Parallel distribution is a legal practice that entails reselling goods between countries without the consent of the manufacturer. Intellectual Property (IP) rules in the single market, i.e. within the EEA area, prevent rights owners from restricting further distribution of their products once they have placed these on a given market themselves.. This is known as the “exhaustion of IP rights”.

Pharmaceutical parallel distribution in the EU introduces competition in areas where the pricing of medicines sold by the original manufacturer or its local licensee exceeds the competitive price range in comparison to other markets. This leveraging of price differences between different national markets by parallel distributors enables consumers in all member states to get access to purchase original, safe, high quality pharmaceuticals at fair and competitive costs. Parallel distribution is the only legal form of (price) competition during the period of patent protection of a medicine.

 

eaepc graphic parallel import web

Prices for pharmaceuticals are set by negotiation and agreement between the original manufacturers and Member States' health authorities and vary from country to country for otherwise identical products. Parallel Distributors therefore buy products at a lower price in one country and then transport, repackage and resell them in markets with higher prices.

For parallel distribution to function there must be:

  1. Unrestricted free trade between the countries involved
  2. Sufficient differences between the prices of identical goods in these countries
  3. The costs of transport and subsequent repackaging must be low competitive in relation to the cost of goods

All these conditions are found in the case of medicines inside the EU and EEA.

Parallel importers and exporters are true entrepreneurs. Their contribution to innovation in the pharmaceutical sector lies in their ability to identify and procure products with relevant price differentials and thus foster competition and provide a service to patients by making these medicines more affordable. The Parallel Distributors must meticulously research, calculate and meet the costs associated with purchasing, transport, warehousing, insurance, repackaging, quality assurance, regulatory compliance, distribution and marketing.

eaepc graphic2 parallel import web

Healthcare systems are under financial pressure and patients often have to share a part of the financial burden of buying pharmaceuticals (co-payment). With an ageing population in Europe, it is more important than ever to limit and reduce costs. Parallel Distribution of medicines provides significant savings to governments, health insurers and patients.

The competition introduced by Parallel Distribution has two effects:

  1. It directly brings original, safe and high-quality products at lower prices to patients/healthcare systems
  2. It indirectly curbs cost increases because the existence of competition tends to bring down overall prices and effectively prevents original manufacturers from  overpricing their products given the monopoly situation of the patent.

A study from 2006 found that parallel distribution generated direct savings to patients and social health insurance systems in excess of €440 million in 2004. It also found that there are significant indirect savings through the competitive effect of parallel distribution. Full study by Ulrika Enemark and Kjeld Møller Pedersen.

In comparison to Parallel Distribution in other goods, the overall level of Parallel Distribution in medicines is minimal at best, ranging from 2% to 4% at peak phases in the whole of the EU. It may, however, reach peaks of up to 70 per cent of the prescriptions dispensed for a given pack type and strength of a pharmaceutical; in fact the extent of parallel distribution within a country market will depend on the reimbursement system and may be limited to specific types of medicines.

Previously much parallel distribution occurred in one direction – from “low-price” countries such as Italy or Spain/Greece to “high-price” countries such as the UK. However, today, almost all EEA countries are involved – either as the source of medicine or the destination, or both for different types of medicines.

This is possible because prices have become relatively fluid (not least due to the complex interactions between the pharmaceutical industry and the payers), and it is no longer valid to refer to countries as “low” or “high-price” countries. Comparison of pricing is one of the core competences of parallel distributors and it happens not by country, but by product and pack size.

Parallel Distribution of medicines in the EEA is 100% legal. It follows from the principles of free movement of goods and exhaustion of IP rights within the single market. A core objective of the EU's founding Treaty of Rome is the creation of a single, internal market through which goods, services, people and capital can freely pass. It provides that: "Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between member states."

A direct consequence of free movement is the classic Cassis de Dijon doctrine of the European Court of Justice, which rules that a product lawfully placed on the market of one member state must be allowed to circulate freely throughout the EU. This principle has been extended to also cover Iceland, Liechtenstein and Norway.

Importers have as a rule to change the labelling - and in some cases the packaging - in order to meet all regulatory requirements of the national law in eachdestination market. The relabelled products and packages must meet all legal standards (of pharmaceutical products characteristics and trade mark) and are subject to thorough governmental supervision. The importer also ensures that all products are provided with patient information inserts in the local language. These inserts are identical to the ones already approved for the same medicine of the originator manufacturer in the destination country. Trademark rules also require that the Parallel Distributor provides a physical sample of the repackaged product to the right owner 15 working days before placing the product on the market.

