Parallel Trade of Pharmaceuticals: The Danish Market for Statins by Dr. Susan J. Méndez

National concerns over the sustainability of healthcare systems have generated a high level of regulatory pressure on pharmaceutical markets. A recent paper investigates and quantifies the impact of parallel distribution of pharmaceuticals in Denmark. The paper develops a structural model of demand and supply using data on price, sales and the characteristics of statins in Denmark and simulates outcomes under a complete ban of parallel imports.

The paper emphasises the efforts carried out by the pharmaceutical industry in an attempt to limit parallel distribution by placing supply restrictions in exporting countries or by challenging copyright rules. However, from a legal perspective, parallel distribution is protected through the EU rules that place the Internal Market as a priority over the potential losses that may occur due to the reduction of incentives for innovation.

From an economic perspective, there are two sets of key results:

The first set focuses on price effects. On average, prices increase more in markets where the molecule has lost patent protection; wholesale prices for both generic and original products would increase due to the lack of competition from parallel import.

The second set of results reports the effects on market participants. This paper takes into consideration consumers' preferences. Prohibition of parallel imports induces consumers to substitute towards original products for which they have stronger preferences. In overall, a potential ban in parallel distribution would increase the prices of both original and generic products due to the lack of competition in the pharmaceutical market.

 In conclusion, this paper reveals that banning parallel imports leads to (a) an increase in variable profits for original producers and a decrease for generic firms, (b) a substantial increase in governmental healthcare and consumer expenditures and (c) a decrease in the welfare of Danish patients and firms. This paper demonstrates that the magnitude of savings generated by the parallel distribution of medicines appears to be much higher than the results of previous studies. This paper comes as another proof that the parallel distribution of pharmaceuticals benefits the patients and the healthcare systems.

The author of the independent  study is Dr. Susan J. Méndez, Research Fellow in the Health Economics research program at the Melbourne Institute of Applied Economic and Social Research.

 Read the study