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Parallel Import of Pharmaceuticals in the EU

Scheuermann, Anna (2006)
Department of Business Administration
Abstract
Parallel import in the European Union is the perfectly legal activity under Art. 28-30 EC of buying goods in a low-price country in order to ship and sell them in a high-price country. The pharmaceutical market in Europe is subject to the subsidiartiy principle of Art. 5 EC and heavily characterised by national regulations that lead to significant price differentials between – generally speaking – Northern and Southern Europe. This incites the activity of parallel traders in the first place, who act as arbitrageurs. Since their operations have the effect of counteracting the partitioning of national markets, they are favoured by the European Community as a means of market integration. Though the legal background is clear-cut, the situation... (More)
Parallel import in the European Union is the perfectly legal activity under Art. 28-30 EC of buying goods in a low-price country in order to ship and sell them in a high-price country. The pharmaceutical market in Europe is subject to the subsidiartiy principle of Art. 5 EC and heavily characterised by national regulations that lead to significant price differentials between – generally speaking – Northern and Southern Europe. This incites the activity of parallel traders in the first place, who act as arbitrageurs. Since their operations have the effect of counteracting the partitioning of national markets, they are favoured by the European Community as a means of market integration. Though the legal background is clear-cut, the situation is more ambiguous from a socio-economic and political perspective. In terms of global competitiveness in the pharmaceutical sector, Europe still lags behind the US which calls for the need of increasing investment in research and development. Parallel trade has however a negative effect on the research-based industry as it leads to a direct shift of profits from the patent holder to the parallel trader. On the contrary, the distribution of less expensive parallel imports is a measure of cost containment in importing countries since it leads to savings in pharmaceutical expenditure for public health care payers and patients. This is particularly important as both health care and pharmaceutical spending are continuously growing across countries and call for means of cost control. Especially in the last decade, Member States have been characterised by constant efforts to reform the health care sector as a try limit expenditures.
However, long-term effects in high-price countries as well as impacts on consumers in exporting countries are ambiguous. They consists of lower investment in research and development which, in turn, negatively affects the generation of innovative and cost-effective drugs, the delay or failure of product launches in low-price countries as well as product shortages in the latter. Furthermore, other stakeholders such as physicians and pharmacists are involved in parallel imports through the obligation by legal measures. Seldom are they incited economically, yet their status as decision makers for the patient is crucial for the successful distribution of parallel imports. The aim of this thesis is to identify legal and economic incentives for stakeholders to engage in parallel imports and to quantify their benefits and costs that arise through parallel trade. This is done by looking more closely at two importing and two exporting countries. Germany and Sweden as importing countries show interesting opposite developments in parallel imports in a differing regulatory environment which allows the conclusion on inciting measures. Greece and Spain are the largest exporting countries in Europe, where the effects of parallel trade are more transparent to be identified than in other countries. The stakeholder analysis shows that the benefits of parallel trade accrue mainly to the parallel importer and are, in comparison, minor for public payers and patients. Furthermore, these benefits cannot justify their negative impacts particularly on consumers in exporting countries. Even if they are a means of market integration, they do not lead to a natural competitive environment due to the regulation of national markets. (Less)
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author
Scheuermann, Anna
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Parallel Import, Pharmaceuticals, Läkemedel, reimports, parallel trade, Management of enterprises, Företagsledning, management
language
Swedish
id
1340157
date added to LUP
2006-05-30
date last changed
2012-04-02 16:13:29
@misc{1340157,
  abstract     = {Parallel import in the European Union is the perfectly legal activity under Art. 28-30 EC of buying goods in a low-price country in order to ship and sell them in a high-price country. The pharmaceutical market in Europe is subject to the subsidiartiy principle of Art. 5 EC and heavily characterised by national regulations that lead to significant price differentials between – generally speaking – Northern and Southern Europe. This incites the activity of parallel traders in the first place, who act as arbitrageurs. Since their operations have the effect of counteracting the partitioning of national markets, they are favoured by the European Community as a means of market integration. Though the legal background is clear-cut, the situation is more ambiguous from a socio-economic and political perspective. In terms of global competitiveness in the pharmaceutical sector, Europe still lags behind the US which calls for the need of increasing investment in research and development. Parallel trade has however a negative effect on the research-based industry as it leads to a direct shift of profits from the patent holder to the parallel trader. On the contrary, the distribution of less expensive parallel imports is a measure of cost containment in importing countries since it leads to savings in pharmaceutical expenditure for public health care payers and patients. This is particularly important as both health care and pharmaceutical spending are continuously growing across countries and call for means of cost control. Especially in the last decade, Member States have been characterised by constant efforts to reform the health care sector as a try limit expenditures.
However, long-term effects in high-price countries as well as impacts on consumers in exporting countries are ambiguous. They consists of lower investment in research and development which, in turn, negatively affects the generation of innovative and cost-effective drugs, the delay or failure of product launches in low-price countries as well as product shortages in the latter. Furthermore, other stakeholders such as physicians and pharmacists are involved in parallel imports through the obligation by legal measures. Seldom are they incited economically, yet their status as decision makers for the patient is crucial for the successful distribution of parallel imports. The aim of this thesis is to identify legal and economic incentives for stakeholders to engage in parallel imports and to quantify their benefits and costs that arise through parallel trade. This is done by looking more closely at two importing and two exporting countries. Germany and Sweden as importing countries show interesting opposite developments in parallel imports in a differing regulatory environment which allows the conclusion on inciting measures. Greece and Spain are the largest exporting countries in Europe, where the effects of parallel trade are more transparent to be identified than in other countries. The stakeholder analysis shows that the benefits of parallel trade accrue mainly to the parallel importer and are, in comparison, minor for public payers and patients. Furthermore, these benefits cannot justify their negative impacts particularly on consumers in exporting countries. Even if they are a means of market integration, they do not lead to a natural competitive environment due to the regulation of national markets.},
  author       = {Scheuermann, Anna},
  keyword      = {Parallel Import,Pharmaceuticals,Läkemedel,reimports,parallel trade,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Parallel Import of Pharmaceuticals in the EU},
  year         = {2006},
}