Parallel trade in EU: implications and managing solutions

© Shutterstock
© Shutterstock

In 1993 EU abolished boundaries between member states aspiring to a single market that enables free movement of goods, services, people, capital. These two core tenets of EU have given people unrestrained liberty to study, work and do business wherever opportunities lead them. Thus, the portfolio of available products has diversified, jobs have been created, innovation and competition have been encouraged.


Nonetheless, when it comes to the pharmaceutical industry one might question whether the one single market principle does more harm than good to patients’ healthcare access. As different member states have different regulatory approaches in order to control and protect their healthcare budgets, a quite accentuated variation in pharmaceuticals’ prices arises across Europe. This price gap between countries has proven to be a flourishing opportunity for parallel trade that implies product movement from low-value markets (those that practice low-prices or that have not yet adopted euro as currency) to high-value markets. In 2011 the turnover of parallel trade reached 3% of the overall market and it continued to draw an ascending curve.


The implications of such practices may be advantageous as it certainly increases wholesalers’ margins and might even facilitate patients’ access to same products at a more affordable value in high-price markets. However, there are a series of negative consequences, especially for the low-price countries.


One of the most concerning aspects is the high probability for parallel trade to create shortages in the low-price countries. Thus, patients from lower purchasing power nations are denied access to their treatment because drugs have been absorbed by high-value markets. For instance, in 2012, Romania that at the time had the lowest priced oncology drugs in the Union faced such shortage of medication that the minister had to block the parallel trade, which exceeded €5 billion. This practice actually triggers losses for pharma producers in high-value countries. Consequently, there is an increased tendency to yield new medicines’ availability in low income countries.


Moreover, as the distribution cycle is not enough transparent and regulated, it is hard to say where batches of drugs are at any given time. This aspect constitutes a weak spot exploited by those engaged in counterfeit. What is more, as imports usually imply repackaging and relabeling, it becomes much easier to mask counterfeit drugs. For example, there were cases of counterfeit drugs sold through parallel import in UK under French packaging.


Furthermore, package or label changes tend to confuse patients that become reticent towards the drug they receive as in the case of generic substitution.


Another concerning point is patient safety that might be impaired due to lack of control of drug transport and deposit conditions (exposure to temperature, humidity, light etc.) and lack of an efficient pharmacovigilence program.


All the above are practically consequences of the freedom of movement in the EU. Hence, the pharmaceutical industry, the healthcare regulations or the parallel trade work policy are not directly accountable, which makes all the more difficult to hold a grip on parallel trade.


Nevertheless, in the past few years there were different attempts to manage parallel trade without being in conflict with EU regulations such as: dual pricing, volume restrictions and friction.


Dual pricing consists in perceiving lower prices for domestic sales and higher prices for exports. In other words, if wholesalers prove that products are dispensed within the country’s borders they beneficiate of discounts if not, they are perceived prices higher than the maximum for domestic sales.


Volume restrictions are designed to give wholesalers the exact amount necessary to cover domestic sales thus, avoiding any excess that might be subject to parallel trade. Another solution to keep sales domestic was to establish direct-to-pharmacy distribution agreements.


The friction approach implies personalizing drugs from one market to another in terms of packaging, doses, conditioning etc. so that, due to patients’ reticence towards aspect modifications of their medicines, pharmaceuticals from one country become less attractive to another.


What is challenging is the extent to which all these measures can be applied without crossing the limit and engaging anti-competitive practices in an open market protected by EU’s freedom of movement policy.