Parallel distribution is  uncontrovertibly safe. Even if their supplies cross EEA internal borders (which manufacturers often consider a 'complex' supply route), the supply chain of PD is resilient in terms of quality assurance as well as against the entry of falsified products into the legal supply chain. Several business routines make up this result: 

  1. Parallel distributors are subject to the same regulatory requirements as manufacturers of branded or generic products and undergo regular controls by the competent national and European regulatory authorities.
  2. Importers do not manufacture any medicines themselves, nor open the primary packaging.
  3. Importers buy finished medicinal products from exporters who are well-established and authorised pharmaceutical wholesalers.
  4. They do not deal directly with the consumers either, rather the parallel distributors’ customer is another licenced wholesaler, a registered pharmacy or a dispensing doctor.
  5. All transactions are conducted through officially authorised and controlled trade channels.
  6. A wholesale business or a pharmacist simply has one more source to purchase medicines from, which enhances the robustness of the medicines supply chain when manufacturers try to curtail supplies.

Parallel distributors can perform product recalls as quickly and effectively as any other participant in the medicines supply chain. Exporters and importers both apply internal supply chain controls including product verification and supplier verification and audit, and must meet stringent external regulatory checks to guarantee patient safety.

Parallel distributors take pride in being reliable, responsible and professional business partners for wholesalers and pharmacists in community and hospital practice. In particular, EAEPC members follow a strict and long-standing Code of Operational Conduct and good practice guidelines for parallel distribution to which all members have subscribed.

The EAEPC is dedicated to ensuring the European supply chain remains free of counterfeit medicines and is actively engaged in the on-going debate. Pharmaceutical inspectors have several times highlighted the ability of parallel traders distributors in their repackaging operations to identify and eliminate suspicious packages before they reach patients – an effective line of defence in the fight against falsified medicines. EAEPC (and its national affiliates) are active in the implementation of the FMD; EAEPC is one of the 5 founding members of the EMVO (European Medicines Verification Organisation).

Parallel distribution creates savings:

  1. It provides original, high quality and safe medicines at a lower cost. These direct savings are a measurable relief of the cost burden carried by health insurance systems and patients.
  2. It provides both indirect savings for social health insurance systems and consumers by effectively curbing overall price increases in the pharmaceutical sector.
  3. It offers a European relief mechanism to funding deficits in national health care systems

Parallel distribution fosters competition:

  1. It provides the only form of competition for patented products, utilizing the price differences in different markets created by the original manufacturer himself.
  2. It accelerates the integration of the internal market and increases trade within the EU and EEA
  3. It helps regulators to avoid implementing more interventionist or market-distorting cost-containment measures
  4. It gives wholesalers, pharmacists and patients a real choice
  5. It can provide alternative supply sources in case of shortages

Parallel distribution builds growth:

  1. It has created thousands of new businesses and jobs in Europe, often in economically deprived regions
  2. It boosts the infrastructure development for production and distribution of pharmaceuticals in the countries of supply, as well as increasing their exports
  3. It generates additional tax revenues in Europe and increases the effectiveness of the internal market

Read more about the benefits of parallel distribution here.

Where there are no, or no significant, price differences between identical goods there is no parallel trade. However, if the preferred pricing model of the pharmaceutical industry is that of price differentiation between national markets, and related attempts at market segmentation, then the occurrence of parallel trade is the necessary side effect, the adverse reaction to pharmaceutical industry, so to say.

Understandably, the biggest challenge to parallel distribution is the attempts of “big pharma” to prevent it. Parallel distributors challenge the pricing power of big pharmaceutical manufacturers by introducing competition, a threat to their ability to set the prices in different national markets as they please.

The most common anti-competitive practice is to leverage power as producer and unilaterally impose supply-restrictions on wholesalers or withdraw products completely, effectively creating an artificial shortage for which parallel distributors are blamed.

In order to raise awareness of and contribute to the debate on supply-restrictions, the EAEPC regularly publishes independent and EAEPC legal and economic studies on competition in the distribution of pharmaceutical products in Europe.

Other anti-competitive actions from “big pharma” include media campaigns and massive lobbying efforts to challenge the overall legality of parallel distribution.