PARALLEL IMPORTS BRINGS SAVINGS TO THE HEALTHCARE SECTOR
The objective of parallel trade is to offer Europeans original supply of medicines at a lower price. This creates sizable savings for public health insurance systems, pharmacies and, ultimately, patients. The savings stem from the price differences of manufacturers’ prices for the same medicine between countries of the EEA. Pharmaceutical companies use price discrimination to get the maximum profit from every market in Europe. As a consequence, opportunities for parallel trade arise.
There are two main classifications for savings coming from parallel trade: direct and indirect savings.
The direct savings are the most immediate benefits of parallel trade, and, therefore, also the easiest to calculate. These are derived from the difference between the manufacturer’s price for a certain medicine and the less expensive parallel imported alternative. In sum, direct savings represent the benefits from offering a pharmaceutical product with the same standards of safety and quality at a lower price.
The distribution of the savings depends on how the health system is configured in each country. In a number of cases, public health insurers retain the price difference between the manufacturer’s price and the parallel import. This saving is ultimately passed to the patients, who must have pay lower contributions, direct fees or taxes to sustain the health system. In other countries, like Sweden, the price difference are seized by pharmacies, and removing this source of profit would endanger their financial performance (Sveriges Apoteksförening, 2017).
There have been a number of studies on the savings from parallel trade that have evidenced the positive effects of parallel imports in reducing the national health budgets or increasing the profitability of European pharmacies. The most recent ones obtain savings of €202m, €60m, €31m, and €67m per year for Germany, Sweden, Denmark and Poland respectively. These figures are relative to the size of their pharmaceutical markets, and they also depend on other elements: incentives to provide parallel imported medicines, hurdles to the entry of imports, different reimbursement, degree of competition of the parallel importers in the market, etc.
Indirect savings
The indirect savings are those that are derived from the competitive pressure exerted by parallel traders, that has an effect on manufacturers’ prices. In other words, the competition from parallel imported products in the market leads to reductions of the prices of the medicines commercialised by the manufacturers. Indirect savings can also stem from the potential competition from parallel imports, i.e., manufacturers would lower the price to prevent the entry of parallel traders into the market.
Although these savings are very significant – in most cases, larger than the direct savings –, they are harder to quantify, because it is necessary to assume what the price of the manufacturer would be in absence of competition from parallel imports. This is a “counterfactual price” that cannot be known but can be estimated. One of the approaches most used in the literature is to consider the price of the manufacturer’s medicine before the entry of the parallel imported alternative in the market as the counterfactual price.
A compilation of a series of recent studies that have calculated savings from parallel imports in Poland, Germany, Sweden and Denmark, published by Affordable Medicines Europe, found indirect savings that amounted to an aggregated of €2,8bn in the four countries. These are much larger than the direct savings, and they represent between 165 and a 22% of the originator manufacturer’s revenue for the medicines imported in each country.
If the remaining restrictions to parallel trade were removed, the scope for the effect of competition from PI to create savings would significantly increase.
DIRECT AND INDIRECT SAVINGS: A VISUAL APPROACH
The difference between direct and indirect savings can be easily explained with a graphical representation of an example: a medicines is released in the market of country A in January 2010 at 86€. In April, parallel importer 1 brings the same medicine to country A from country B at a lower price: 76€. One month after, another parallel importer brings the same medicine, this time from country C, at 70€.
The market is not static, and each agent reacts to the price set by the others. Therefore, the originator lowers the price to face the competition of more affordable parallel imported alternatives. Many months later, in December, the originator sets the price at a level that is not sustainable for the parallel importer to remain in the market.
The area coloured in light blue represents the direct savings, i.e. the difference between the price set by the originator and the parallel importers. The upper area coloured in light pink represents the indirect savings, that stem from the reduction of the originator’s price due the competition pressure exerted by parallel importers.
The introduction of imports have brought substantial competition and savings. Once parallel importers have invested in a license, they can enter the market with weeks notice should the manufacturer again raise its prices.
Link to: What is parallel trade
What is parallel trade?
In the Single Market parallel traders can buy pharmaceuticals in any EU/EEA country, repackage them to comply with national legislation and linguistic needs, and sell them at a lower price than the standard local price, in competition with that same identical product sold by the manufacturer or its local licensee. This is possible because prices of individual drugs vary between Member States.
Link to: Safety
Safety
Parallel imports are original European supply sourced in another country of the EU/EEA and totally adapted to the destination market. These medicines are 100% safe, as parallel traders are subject to the same regulatory requirements as manufacturers of the branded or generic pharmaceuticals, and they have to undergo regular inspections by the competent authorities.
Link to: Shortages
Shortages
Although parallel trade is wrongfully blamed for provoking shortages or deteriorating the supply of medicines in European countries, there is little evidence to back these accusations. On the contrary, parallel trade has the ability to mitigate shortages by bringing medicinal products that are suffering from problems of supply in one country from another market in which there is a surplus.