The Economic Impact of
Pharmaceutical Parallel Trade:
A Stakeholder Analysis
Panos Kanavos, PhD
London School of Economics, UK
AcademyHealth, San Diego, 8 June 2004
Agenda
•
Drug pricing and financing in Europe
•
The issue of parallel trade
•
Data and methods
•
Results
•
Conclusions and policy implications
Approaches to drug regulation in the EU
Measure
In-patent drugs
Off-patent drugs
Free Pricing
Germany, France(?)
Direct price
controls
Austria, Finland,
France, Greece, Ireland,
Italy, Netherlands, Portugal,
Spain, Sweden
Austria, Finland, Greece,
Ireland, Netherlands, Sweden
International
price
comparisons
Austria, Belgium, Denmark,
Finland, Greece, Ireland,
Italy, Netherlands, Portugal,
Spain, Sweden
Austria, Belgium, Denmark,
Finland, Greece, Ireland,
Netherlands, Portugal, Spain,
Sweden
Profit control UK
Reference
pricing
Netherlands
Belgium, Denmark, France,
Germany, Italy, Portugal,
Spain, UK
Price differences per unit in EU
countries, DDD-adjusted, in €, 2002
INN name
Atorvastatin
Pravastatin
Simvastatin
Captopril
Enalapril
Quinapril
Ramipril
Losartan
Valsartan
Clozapine
Olanzapine
Risperidone
Lansoprazole
Omeprazole
Pantoprazole
Citalopram
Fluoxetine
Paroxetine
Sertraline
Nether
Spain Portugal Italy Greece France Ireland Austria
Lands
1.01 0.95 0.96 0.91 0.63 0.55 0.91 0.89
0.97
1.67 1.04 1.58 1.11 0.91 0.66 1.07 1.55
0.92
1.25 1.12 1.19 0.82 0.74 0.62 0.80 1.13
0.96
0.58 0.54 0.26 0.56 0.30 0.38 0.61 0.50
0.77
0.59 0.30 0.19 0.28 0.28 0.19 0.46 0.41
0.24
0.38 0.88 0.19 0.36 0.37 0.27 0.53 0.75
0.43
0.60 0.69 0.21 0.28 0.24 0.18 0.40 0.35
0.36
0.97 0.87 0.63 0.77 0.69 0.58 0.92 0.77
0.47
0.88 0.86 0.45 0.72 0.62 0.39 0.87 0.75
0.77
0.92 0.28 0.13 0.28 0.29 0.11 0.30
N/a
0.10
5.48 5.19 3.57 3.90 3.60 3.30 4.83 6.07
5.28
5.21 5.47 2.87 3.22 2.93 2.25 3.65 5.03
5.23
1.33 1.93 1.07 0.90 1.53 1.05 1.68 1.66
1.57
1.60 2.09 0.43 1.66 1.50 0.84 1.86 1.77
1.57
1.33 1.88 1.27 1.34 1.28 1.10 1.65 1.40
1.57
0.90 1.18 0.73
N/a 0.75 0.68 0.90 0.97
0.97
1.51 1.38 0.53 0.69 0.56 0.65 0.93 0.90
0.61
0.93 1.11 0.80 0.86 0.77 0.69 0.90 0.90
0.56
0.85 1.31 0.72 0.76 0.87 0.55 0.84 1.36
0.88
Norway Belgium Germany Sweden Denmark UK
0.78
1.25
1.43
0.48
0.25
N/a
0.32
0.83
0.82
0.20
4.80
3.98
1.37
1.89
1.33
1.02
0.97
N/a
1.08
0.86
1.08
1.28
0.62
0.29
0.76
0.51
0.93
0.59
0.27
5.60
4.23
2.01
2.24
2.01
1.08
1.04
1.31
1.22
1.37
1.63
1.06
0.28
0.20
0.45
0.48
0.80
0.80
0.25
5.78
5.54
1.84
1.77
2.32
1.12
1.16
1.16
1.11
1.04
1.00
N/a
0.21
N/a
0.49
0.31
0.85
0.82
0.18
5.37
4.08
1.15
1.83
1.16
0.66
0.85
0.90
1.12
0.72
0.98
0.81
0.46
0.22
0.37
0.17
0.63
0.60
0.19
3.81
2.68
0.85
N/a
0.83
0.75
0.78
0.91
0.82
Prices of most common presentation, in €, 2002
Parallel trade in the EU

