The economics of parallel trade

The potential for parallel trade in the European Union (EU) has grown with the accession of low price countries and the harmonisation of registration requirements. Parallel trade implies a conflict between the principle of autonomy of member states to set their own pharmaceutical prices, the principle of free trade and the industrial policy goal of promoting innovative research and development (R&D). Parallel trade in pharmaceuticals does not yield the normal efficiency gains from trade because countries achieve low pharmaceutical prices by aggressive regulation, not through superior efficiency. In fact, parallel trade reduces economic welfare by undermining price differentials between markets. Pharmaceutical R&D is a global joint cost of serving all consumers worldwide; it accounts for roughly 30% of total costs. Optimal (welfare maximising) pricing to cover joint costs (Ramsey pricing) requires setting different prices in different markets, based on inverse demand elasticities. By contrast, parallel trade and regulation based on international price comparisons tend to force price convergence across markets. In response, manufacturers attempt to set a uniform 'euro' price. The primary losers from 'euro' pricing will be consumers in low income countries who will face higher prices or loss of access to new drugs. In the long run, even higher income countries are likely to be worse off with uniform prices, because fewer drugs will be developed. One policy option to preserve price differentials is to exempt on-patent products from parallel trade. An alternative is confidential contracting between individual manufacturers and governments to provide country-specific ex post discounts from the single 'euro' wholesale price, similar to rebates used by managed care in the US. This would preserve differentials in transactions prices even if parallel trade forces convergence of wholesale prices.     

Parallel imports of pharmaceuticals in the European Union

Parallel importing has existed on a small scale in Europe for many years and has been upheld by the European Court of Justice as consistent with standard principles of free trade. However, the potential impact of parallel trade has increased significantly with the launch of the European Medicines Evaluation Agency in 1995, the accession to the European Union (EU) of countries with traditionally low prices, such as Spain, and the possible accession of Eastern European countries. This article examines the current state of parallel trade in medicines in the EU (different modalities and the medicines affected), analyses some policy implications associated with parallel trade (who gains and who loses) and explores the effects of several policy scenarios affecting parallel trade. The main conclusion is that a single European price is probably not the best solution from a European welfare point of view. A solution to the present situation could be achieved by separating the market price (at which any agent is allowed to buy a product either for consumption or for resale) and the price actually paid by a final consumer. Discounts and reference pricing may present two of the most feasible options.     

Parallel Importation of Pharmaceuticals in Finland

Background: Parallel importation of pharmaceuticals is illegal in many countries. In the European Union it is allowed, as it is consistent with the principles of free trade and the community exhaustion of intellectual property rights. Parallel importation is assumed to affect pharmaceutical expenditures in two ways. First, parallel imported pharmaceuticals are typically priced lower than brand-name pharmaceuticals, which may reduce pharmaceutical expenditures. Secondly, parallel imported pharmaceuticals may trigger price competition, which might also reduce prices of brand-name products and pharmaceutical expenditures. Objective: To measure reductions in pharmaceutical expenditures due to the entry of parallel imported pharmaceuticals in Finland. Methods: Both realized reductions in expenditures (realized savings) and potential reductions (potential savings) were estimated. Savings were estimated using a method that measures differences in pharmaceutical expenditures when prices of pharmaceutical products differ as a result of price differences between parallel imported and brand-name pharmaceuticals (direct effect) and the effect of parallel imported products on the prices of brand-name products (competitive effect). Potential savings were estimated under different assumptions concerning the price development of pharmaceutical products. It was assumed that prices of brand-name pharmaceuticals would decrease either by 22% or 10% as a result of competition from parallel imports. Results: Realized savings due to parallel importation were approximately €294 000 in the years 1998–2001. The savings remained low since parallel imports have not intensified price competition in Finland. Potential savings for the period between March 2000 and March 2001 were estimated to vary in the range of €3.4–10.2 million depending on the assumptions made on the price development of pharmaceutical products.     

