What is parallel trade?

INTRODUCTION TO PARALLEL TRADE

In the Single Market parallel traders can buy pharmaceuticals in any EU/EEA country and then under strictly regulated conditions move medicines to the destination market, 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.

INDUSTRY OVERVIEW

While the medicines sales in the EU have been rapidly growing over the last decade, reaching €189 billion in 2018, the turnover of EU parallel imports has remained stable in the same period around €5.5 billion. In 2018, the sales of parallel imports only represented about 2.9% of the total sales of pharmaceuticals in Europe.

The origin of the parallel imports is quite distributed among the European countries and, contrary to common belief, most of the parallel imported medicines are sourced in high-income countries.

Legal framework

Parallel distribution of medicines is an integral part of the medicines supply chain in the Single Market. It follows from the principles of free movement of goods and exhaustion of intellectual property rights within the Single Market. Parallel distribution of medicines is not only legal but also strictly regulated under EU and national legislation. The legality has been recognized by the Court of Justice of the European Communities since the late 60’es and 70’es ((For patents; 29 February 1968, in Case C-24/67, Parke Davis and Co. v Probel (principle) and 31 October 1974, in case C-15/74, Centrafarm BV et Adriaan de Peijper v Sterling Drug Inc. For Trademarks; 13 July 1966, in joint cases C-56/64 and C-58/64, Établissement Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission; 31 October 1974, in case C-16/74, Centrafarm BV et Adriaan de Peijper v Winthrop BV; and 23 May 1978, in case C-102/77, Hoffmann-La Roche et Co. AG v Centrafarm Vertriebsgesellschaft Pharmazeutischer Erzeugnisse MBH. On Trademarks the legality was confirmed also under the Trademark Directive on 16 July 1998, in case C-355/96, Silhouette International Schmied GmbH v Hartlauer Handelgesellschaft GmbH.)).

Parallel distribution of medicines within the Single Market is based on Articles 34 and 35 of the Treaty on the Functioning of the European Union (TFEU)((https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:12012E/TXT&from=EN)), subject to the derogations regarding the protection of human health and life and the protection of industrial and commercial property, provided by Article 36 of the TFEU((https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:12012E/TXT&from=EN)).

Parallel distribution of medicines in the EU’s Single Market is furthermore protected by the principle of exhaustion of Intellectual Property (IP) rights((See Trademarks Directive (Directive 2015/2436/EU), and jurisprudence from the CJEU. For case law on patents; 29 February 1968, in Case C-24/67, Parke Davis and Co. v Probel (principle) and 31 October 1974, in case C-15/74, Centrafarm BV et Adriaan de Peijper v Sterling Drug Inc. For Trademarks; 13 July 1966, in joint cases C-56/64 and C-58/64, Établissement Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission; 31 October 1974, in case C-16/74, Centrafarm BV et Adriaan de Peijper v Winthrop BV; and 23 May 1978, in case C-102/77, Hoffmann-La Roche et Co. AG v Centrafarm Vertriebsgesellschaft Pharmazeutischer Erzeugnisse MBH. On Trademark the legality was confirmed also under the Trademark Directive on 16 July 1998, in C-355/96, Silhouette International Schmied GmbH v Hartlauer Handelgesellschaft GmbH.)). The exhaustion principle prevents rights owners from restricting further distribution of their products once they have placed these on a given EEA market themselves. That is because the IP owners have already extracted their ‘ownership profit’ with the first sale in the Single Market. This right cannot be used to obtain a double profit from IP.

ENTREPRENEURSHIP

Parallel importers and exporters are true entrepreneurs. Their contribution to innovation in the pharmaceutical sector lies in their ability to identify and procure products with relevant price differentials and thus foster competition and provide a service to patients by making these medicines more affordable. The Parallel distributors must meticulously research, calculate and meet the costs associated with purchasing, transport, warehousing, insurance, repackaging, quality assurance, regulatory compliance, distribution and marketing.

Regulatory framework

Parallel distribution Is regulated under the Directive on Medicines for Human Use (Directive 2001/83/EC), the Falsified Medicines Directive (Directive 2011/62/EU), the Trade Marks Directive (Directive 2015/2436/EU), the Regulation for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency (Regulation (EC) No 726/2004), the Commission communication on the Community marketing authorisation procedures for medicinal products (Commission Communication 98/C 229/03) and national legislation.

Different requirement befits the two types of distributors, exporters and importers, in the market. Exporters must possess:

a wholesaler dealer license (called Good Distribution Practice (GDP) license), and
a Controlled Drug Authorisation, if they export controlled drugs.

Importers must possess:

the GDP license,
a Marketing Authorisation (allowing them to market a given medicine in a given market),
a Manufacturing License (called Good Manufacturing Practice (GMP) license) if they make changes to the label or outer package as demanded by local law, and
a Controlled Drug Authorisation, if they import controlled drugs.

All authorisations and licenses are granted and controlled by Member State authorities or EMA.

Economic rationale

When a new medicine is created, the patent-holder can prohibit other companies from making and selling their medicine, but cannot prohibit licenced wholesalers who have bought the product from the patent-holder from reselling the medicine in other countries within the EEA where the patent-holder sells it at a higher price.

Parallel Importers buy these pharmaceuticals and then under strictly regulated conditions move medicines to the destination market, 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.

Therefore, parallel import are the only form of price competition during the period of patent protection of a medicine (called intra-brand competition). In other words, parallel trade in medicines creates competition in a business where patents provide the rights owner with a monopoly in every national market. This is good for the European economy, good for health care systems and good for patients.

Prices of medicines vary for two main reasons: manufacturers seek profit-maximising pricing strategies and; price and reimbursement regulations are set nationally. Although some countries have low average medicine prices, trade in medicines flow in all directions in the Single Market. That is because, the price of an individual drug can be much lower in a traditional high-priced market than in the average low-priced market. In fact, more than 50% of all imports come from high-income countries.

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.

Savings

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. There are direct and indirect savings.

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.