Regional exhaustion of rights

Considerable jurisprudence by the ECJ

Significant uptake: 1998 – 2002

Actively encouraged by some member-states
Market share of parallel
imports, 1997-2002
0,45
0,4
0,3
0,25
0,2
0,15
0,1
0,05
Europe
UK
Germany
Netherlands
20
02
20
02
20
01
20
01
20
00
20
00
19
99
19
99
19
98
19
98
19
97
0
19
97
PI penetration
0,35
Incentives encouraging the use of
PI medicines in Europe






United Kingdom
1. Discounts to pharmacy
2. Clawback
Germany
1. Quota to pharmacies
for PI dispensing
2. Penalties for not
adhering to quota
Denmark
1. Information on PI use
2. Mandatory substitution




The Netherlands
1. 1/3 of price difference
accrues to pharmacy
2. Clawback encouraging
pharmacies to procure
more cost-effectively
Sweden
1. Information and PI
substitution
2. Aggregate payment to
pharmacy for work on
generics and PI drugs
Research agenda and endpoints
The Research Agenda
1.
2.
3.
Quantify economic impact
of parallel trade in six
major destination
countries
Focus on 6 widely used
product classes*
accounting for 22% of
branded retail market (1528% depending on
country); account for
some of the most highly
PT products
Apportion static benefits
to individual stakeholders
Research Endpoints
1.
2.
3.
Examine direct effects,
arising from price
differences between
locally sourced and PI
drugs (list prices and
discounts)
Competition effects in
destination countries
and price convergence
Competition effects
across countries – does
arbitrage work?
* Statins, ACE I and ACE II inhibitors, PPIs, SSRIs, and Atypical antipsychotics
Market shares of PI products, 2002
Atorvastatin
Pravastatin
Simvastatin
Captopril
Enalapril
Quinalapril
Ramipril
Losartan
Valsartan
Clozapine
Olanzapine
Risperidone
Lansoprazole
Omeprazole
Pantoprazole
Citalopram
Fluoxetine
Paroxetine
Sertraline
Norway
Germany
Sweden
Denmark
UK
Netherlands
2%
14%
36%
3%
24%
0%
0%
0%
0%
58%
11%
42%
0%
4%
0%
6%
1%
9%
0%
0%
17%
19%
0%
0%
19%
0%
18%
0%
0%
74%
24%
32%
0%
16%
0%
21%
20%
47%
8%
5%
0%
56%
7%
5%
39%
19%
0%
0%
13%
0%
25%
0%
0%
0%
19%
17%
43%
25%
54%
38%
12%
7%
51%
0%
1%
17%
21%
0%
20%
10%
8%
33%
14%
11%
18%
15%
34%
6%
14%
1%
10%
1%
0%
8%
3%
0%
5%
0%
63%
62%
42%
0%
6%
17%
5%
19%
9%
65%
2%
4%
8%
0%
72%
23%
0%
47%
45%
31%
19%
32%
25%
10%
18%
23%
A. Direct effects
1. Health Insurance
2. Pharmacy
3. Patients
4. Parallel importers
5. Industry
Allocation of benefits (1)
Country
Cost-sharing
policy
Impact on Pharmacy
% of
patients
benefits, 2002 market
Co-insurance
(0%,12%,30%
with cap per
script)
Marginal
€563,000
0.3%
Pack-related
0
0
0
Sweden
Deductible plus
co-insurance up
to a limit
Marginal
0
0
Denmark
Deductible plus
co-insurance up
to limit
Marginal
0
0
Flat fee
0
invisible
?
No co-pays
0
€ 6,382,000
1.2%
Norway
Germany
UK
Netherlands
Allocation of benefits (2)
Country
Savings to health
insurance, 2002
(1)
Benefits to Parallel Traders Ratio
(PT), 2002
of
(2)/(1)
(2)
€
% of
market
€
% mark
up
€ 563,000
0.3%
€ 12,447,000
46%
22.7
Germany
€ 17,730,000
0.8%
€ 97,965,000
53%
5.5
Sweden
Denmark
€ 3,770,000
1.3%
€ 18,453,000
60%
4.9
€ 3,002,000