Risks,prices, and positions: A social network analysis of illegal drug trafficking in the world-economy

BackgroundIllegal drug prices are extremely high, compared to similar goods. There is, however, considerable variation in value depending on place, market level and type of drugs. A prominent framework for the study of illegal drugs is the “risks and prices” model (Reuter & Kleiman, 1986). Enforcement is seen as a “tax” added to the regular price. In this paper, it is argued that such economic models are not sufficient to explain price variations at country-level. Drug markets are analysed as global trade networks in which a country's position has an impact on various features, including illegal drug prices.MethodologyThis paper uses social network analysis (SNA) to explain price markups between pairs of countries involved in the trafficking of illegal drugs between 1998 and 2007. It aims to explore a simple question: why do prices increase between two countries? Using relational data from various international organizations, separate trade networks were built for cocaine, heroin and cannabis. Wholesale price markups are predicted with measures of supply, demand, risks of seizures, geographic distance and global positioning within the networks. Reported prices (in $US) and purchasing power parity-adjusted values are analysed.ResultsDrug prices increase more sharply when drugs are headed to countries where law enforcement imposes higher costs on traffickers. The position and role of a country in global drug markets are also closely associated with the value of drugs. Price markups are lower if the destination country is a transit to large potential markets. Furthermore, price markups for cocaine and heroin are more pronounced when drugs are exported to countries that are better positioned in the legitimate world-economy, suggesting that relations in legal and illegal markets are directed in opposite directions.ConclusionConsistent with the world-system perspective, evidence is found of coherent world drug markets driven by both local realities and international relations.     

药品价格下降成因及趋势分析

目的 :探讨药品价格下降的成因、幅度及后果。方法 :对我国近年来的社会经济状况、医药行业走势和国家对医药行业的宏观调控措施等因素进行分析。结果与结论 :药品价格下降是必然结果 ,由此引发的价格大战一定会向良性竞争的方向发展     

Risk sharing methods in middle income countries

The pricing strategy of innovative medicines is based on the therapeutic value in the largest pharmaceutical markets. The cost-effectiveness of new medicines with value based ex-factory price is justifiable. Due to the international price referencing and parallel trade the ex-factory price corridor of new medicines has been narrowed in recent years. Middle income countries have less negotiation power to change the narrow drug pricing corridor, although their fair intention is to buy pharmaceuticals at lower price from their scarce public resources compared to higher income countries. Therefore the reimbursement of new medicines at prices of Western-European countries may not be justifiable in Central-Eastern European countries. Confidential pricing agreements (i.e. confidential price discounts, claw-back or rebate) in lower income countries of the European Union can alleviate this problem, as prices of new medicines can be adjusted to local purchasing power without influencing the published ex-factory price and so the accessibility of patients to these drugs in other countries. In order to control the drug budget payers tend to apply financial risk sharing agreements for new medicines in more and more countries to shift the consequences of potential overspending to pharmaceutical manufacturers. The major paradox of financial risk-sharing schemes is that increased mortality, poor persistence of patients, reduced access to healthcare providers, and no treatment reduce pharmaceutical spending. Consequently, payers have started to apply outcome based risk sharing agreements for new medicines recently to improve the quality of health care provision. Our paper aims to review and assess the published financial and outcome based risk sharing methods. Introduction of outcome based risk-sharing schemes can be a major advancement in the drug reimbursement strategy of payers in middle income countries. These schemes can help to reduce the medical uncertainty in coverage decisions for valuable innovative healthcare technologies. However risk-sharing schemes can also reduce the transparency of pharmaceutical pricing and reimbursement, as the payback, and consequently the actual price per patient can be calculated only retrospectively. Therefore risk-sharing agreements can be interpreted as special forms of confidential pricing agreements to facilitate the implementation of differential pricing in middle income countries.     

The single market for pharmaceuticals in the European Union in light of European Court of Justice rulings

This article analyses the likely implications for the European pharmaceutical market of 2 European Court rulings (Kohll and Decker) and addresses whether these will contribute to the completion of the single European market. In doing so, the Kohll and Decker cases are discussed and the likely implications of these cases for key stakeholders (patients, providers, payers and the industry) are investigated. Of the 2 cases, the latter has direct application to pharmaceuticals as tradable goods. The article argues that the short term implications for the stakeholders, relating to the freedom of providing goods, may lead to a re-thinking of how pharmaceutical products are financed and provided in European Union (EU) countries in the long term. A key corollary of the Decker case is that it leads to greater transparency and awareness of pharmaceutical price differentials across the member states. As part of this transparency, consumers may benefit directly by gaining access to a product that may not be available in their country of residence, or may be available but at a higher cost. Consumers may also benefit indirectly through greater transparency and efficiency in the long term. Providers may wish to increase their procurement from cheaper sources of the same product and much will depend on their future procurement strategies. Manufacturers will in this case face an increase in parallel trade streams and may respond by not marketing or producing in 'low-price' countries. The rulings add a further supranational dimension to a national policy issue and may have far reaching implications for the EU pharmaceutical market and industry.     

