Parallel trade does not benefit patients, says new report

The accepted view that pharmaceutical parallel trade benefits healthcare stakeholders and patients through opening up medicine provision and lowering costs has been challenged in a new study from the London School of Economics and Political Science.

The study, which analysed the impact of cross-border brand-name prescription medicine trade within the European Union, suggests that although the overall number of parallel imports is continuing to increase, healthcare stakeholders are realising few of the expected savings. Further, the study demonstrates that profits from parallel imports accrue mostly to the benefit of the third-party companies that buy and resell these medicines.

The LSE study, which was part-funded by Johnson & Johnson, aims to provide a basis for assessing the relative future healthcare and industrial policy implications of parallel imports, with particular consideration for the fundamental principle of free movement of goods within the European Union. The lack of official data on pharmaceutical parallel imports or exports from the majority of EU countries, it says, makes informed debate on the pros and cons of the practice impossible.

To date, parallel trade of prescription medicines has been justified by several economic hypotheses:

that it leads to price equalisation across countries, resulting in more efficient market operation

that increased price competition in destination countries reduces overall pharmaceutical prices, benefiting payers and patients

that the resulting price convergence may lead to overall welfare improvements for payers

that patient access to innovative medicines is improved, with lower direct and indirect costs

that it has minimal impact on the pharmaceutical industry in terms of profitability and potential to innovate, and indeed, improves overall industry efficiency

The LSE says it has now provided concrete evidence to refute all of these hypotheses. The study demonstrated clearly that the vast majority of benefits from parallel trade accrue directly to parallel importers, where gross profits and revenues accrue over time in line with higher penetration rates. Parallel imports for 2002 sales to the six major destination countries (Denmark, Germany, the Netherlands, Norway, Swe-den and the UK) accounted for only 0.3-2% of national medicine budgets, representing a total saving of just Euro 43.1m over locally developed and manufactured products. In contrast, the parallel importers who bought these same medicines from across the EU, made profits of Euro 622m.

'The study clearly makes the case for urgent further debate before any additional legislation in support of parallel trade is passed, at EU or country level,' said Dr Panos Kanavos, lecturer in international health policy at LSE. 'There is no evidence of sustainable dynamic price competition in destination countries, with no corresponding indirect cost savings. The supposed benefits of this system need to be reviewed.'