Thursday, September 28, 2006

A Partial Win for Glaxo Means More Change for EU Drug Channels

Earlier this month, I highlighted Glaxo's win in a Greek parallel trade case. (See "Big Win for GSK Could Bring Fee-for-Service to Europe"), noting that "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."

Well, Glaxo just won another victory. (See "Glaxo Partially Wins Fight In EU Court Over Pricing.")

Spain is one of the major sources of parallel exports in the EU. With this new ruling, the Court is once again recognizing that a manufacturer has the right to manage its own distribution channels. The Spanish ruling is not as clear cut because it merely pushes the decision back to the European Commission. This ruling will also benefit Pfizer, which had also been using a dual pricing strategy in Spain.

Diversion problems crop up anytime price variations between markets create arbitrage (buy low-sell high) opportunities. In the case of the drug channel, national pricing combined with EU's market integration principles created a flourishing grey market.

I predict that EU manufacturers will gain at least limited ability to implement dual pricing models in other exporting countries. This ruling will also provide a foundation for US manufacturers to attack diversion of products from the EU back to the US.

Mark Twain once said: "History doesn't repeat itself, but it rhymes." EU wholesalers should start learning words that rhyme with "transparency," "accountability," and "control."

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