Kathy Burke examines a conflict in pharmaceuticals supply that pits trademark rights against the freedom of movement principle and ultimately affects the price of medicines.
Since 1982, the Government and the Irish Pharmaceutical Healthcare Association meet at intervals to set the price of drugs in the State. The next meeting is scheduled for August 2005.
The pharmaceutical industry agrees prices for their trademarked drugs with national governments individually. As a result, the price of a drug varies between countries. As a general rule, drugs are expensive in the US, Scandinavia and northern Europe, and cheaper in southern Europe, Africa and India. Obviously, it would make sense to import medicines from countries where the government has agreed lower prices.
This is the business of parallel trade, and this it seems is where international trade can get messy.
Companies that hold patents want to set the price of their product with each government individually and plan revenues around that. However, other companies want to import the patented product from a low-cost country and sell it at a discounted price in high-cost countries. The importer can provide the very same product, made by the same manufacturer, at a discounted price. The only difference is language on the packaging, and price.
So, in a high-cost country, parallel importing means the manufacturer's product ends up competing with itself on price. Parallel trade of a product can begin before its patent expires.
This is a separate issue from that of generic medicines, which cannot be sold until the original patented drug has been on the market for 10 years or more.
Parallel trade is perfectly legal and is actively encouraged by the European Commission as healthy competitive practice safeguarded by trade agreements and the principle of free movement of goods. It has been common practice for years to buy medicines in Mediterranean Europe to sell in northern countries such as the UK and Norway.
However, the Commission has noted that, in Ireland, companies face difficulties in attempting to parallel-import pharmaceutical products. In 2003, it sent a "reasoned opinion" to the Irish government on the fact that the Irish authorities take two-and-a-half-years to decide on parallel import applications for the licences required to put the import on the shelves.
Patrick Wadding is the managing director of Ireland's first parallel importer in the pharmaceutical sector. The company, PCO Manufacturing, supplies parallel imports to community pharmacies. It is involved in long-running legal action with the Irish Medicines Board over such delays.
Wadding makes the point that in Ireland, unlike in the UK, the government offers no incentive to pharmacists to find the best price for medicines.
The pharmaceutical industry says that parallel trade reduces their profits and affects their R&D budgets.
Wadding says: "This is the biggest red herring. They should be embarrassed to say it. They spend less than 10 per cent of their expenditure on R&D."
"The industry sets the price. There is no link with manufacturing costs. The selling price of a medicine is based on a cost-benefit analysis based on average-income."
Wadding adds that other factors influence price-agreements. Cultural trends can affect demand for a drug and therefore, its price. "Ireland is a leading country income-wise, but our contraceptives are among the cheapest in Europe. Contraceptives weren't allowed on the market here till the late 1980s. Manufacturers perceived that they would have difficulties in Ireland."
To sell parallel imports on the Irish market a product licence must be obtained from the Irish Medicines Board, then the product must be relabelled, to account for language difference and different national specifications. For example, "The Irish leaflet might say 'store below 25oC', but it might be acceptable in Italy to store it at 30oC. PCO would have to over-label the '30' on the box", says Wadding.
The parallel importer is obliged to notify the manufacturer of its intention to market the drug in a different package. It is at this point that most barriers are set by the manufacturers, he said.
"Now, they play games. They complain about our [the importer's] patient leaflet. We have to stop selling until we replace the patient leaflet. Then we have to give them notice again of our intention to put the product on the market again. And they will come back with another problem. They won't tell you all problems at once."
Once on the market, a drug may, over time, be found to cure another ailment, too, or to have to an adverse side-effect. When new information transpires, regulatory authorities give manufacturers a deadline within which to change the product insert. Wadding says that importers don't know about the new insert requirement until their application has failed because of it.
Wadding claims that the biggest barrier to parallel importing today is a quota system whereby manufacturers would limit supplies to wholesalers in countries where a low selling-price has been agreed, so that these wholesalers have no surplus to export.
"If a wholesaler in Spain receives an order from PCO and an order from a Madrid pharmacy, both have the same legal right to be supplied, but if stock is low the wholesaler will naturally be loyal to their own pharmacies. But this quota system is 100 per cent illegal."
In a long-running case at the European Court of Justice on this issue, the pharmaceutical company Bayer was fined for making arrangements with wholesalers such that they would not export Adalat from Spain and France, where it was 40 per cent cheaper than in the UK.
When that ruling was overturned on an appeal that hinged on the meaning of "agreement", the European Commission stated that it would examine the compatibility of such supply policies with article 81(1) of the EC Treaty, which prohibits policies that are designed to distort competition within the EU, and article 82 which prohibits abuse of a dominant position.
"In those countries where half of the product may be exported, the manufacturers gather data at pharmacy level" to forecast local demand and set a quota for the stock sent to wholesalers, says Wadding.
Complaints alleging anti-competitive practices are notified to the Commission, which then refers cases to the European Court of Justice. Many cases are outstanding.
According to Brian Murphy, commercial affairs manager at the IPHA: "Lucrative profits [from parallel trade] accrue mostly to the traders, depriving the research-based pharmaceutical industry from valuable resources to fund the research and development of new products."
Murphy cites a European Court of Justice decision last week: "The ECJ decided that it had no jurisdiction to answer the questions referred by the Greek competition commission concerning the operation of supply quotas in relation to medicines". This case involved GlaxoSmithKline.
"The Advocate General held that restriction of supply could be justified because the price differential giving rise to parallel trade is the result of State intervention. He also noted that his verdict was specific to the pharmaceutical industry and should not be applied elsewhere."
The Advocate General's opinion is not binding on the Court, and in this case, the ECJ referred the case back to the national authorities.
Wadding believes the European Commission is overworked in this area. "It is impractical for any lawyer to work with the amount of data from these cases. The commission won't put enough time into it as it affects only a small amount of people [importers] and it is not something that the local consumer is fully aware of," he says.
Wadding says this "game" with parallel importers "is not an economic issue" for the manufacturer. "They will spend as much money playing games, in court, and missing sales."
Parallel importers in Europe have an industry association - the European Association of Euro-Pharmaceutical Companies. For more information on parallel trade: www.eaepc.org