Supply management is the most effective approach 84
Pricing strategies are unlikely to be profitable moves, although Pfizer’s dual pricing system may change this 87
Legal challenges by drug manufacturer’s rely on intellectual property rights 92
Use of different packaging and brands in member states may deter parallel trade – but the effect is limited 95
The ’do nothing’ approach is risky 95
CHAPTER 4 APPENDIX : SUPPORTING DATA 96
Definitions 96
Glossary of terms 96
Supporting data 97
Conferences attended 98
Reference 98
Exchange rate 100


LIST OF TABLES
Table 1: Evaluation of three generics bought by the FDA from an Internet pharmacy failed on a number of tests 34
Table 2: Product patents were introduced in eight of the accession states between 1991 and 1994 62
Table 3: Incentives for parallel importation in the six main parallel importing European countries 65
Table 4: Summary of the economic impact of parallel trade, based on the ESRC, LSE and YHEC studies 78
Table 5: EEA countries 97
Table 6: Exchange rates*, 2004 100


LIST OF FIGURES
Figure 1: Generalized distribution chain for parallel traded pharmaceutical products 11
Figure 2: The number of state and federal bills introduced in Congress proposing the legalization of parallel drug importation has dramatically risen over the last four years 18
Figure 3: Foot traffic traditionally accounted for the majority of cross border sales of prescription drugs from Canada to the US, however, foreign Internet pharmacies have become more popular after their emergence 23
Figure 4: Average ratio of Canadian prices to Median International Prices of patented drugs, 1987-2004 29
Figure 5: Ratio of average Canadian patented drug prices to foreign drug prices, 1987, 1997, 2004 30
Figure 6: The high level of competition for major generic products in the US drives the price down 32
Figure 7: Main strategies available to drug manufacturers to tackle the current illegal importation of prescription drugs in the US 38
Figure 8: A large section of LillyAnswers’ website discusses the risks of drug importation 45
Figure 9: Lilly ICOS devotes a whole section on its Cialis website on how customers can avoid counterfeit Cialis drugs 47
Figure 10: Benchmarking anti-drug importation strategies 49
Figure 11: Although Medicare D provides some coverage of prescription drug costs, beneficiaries will still have to contribute 52
Figure 12: Legal framework of EC law supporting parallel trade in the EU 56
Figure 13: Parallel trade rose substantially in Europe between 1998 and 2002, particularly in the UK, Sweden and Germany 63
Figure 14: Parallel import penetration across selected European countries in terms of value in 2004 64
Figure 15: Parallel import penetration in Germany, 1997-2004 67
Figure 16: ARB case study: selective use of PPRS price cuts to UK packs with high parallel import penetration drove down parallel importation 68
Figure 17: Sales of locally-sourced Aprovel and Amias rose sharply in 2005, while parallel imports fell 69
Figure 18: The accession countries have a high penetration of generics, compared to some of the most common parallel exporter countries 72
Figure 19: Wholesalers are vertically integrating into offering pre-wholesale and pharmacy activities 81
Figure 20: Main actions that drug manufacturers can take to limit parallel trade in Europe 83