Wednesday, September 06, 2006

Big Win for GSK Could Bring Fee-for-Service to Europe

Wow! A big win for GSK announced in its long-running challenge to parallel trade. The official press release is more subdued: GlaxoSmithKline receives positive decision in Greek parallel trade case.

Wholesaler groups and their advocates have long argued that any form of commerce management in the EU is abusive per se under Article 82 of the EC Treaty. GSK’s win recognizes that a pharmaceutical manufacturer has the right to protect its legitimate commercial interests via strategic channel management. Click here for a good summary of the legal issues from Pharma Times.

This ruling could turn the tide on parallel trade because manufacturers can now apply some of the lessons from the US drug wholesaling experience with fee-for-service and inventory management agreements.(See my August 2006 archive for two posts on European drug channels).

The structure of European wholesaler compensation requires a different approach than the fee-for-service agreements used in the U.S.

  • Sell-side margins for European wholesalers are regulated or set by governments.
  • Manufacturers operating in Europe have no history of directly compensating wholesalers for specific behaviors or outcomes.
  • Branded manufacturers directly control only one-quarter of EU wholesaler margins versus 90%+ for US wholesalers, giving them less power to demand a fee-for-service model.
Other models from the US can also be adapted to the EU, such as a dual pricing model in which a manufacturer charges different prices for national sales versus exports. Wholesalers get a rebate to a lower price if the product was proven to be sold domestically. Thus, dual pricing by a manufacturer is analogous to the U.S. “chargeback” reconciliation process.

Bottom line: life just got a lot more interesting for international drug wholesalers!

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