2.2%
€7,371,200
44%
2.5
UK
€55,887,000
2.8%
€ 469,013,000
49%
8.4
Netherlands
€19,119,000
3.6%
€ 43,199,000
44%
2.3
Total impact
€100,071,000
1.8%
€ 648,449 ,000
53%
6.5
Norway
Costs of parallel importers in destination
countries
Country
Cost of obtaining marketing authorisation
Denmark
Annual fee of DKK 7,950 (€1,071) plus
application fee of DKK15,095 (€2,033.4) or
renewal fee of DKK13,975 (€1,882.5)
€1,380
Germany
The Netherlands
Sweden
UK
Norway
€1,021 per year
SEK15,000 (€1,637)
£1,465 (€2,125)
NOK 70,000 – 80,000 (€8,489 - €9,701.8)
plus control fee of 0.7% of the turnover of
the MA holder
Distribution of benefits: comparative
presentation by stakeholder (3)
500000
Importers
600000
18453
Pharmacy
400000
12447
Insurance
300000
7371
200000
0
3770
100000
563
563
Norway
0
3,002
469450
5902
18798
0
Sweden
40692
0
17720
Netherlands
Denmark
97965
Germany
0
55887
UK
0
5000
10000
Insurance
15000
Pharmacy
20000
Importers
250
B. Competition effects
in destination countries
Competition effects within countries- Germany
0.96
5.4
1.4
0.94
5.2
1.2
0.92
0.9
0.88
0.86
0.84
5
1
4.8
0.8
4.6
0.6
4.4
0.4
4.2
0.2
4
1997
1998
1999
2000
Simvastatin
2001
2002
0
1997
Simvastatin PI
1.7
1.65
1998
1999
2000
Olanzapine
2001
2002
Olanzapine PI
6
1.2
5
1.55
0.8
1.5
0.6
1.45
0.4
1.4
0.2
1.35
0
1997
1998
1999
Lanzoprazole
2000
2001
2002
Lanzoprazole PI
1998
1999
2000
Fluoxetine
1.4
1
1.6
1997
2001
2002
Fluoxetine PI
4
3
2
1
0
1997
1998
1999
Paroxetine
2000
2001
2002
Paroxetine PI
1997
1998
1999
Risperidone
2000
2001
2002
Risperidone PI
C. Competition effects
across countries
Price convergence with lowest price country, 1997-2002
Atorvastatin
Pravastatin
Simvastatin
Captopril
Enalapril
Quinapril
Ramipril
Clozapine
Olanzapine
Risperidone
NOR
X
X
X
X
X
N/A
0
0
X

GER
X
0
X

0

0

X
0
SWE
X

0
0
X

0

0

DEN

0
0
X
0

0
X
0
0
UK
X
0
0
X
X

0
X
0
0
NL
X
X

0
0


X

X
Impact on industry
 Pharmaceutical
manufacturers
incur
a
significant loss of business in destination countries
from the conduct of parallel trade.
  The conduct
of parallel trade reduces
manufacturers’ overall profitability (loss of
producer surplus), without necessarily increasing
societal welfare.
  Reduced overall profitability may lead to
downsizing in source countries over the medium
term.
  Threatens European industry competitiveness

Concluding remarks – the
European experience







Modest savings to health insurance organisations
through direct (price) effects
Zero or, at best, marginal benefits to patients
Little evidence of intra- or inter-country competition
effects and price convergence
Some benefits to pharmacies
Most pecuniary benefits accrue to parallel
distributors and the overall distribution chain
Transfer from industry (producer) surplus mostly to
the distribution chain and less so to health insurance
and patients
Evidence of product shortages in source countries
Concluding remarks Lessons for the USA
 1.
Safety concerns
 2. Exhaustion of rights
 3. Savings to stakeholders
Insurance
 Patients
 Wholesalers

 4.
Supply issue
 5. Competition and Pricing