Parallel Importation of Medicines in Europe

The Commercial Courier – the official publication of the Malta Chamber of Commerce, Enterprise, and Industry (MCCEI), Summer 2012

By, Anthia Zammit LL.B, LL.D

Parallel imports are products imported into one EU Member State from another and placed on the market in the destination Member State, outside the manufacturer’s or its licensed distributor’s formal channels. Parallel importation tends to occur when prices of similar products between two Member States are significantly different, creating an incentive for traders to buy products in the Member State where they are priced lower and sell them in the Member State where they are priced higher, at a price which allows the trader to make a profit.

Parallel trade is cross-border arbitrage trade protected by the EC Treaty provisions on free movement of goods as confirmed by European Court of Justice (ECJ) case law.   ECJ jurisprudence has long established that even where the imposition of price controls constitutes a distortion of competition between member states under certain conditions; this does not justify an exception to the principle of free movement of goods. Pharmaceutical companies therefore cannot evoke patent rights to combat parallel trade. EU member states of destination may however restrict parallel importation of medicinal products if they can establish that such restrictive measure aims at the protection of human health and life or the protection of industrial and commercial property (i.e. patents and trademarks). National competent authorities must also demonstrate that such measures are necessary and proportionate.

A parallel imported medicinal product is subject to a wholesale dealer’s license and parallel importation license. The latter is issued by the national competent authority under condition that the imported product has been granted a valid marketing authorisation (license) in the Member State of origin and that the imported product shall have the same pharmaceutical form and be identical to, or have no significant therapeutic difference from, the product that has already received marketing authorisation in the Member State of destination. The parallel importer must fulfil a number of legal requirements relating to the maintenance of a clear audit trail throughout the supply chain, pharmacovigilance, repackaging, and record-keeping. Parallel importation of a medicinal product is still possible even when the reference marketing authorisation has been withdrawn and the parallel import licence may not be revoked unless such a measure is justified by reasons relating to the protection of public health.

The distribution of legal competences between the EU and the member states, market fragmentation brought about by disparities between national pricing and reimbursement regulations, and different manufacturers’ policies have in practice hindered the creation of a single European pharmaceutical market.   However, although pharmaceuticals are subject to a far higher level of legal regulation and control than other products, medicinal products are not exempt from EC Treaty laws pertaining to free competition and the free movement of goods and services within the internal market.

European case law has highlighted a number of points for deliberation on the matter of parallel importation in the pharmaceutical market. In the Syfait I case decided by the ECJ, Advocate General Jacobs argued that a pharmaceutical manufacturer company does not necessarily abuse its dominant position by restricting supply of its products with the intention of limiting parallel trade. Advocate General Jacobs considered such conduct to be objectively justified due to the unique characteristics of the European pharmaceutical industry, arguing that normal conditions of competition do not operate in the pharmaceutical market. The price differentials between member states are the result of intervention by national health authorities, not the result of the suppliers’ decisions. The imposition of an obligation to supply to wholesale dealers for parallel trade could act as a disincentive for innovation in a market which relies heavily on Research & Development. AG Jacobs further opined that the price differential resulting from parallel trade is often absorbed by distributors and dispensers in the supply chain and rarely benefits patients and consumers.

In Syfait II, the ECJ ruled that a pharmaceutical company occupying a dominant position on the medicines market which refuses to meet “ordinary” orders of wholesalers, so as to prevent parallel trade, abuses its dominant position under the EC Treaty. This ruling effectively confirmed that even pharmaceutical companies in a dominant position have a legitimate commercial interest in preventing parallel trade. The Court stated that dominant pharmaceutical companies may restrict supplies to wholesalers so long as such restriction is reasonable and proportionate. This particular ruling however only solves one piece of the puzzle as it does not cover the issues of market definition and market dominance in the pharmaceutical sector.

Although later ECJ judgments have reasserted the European single market goal, the fact remains that the lack of a clear, specific EU legal framework on parallel trade of medicinal products, that takes the unique nature of the pharmaceutical market into account, is potentially prejudicial to all stakeholders and may hinder the goals of boosting innovation and enhancing competitiveness intended to improve patients’ access to new, affordable medicinal treatments. From a more practical standpoint, a market study examining the impact of parallel trade on the end-consumer price of medicinal products would help to shed light on the quantifiable outcomes of parallel trade in Malta.

Dr Anthia Zammit served as legal advisor to the Healthcare Business Section of the Malta Chamber of Commerce, Enterprise and Industry (2011 – 2014).