Contextual Factors and Alcohol Consumption Control Policy Measures: The AMPHORA Study Background

Drinking alcoholic beverages is deeply rooted in European cultural and economic history, and European consumption trends have varied over time during the decades following WW II. How and why such consumption patterns have changed, and what are the roles that societies’ transformations play in these changes are the AMPHORA project's focus. Preventive alcohol consumption control policies have been developed for a long time; during different eras, in different ways and in different countries. How have and do formal policies affect such changes? These questions stimulated a group of 40 researchers from 12 European countries and 14 institutions to investigate the interactions between selected socio-demographic and economic factors, alcohol control policy measures, alcohol consumption and alcohol consumption-related harm that occurred in 12 European countries between 1960 and 2008.     

浅析《与贸易有关的知识产权协议》体制下的专利制度与药品价格

目的:从客观的角度评述《与贸易有关的知识产权协议》(TRIPS)体制下的专利制度与药品价格的关系。方法:从不发达国家、发展中国家和发达国家3个侧面讨论专利保护对药品价格的影响,并分析TRIPS体制下的专利制度在抵御药品不利价格方面的相关措施及其利弊。结果与结论:专利保护确实在一定程度上会提高药品价格。TRIPS体制下的专利制度规定的强制许可、平行进口等措施在降低专利保护对药品价格的影响上起到了一定的作用,但不能从长远上解决专利制度与药品价格的矛盾,还需探求解决这一问题的根本办法。     

How competition lowers the costs of medicines

This paper examines whether there are any economic advantages in allowing entry to pharmaceutical markets at the manufacturers' risk and at prices of their choosing. To examine this thesis, 6 countries (the US, the UK, Denmark, Holland, Germany and South Africa) were chosen for study because they allow a degree of free access and (varying) degrees of pricing freedom, at least to the extent that new product prices are not directly controlled. In just about every other European market, there are direct price controls on new products. The key finding was that, in markets where there is some semblance of pricing freedom, competition tends to keep down the price of medicines. Rival products serve a useful purpose in containing market prices. Since innovative rivalry is a sine qua non in pharmaceutical markets, this price-depressing competitive influence should be allowed to have its full effect and not be distorted or suppressed by regulation at the level of either the pharmaceutical manufacturer or the retail pharmacist.     

International comparison of generic medicine prices

ABSTRACT

Background: The introduction of generic price-regulated systems in many European countries, the trend towards international generic medicine companies, and competi­tion from Indian companies emphasises the need to gain insight into international prices of generic medicines.

Objective: This study aims to carry out an international comparison of ex-manufacturer prices of generic medicines in ambulatory care in nine European countries and in India in 2005.

Methods: Data on ex-manufacturer prices of generic medicines of 15 molecules/strengths were derived from IMS Health. Belgian prices were compared with prices observed in Denmark, France, Germany, India, the Netherlands, Norway, Spain, Sweden and the United Kingdom. The analysis was limited to medicines in immediate-release, oral, solid dosage forms.

Results: India and the Scandinavian countries had the lowest ex-manufacturer prices of generic medicines of selected molecule/strengths. These molecule/strengths were, on average, 63% cheaper in India than in Belgium. The highest price levels were observed in France, the Netherlands and Germany. Ex-manufacturer prices of a specific generic molecule/strength varied between countries by a factor of 3 to 36, depending on the molecule/strength. The generic medicine price level was higher in countries that adopt a free market approach and in countries that have a mature generic medicine market.

Conclusions: Ex-manufacturer prices of selected molecule/strengths varied substantially between countries. India has emerged as a low-cost producer of generic medicines. The international price comparison reveals that there may be scope for reducing generic medicine prices in a number of countries.     

