Monday, December 08, 2008

An Unfortunate Victory for EU Repackagers

Reuters reported on Friday that the EU plans to drop a proposed ban on repackaging of pharmaceuticals. See EU Exec Drops Drug Repackaging Ban Plan for the latest story and EU Drugmakers Demand Repackaging Ban To Stop Fakes for the original June request for a ban by EU drug makers.

In my opinion, dropping the ban is a very bad decision. Repackaging eliminates the benefit of just about every practical anti-counterfeit tracking technology, including the emerging serialization requirements in some EU countries. Apparently, tablets can even be removed from blister packs under EU law. It’s hard to see how this will benefit consumers. “Hey, it’s a bit cheaper, but it might be fake. Good luck!”

The issue relates to our old friend parallel trade. Combining the European Union’s market integration principles with national price controls has created an enormous cross-border gray market, often called parallel trading. Wholesalers in countries such as Spain and Greece sell to importers in higher priced countries such as Germany and the U.K. Drugs may pass through dozens of hands before reaching their destination.

Surprisingly, the average European consumer receives almost no price break from parallel trade, especially in countries with flat-rate patient co-payments such as the U.K. and Germany. Instead, wholesalers, importers and exporters are the big winners from parallel trade because they absorb 80% or more of the price differences between countries. Hence, these are also the groups that oppose the repackaging ban.

Unfortunately, parallel trade also means that products are often repackaged by multiple intermediaries along the supply chain and may pass through dozens of hands before being resold. Legitimate products can easily get mingled with counterfeits, with no feasible way to introduce pedigrees across countries. It’s no surprise that counterfeit cases are growing quickly in Europe. As I pointed out in a June 2008 posting, seizures of counterfeit drugs at the EU border rose 51 percent in 2007 compared with 2006.

Only one thing is certain – litigation over parallel trade will continue. In September, the European Court of Justice gave GlaxoSmithKline a partial victory in its long-running attempt to limit parallel exporting from Greece. See Europe Allows Companies to Limit Drug Sales from the Wall Street Journal.

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FYI, I wrote two background posts on parallel trade in August 2006. Amazingly, all of the links in these posts still work if you are curious:

BTW, you'll notice a lack of pictures in my 2006 posts. Hope you'll agree that Drug Channels is much more fun with the accompanying photos. In fact, one client recently confessed that he sometimes reads my blog for the pictures, not the articles. Hmmm, I recall using that excuse in reverse during my youth...

3 comments:

  1. I'm amazed the below three articles are not getting more press. Pretty scare to know our "supply chain" is not as secure as the industry claims. Wonder why no one wants to utilize technology to minimize some of the risks.

    FIRST FOREIGN NATIONAL EXTRADICTED FOR IMPORTING AND DISTRIBUTING COUNTERFEIT PHARMACEUTICALS DRUGS IN U. S. SENTENCED TO PRISON

    http://www.usdoj.gov/criminal/cybercrime/gonzalesSent.pdf

    Local pharmacist, businesses disciplined by state

    http://www.nashuatelegraph.com/apps/pbcs.dll/article?AID=/20081130/NEWS01/311309954/-1/XML15

    Miami Man Sentenced to 20 Years for Massive Drug Diversion Operation

    http://myfloridalegal.com/newsrel.nsf/newsreleases/B9B14EB7496153B88525750B006FC641

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  2. Hi Adam,
    Always appreciate your comments but I think you may discount the advantage taken by UK Govt of the Parallel trade?
    Between 1990-2000 Govt funded dispensing fees fell from roughly 20% to 10% of TO. This slack was reciprocally taken up by a mix of, primarly generic, but also PI margin.
    The great re-balancing of 2005 with the new Pharmacy Contract sought to solve the problem, and it did for a while. But ever so slowly the system seems to be creeping back towards a mis-alignment between fees and reimbursement.
    Totally agree the bigger picture is being missed, but it's hard to imagine any kind of quality investment premium being introduced in the current climate -the UK Govt needs its cut more than ever. Add EU core policy of opening boundaries and encouraging cross-border trade to further integration and I think you explain the decision.

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  3. Re: the 2nd comment

    Excellent point. I'm not sure if I've ever written about it on the blog, but importation has indirect economic benefits for payers in importing countries due to cost avoidance from reduced compensation rates for pharmacies.

    As I understand it, the NHS in the UK budgets for a certain level of parallel importing and then imposes a clawback on pharmacist sales. Thus, the NHS promotes parallel importing while also sharing in the financial gains from its use by pharmacies.

    We have the same cross-subsidization here in the U.S. with regard to generics, which is why Wal-Mart has caused so much disruption.

    Many thanks for your thoughtful comment.

    Adam

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