Proposed controls threaten EU drug trade

Drug distributors who arbitrage the price differences across the European Union could see their €4bn ($5.5bn) a year trade severely curtailed under proposed legislation set to be unveiled by the European Commission later this month.

A document obtained by the FT includes rules to crack down on the trade in counterfeit medicines that would make it difficult for wholesalers legally to move pharmaceuticals across the EU's open borders.

New rules would put tight restrictions on the repackaging of medicines, a process required to ensure the correct language and coding information is used on packaging and information leaflets.

The repackaging controls, drafted for Gunther Verheugen, EU trade and industry commissioner, as part of broader reforms to laws governing the pharmaceutical sector, have been justified as a way to reduce the threat of counterfeit medicines, which the pharmaceutical industry says is a growing danger to patients' health.

But parallel traders claim they will sharply limit their work, although there is no link between repackaging and counterfeits, and that the measures have instead been taken in response to lobbying by drug companies keen to squeeze them out of the distribution system and maintain higher margins.

Heinz Kobelt, secretary-general of the European Association of Euro-Pharmaceutical Companies, which represents parallel traders, warned: "Parallel trade provides competition and savings to the health insurance funds across Europe."

The EU legislation marks the latest stage in an escalating feud between drug companies and parallel traders, who have fought in the courts over tighter controls on distribution across Europe designed to reduce such arbitrage.

Parallel traders take advantage of wide variations in medicine prices across the EU, buying them where they are sold cheaply for resale in higher priced countries, an activity estimated to be worth up to €4bn a year or about 10 per cent of drug sales.

The traders argue that they help to keep down prices and reduce the costs of the medicine bill to national health systems, but the manufacturers argue parallel traders retain most of the benefits of the trade.

Mr Kobelt said the Commission had been unable to provide any evidence that parallel traders had allowed counterfeit prescription medicines to enter the pharmacy chain. A single case in the UK of a fake medicine was identified by a parallel trader, who bought the medicine from another qualified wholesaler.

Chris Brinsmead, head of AstraZeneca in the UK and president of the Association of the British Pharmaceutical Industry, the main trade body, said parallel trade could result in medicine shortages depriving patients in a country of their treatments, and contribute to counterfeiting.

Mr Verheugen's reforms may not become law, given some opposition in Brussels that the move would impede competition and restrict the free movement of goods; and that there are only a few months before European parliamentary elections and nomination of a new Commission.

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