Pharmaceutical Parallel Trade in Europe: Stakeholder and Competition Effects

Abstract:     
Rationale: Pharmaceutical parallel trade (PT) has become an issue of intense debate, however, there is little empirical evidence in Europe on the benefits of its impact or its effect on price competition.

Objectives: The objective of this paper is to analyse the impact of PT on stakeholders (insurers, patients, pharmacists, parallel distributors (PD), and industry), in six therapeutic categories: proton pump inhibitorss (PPIs), HMG CoA reductase inhibitors (statins), Angiotensin Converting Enzyme I (ACE) inhibitors, ACE II inhibitors, SSRIs, and atypical anti-psychotics. Our study countries were Denmark, Germany, the Netherlands, Norway, Sweden and the UK, over the 2002-2006 period.

Methodology:The countries selected were due to their high relative price levels as destinations for parallel imports. Prices for the selected products were considered in a number of low price, parallel exporting countries: France, Greece, Italy, Portugal and Spain. These low price countries were selected to capture the price spread between themselves and the destination countries. The products were selected because they account for a large number of high volume and high price products across several therapeutic categories. The product mix included both branded in-patent medicines and off-patent medicines, products subject to generic competition and PT, and products that do not face PT at all. The selected product mix accounted for 21% of the retail (pharmacy) pharmaceutical market in the study countries. Data at the presentation level (dosage and pack) from the Intercontinental Medical Statistics database was used for this analysis.

The paper calculates the pay-offs from PT and how these were allocated among the five key stakeholders in destination countries. Econometric techniques were applied to quantify the determinants of PT penetration, its impact on price competition in destination countries and the extent to which PT penetration occurs in presence of more or less price regulation.

Results: Over the period, we observe a drop in PT for certain products and increases for others. There are financial gains on the basis of prices differences between export and import countries, but the degree to which certain stakeholders benefit varies considerably. Savings to health insurance and patients are modest, PD and pharmacies realise larger gains and the loss to the producers is significant.

Determinants of PT are the price difference between export and import countries and the overall pharmaceutical market size of a country. Other important determinants include the number of physicians and generic penetration. PT does not influence downward movement of prices in destination countries and that exchange rate movements, purchasing power parities and generic competition maybe responsible for this effect.

Conclusions: PT does not contribute to price competition given that parallel traded drugs are priced just under originally sourced drugs; price competition, if any, is due to generic penetration. Instead of price convergence to the bottom, evidence points to 'convergence to the top.' This is explained by the fact that drug prices are subjected to regulation in individual countries and by the limited incentives of purchasers to respond to price differentials. Given the overall size of the market, savings from PT appear small.

Keywords: Pharmaceuticals, parallel trade, drug competition

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