Presciption and Generic Drug Costs- "Parallel Trading"- Part V of a VII Part Article

(10/16/09)- The Court of Justice, the European Union's highest court, ruled that European regulators have to give greater consideration to a plea by U.K. drug maker GlaxoSmithKline PLC that it be exempted from normal competition rules in its efforts to curb wholesalers, known as "parallel traders", who buy drugs in one country, only to resell the drug at a higher price in another country.

For more on this matter please see our item dated 9/25/08 below.

The European Commission had ruled in 2001 that Glaxo had violated rules by asking its Spanish wholesalers to charge higher prices for drugs being resold outside of Spain. It was an attempt by the company to block parallel trading of some of its drugs.

The Court of Justice ruling upheld a lower-court judgment that found the commission had inadequately examined Glaxo's request for an exemption.

Both the commission and Glaxo brought the case before the Court of Justice for review. The commission argued that the lower court was wrong to reverse part of its decision; Glaxo wanted the entire finding dismissed.

Glaxo's sales conditions applied to 82 of its drugs, of which the company had singled out eight as being prime candidates for parallel import from Spain from the U.K.

(9/25/08)- The rules of the European Union's common market call for goods to be traded freely between member nations. Individual countries in the EU however have the authority to set drug price caps as part of their national health care plans. What happens when drugs that are purchased in one country in the EU are exported to another member country, and are therefore available at a lower price?

In a case before the European Court of Justice, their decision on this matter of "parallel pricing" did not resolve the matter one way or another. The disputed case arose in Greece several years ago when GlaxoSmithKline PLC, the British drug manufacturing company cut back on the amount of its drugs that wholesalers in that country would be allowed to purchase.

Glaxo cut back on shipments to Greek wholesalers who were buying large quantities of the company's drugs, only to ship these same drugs to other countries in the EU where the drugs were selling for much higher prices. Greece has price caps on its drugs, making it the cheapest country in the EU for drugs.

The Greek wholesalers brought suit in the Greek court, alleging that Glaxo was violating the EU antitrust rules on supply to competitors. An Athens appeals court referred the matter to the Court of Justice.

The court ruled that the drug companies could limit ,but not halt, supplies to wholesalers in countries with low price caps. The Court of Justice however failed to clearly set up what the limits were, so that this matter will be the subject of further litigation.

The EU antitrust law generally forbids "dominant" companies from refusing to supply products in an attempt to squelch competition.

(7/11/08)- European Union investigators are widening a probe of the practice of "parallel trading" to see if the brand name drug manufacturers in Europe are illegally trying to prevent the practice. Parallel trading involves wholesale or trading companies buying drugs in a country where prices are cheap and then reselling it in a different country where the drug sells for a higher price.

Drug companies oppose parallel trading because it undercuts their direct sales, but wholesalers say it benefits consumers by lowering the price of these drugs. Some of the major drug companies have required their wholesalers to sell direct-to-pharmacy channels wherein the wholesaler is paid a fee to deliver goods to a pharmacy rather then selling to the wholesaler who in turn marks it up when sold to the pharmacy.

(3/2/08)- Pharmaceutical companies increased wholesale prices for the 50 top-selling branded drugs by an average of 7.82% in 2007, after increases of 6.73% and6.22% in the previous two years, according to Delta Marketing Dynamics Inc., a health care marketing research firm.

Please note that the U.S. economy as a whole, had an inflation rate of 4.1% last year.

The Delta Marketing figures represent the wholesale acquisition cost, which is the manufacturers wholesale list price. It does not reflect discounts and/or rebates that are given to large health organizations such as HMOs, hospitals, chain drug stores, PBMs and other health insurers.

Bernstein research estimates that about $67 billion of prescription drug sales will lose their patents by 2012.

According to Anthony A. Barrueta, vice-president of government relations at the Kaiser Foundation Health Plan Inc., branded drugs account for less than 20% of the health insurer's prescriptions, but account for more than 85% of its drug costs.

For our other articles in this series please see:
Medicare and the Cost of Prescription Drugs-Part I of a V Part Article
Medicare and the Cost of Prescription Drugs-Part II of a V Part Article
Medicare and the Cost of Prescription Drugs-Part IIa- Medicare and Medicaid Drug Spending of a V Part Article
Medicare and the Cost of Prescription Drugs-Prescription Benefit Managers-Part III
Crossing the Border to Obtain Cheaper Prescription Drugs-Part IV
Medicare and Prescription Drug Costs- Part VII


By Allan Rubin
updated October 16, 2009

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