Drug decriminalization and the price of illicit drugs

BackgroundThis study is an empirical assessment of the impact of the drug decriminalization policy followed by Portugal in July 2001, on the price of illicit drugs.MethodsThe analysis is performed using a difference-in-differences approach and the Synthetic Control Method in order to construct a synthetic control unit from a convex combination of countries.ResultsThe results suggest that the prices of opiates and cocaine in the post-treatment period did not decrease in the sequence of the policy change.ConclusionWe conclude that the drug decriminalization policy seems to have caused no harm through lower illicit drugs prices, which would lead to higher drug usage and dependence.     

我国与其它发达国家或地区部分药品零售价比较研究

目的:了解我国药品价格水平,为价格主管部门的政策制定提供参考。方法:采集发达国家或地区部分品牌药和相应普药产品的零售价,分别按汇率和购买力平价转换,研究比较其价格水平。结果与结论:按汇率换算,我国品牌药和普药的价格均处于较低水平;按购买力平价换算,我国药品价格相对于国民购买力与发达国家或地区情况相比处于较高水平;我国品牌药与普药的价格差距较大。建议适当加大政府采购,扩大医疗保险支付的范围和比例,切实保障我国民众在药品方面的需求。     

Contextual determinants of alcohol consumption changes and preventive alcohol policies: a 12-country European study in progress

Beginning with France in the 1950s, alcohol consumption has decreased in Southern European countries with few or no preventive alcohol policy measures being implemented, while alcohol consumption has been increasing in Northern European countries where historically more restrictive alcohol control policies were in place, even though more recently they were loosened. At the same time, Central and Eastern Europe have shown an intermediate behavior. We propose that country-specific changes in alcohol consumption between 1960 and 2008 are explained by a combination of a number of factors: (1) preventive alcohol policies and (2) social, cultural, economic, and demographic determinants. This article describes the methodology of a research study designed to understand the complex interactions that have occurred throughout Europe over the past five decades. These include changes in alcohol consumption, drinking patterns and alcohol-related harm, and the actual determinants of such changes.     

To prevent alcohol problems in Europe by community actions--various national and regional contexts

The European transformation during the 1990s, concerning political, economic, social and cultural changes, has made alcohol policy in many countries very fragile and uncertain because of new social and economic conditions and decreasing power of national governments. On this background, regions, municipalities, nongovernmental organizations and the civic society are to play a more prominent role in the European alcohol policy arena. In December 1997 the first European research and evaluation symposium on community action alcohol programs was held in Malm?, Sweden. The themes were: Research-based evaluation of community action programs; The interaction between local, national, and European prevention strategies; Local programs in schools, workplaces, health sectors, primary health care, and other community contexts; The role of citizens' movements, consumer organizations, women's groups, and other voluntary organizations; Local political action. This paper is the first attempt to summarize the similarities and differences in the programs presented at the symposium.     

Recent national and regional drug reforms in Sweden: implications for pharmaceutical companies in Europe

With an aging population and increased prevalence of chronic diseases, such as obesity and diabetes mellitus, drug reforms are needed across Europe to ensure the continued provision of comprehensive healthcare. It is also a challenge, with the limited resources available, to fund new innovative drugs that significantly improve patient health.Recent national and regional reforms in Sweden have moderated the rate of increase in drug expenditure, despite increased volumes of drug use and the launch of new, expensive drugs. National reforms include the adoption of economic principles when assessing the value and subsequent reimbursement of new and existing drugs, as well as reforms to obtain low prices for generic drugs. Regional reforms aim to encourage the rational use of medicines through the establishment of drug and therapeutic committees, development of guidelines, academic detailing, continuous benchmarking of prescribing patterns, and financial incentives.Some of these reforms provide examples to other European countries, whilst others duplicate existing measures. As such, we believe other European countries can benefit from an analysis of the Swedish reforms. We believe the pharmaceutical industry can also benefit from this analysis by working with key regional payers involved with developing and implementing the reforms as they moderate and refine their future activities, including finding acceptable ways of introducing new expensive drugs.     

Availability of medicines in the European Union: results from the EURO-Medicines project

OBJECTIVE: There is at present no comprehensive directory of medicines available in European countries. Such a directory would be valuable to policy analysts, clinicians, regulatory agencies, pharmaceutical companies and consumer groups. The aim of this project was to compile such a directory of all medicines marketed in each of the European Union member countries. METHODS: Lists of medicines for each country, compiled from several national sources, classified by Anatomical-Chemical-Therapeutic (ATC) code. Census date was late 1998. RESULTS: A comprehensive directory was created using data from 14 of the 15 European Union countries. Numbers of trade names and of active ingredients varied widely, from Germany with 18,554 and 1,973, respectively, to Denmark with 1,915 and 1,016, respectively. In individual therapeutic areas, there were variations in the numbers of active ingredients available: the least variation between countries was in antineoplastic medicines (ATC code L, maximum number available in any country 101, minimum 60) and wider variation in alimentary (ATC code A, maximum 256. minimum 103) or cardiovascular (ATC code C, maximum 269, minimum 112). Only 7% of all the active ingredients were available in all the countries studied. The Scandinavian countries had the greatest proportion of active ingredients (60%) available in all other countries. Each country had a number of active ingredients available only in that country Italy had the largest number of these. CONCLUSIONS: The directory illustrates the wide variations in the availability of medicines across the European Union. The range of drugs available in each country represents differences in regulatory and market policies, as well as cultural and historic differences. This directory lends itself to many further analyses.     

Preventing neural tube defects in Europe: a missed opportunity

Each year, more than 4500 pregnancies in the European Union are affected by neural tube defects (NTD). Unambiguous evidence of the effectiveness of periconceptional folic acid in preventing the majority of neural tube defects has been available since 1991. We report on trends in the total prevalence of neural tube defects up to 2002, in the context of a survey in 18 European countries of periconceptional folic acid supplementation (PFAS) policies and their implementation. EUROCAT is a network of population-based registries in Europe collaborating in the epidemiological surveillance of congenital anomalies. Representatives from 18 participating countries provided information about policy, health education campaigns and surveys of PFAS uptake. The yearly total prevalence of neural tube defects including livebirths, stillbirths and terminations of pregnancy was calculated from 1980 to 2002 for 34 registries, with UK and Ireland estimated separately from the rest of Europe. A meta-analysis of changes in NTD total prevalence between 1989-1991 and 2000-2002 according to PFAS policy was undertaken for 24 registries. By 2005, 13 countries had a government recommendation that women planning a pregnancy should take 0.4mg folic acid supplement daily, accompanied in 7 countries by government-led health education initiatives. In the UK and Ireland, countries with PFAS policy, there was a 30% decline in NTD total prevalence (95% CI 16-42%) but it was difficult to distinguish this from the pre-existing strong decline. In other European countries with PFAS policy, there was virtually no decline in NTD total prevalence whether a policy was in place by 1999 (2%, 95% CI 28% reduction to 32% increase) or not (8%, 95% CI 26% reduction to 16% increase). The potential for preventing NTDs by periconceptional folic acid supplementation is still far from being fulfilled in Europe. Only a public health policy including folic acid fortification of staple foods is likely to result in large-scale prevention of NTDs.     

Changes to intellectual property policy in South Africa: putting a stop to evergreening?

South Africa is a middle-income country with the world’s largest HIV patient cohort and a growing burden of communicable and non-communicable diseases – a prime location for pharmaceutical companies looking to expand their markets. Yet, 20 years after the country’s first democratic elections, poor health indicators and an over-burdened public health system belie persistently stark levels of socioeconomic inequality. As the South African government revises national intellectual property (IP) policies, the pharmaceutical industry and global access to medicines movement are watching, aware of ramifications South Africa’s actions will have on patent laws and the availability of generic medicines in other middle-income countries and across Africa. South Africa’s draft IP policy is meeting fierce resistance from industry, although proposed reforms are compliant with the Agreement on trade related aspects of intellectual property (TRIPS) and in line with on-going policies and actions of both developing and developed countries. Could the establishment of a patent examination system and new patentability criteria rein in evergreening and lead to lower medicine prices? What will be the potential impact of reform on medical innovation? And why is it both necessary and urgent that the South African government seek a fairer balance between private and public interests?