The Economic Impact of The Economic Impact of Pharmaceutical Parallel Pharmaceutical Parallel

Trade:Trade:A Stakeholder AnalysisA Stakeholder Analysis

Panos Kanavos, PhDLondon School of Economics, UK

AcademyHealth, San Diego, 8 June 2004

AgendaAgenda

• Drug pricing and financing in Europe

• The issue of parallel trade

• Data and methods

• Results

• Conclusions and policy implications

Approaches to drug regulation in the EUApproaches to drug regulation in the EU

Measure In-patent drugs Off-patent drugsFree Pricing Germany, France(?)

Direct price controls

Austria, Finland,

France, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden

Austria, Finland, Greece, Ireland, Netherlands, Sweden

International price comparisons

Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden

Austria, Belgium, Denmark, Finland, Greece, Ireland, Netherlands, Portugal, Spain, Sweden

Profit control UK

Reference pricing

Netherlands Belgium, Denmark, France, Germany, Italy, Portugal, Spain, UK

Price differences per unit in EU Price differences per unit in EU countries, DDD-adjusted, incountries, DDD-adjusted, in €, 2002 €, 2002

INN name Norway Belgium Germany Sweden Denmark UK Nether Lands Spain Portugal Italy Greece France Ireland Austria

Atorvastatin 0.78 0.86 1.37 1.04 0.72 1.01 0.95 0.96 0.91 0.63 0.55 0.91 0.89 0.97 Pravastatin 1.25 1.08 1.63 1.00 0.98 1.67 1.04 1.58 1.11 0.91 0.66 1.07 1.55 0.92 Simvastatin 1.43 1.28 1.06 N/a 0.81 1.25 1.12 1.19 0.82 0.74 0.62 0.80 1.13 0.96 Captopril 0.48 0.62 0.28 0.21 0.46 0.58 0.54 0.26 0.56 0.30 0.38 0.61 0.50 0.77 Enalapril 0.25 0.29 0.20 N/a 0.22 0.59 0.30 0.19 0.28 0.28 0.19 0.46 0.41 0.24 Quinapril N/a 0.76 0.45 0.49 0.37 0.38 0.88 0.19 0.36 0.37 0.27 0.53 0.75 0.43 Ramipril 0.32 0.51 0.48 0.31 0.17 0.60 0.69 0.21 0.28 0.24 0.18 0.40 0.35 0.36 Losartan 0.83 0.93 0.80 0.85 0.63 0.97 0.87 0.63 0.77 0.69 0.58 0.92 0.77 0.47 Valsartan 0.82 0.59 0.80 0.82 0.60 0.88 0.86 0.45 0.72 0.62 0.39 0.87 0.75 0.77 Clozapine 0.20 0.27 0.25 0.18 0.19 0.92 0.28 0.13 0.28 0.29 0.11 0.30 N/a 0.10 Olanzapine 4.80 5.60 5.78 5.37 3.81 5.48 5.19 3.57 3.90 3.60 3.30 4.83 6.07 5.28 Risperidone 3.98 4.23 5.54 4.08 2.68 5.21 5.47 2.87 3.22 2.93 2.25 3.65 5.03 5.23 Lansoprazole 1.37 2.01 1.84 1.15 0.85 1.33 1.93 1.07 0.90 1.53 1.05 1.68 1.66 1.57 Omeprazole 1.89 2.24 1.77 1.83 N/a 1.60 2.09 0.43 1.66 1.50 0.84 1.86 1.77 1.57 Pantoprazole 1.33 2.01 2.32 1.16 0.83 1.33 1.88 1.27 1.34 1.28 1.10 1.65 1.40 1.57 Citalopram 1.02 1.08 1.12 0.66 0.75 0.90 1.18 0.73 N/a 0.75 0.68 0.90 0.97 0.97 Fluoxetine 0.97 1.04 1.16 0.85 0.78 1.51 1.38 0.53 0.69 0.56 0.65 0.93 0.90 0.61 Paroxetine N/a 1.31 1.16 0.90 0.91 0.93 1.11 0.80 0.86 0.77 0.69 0.90 0.90 0.56 Sertraline 1.08 1.22 1.11 1.12 0.82 0.85 1.31 0.72 0.76 0.87 0.55 0.84 1.36 0.88

Prices of most common presentation, in €, 2002Prices of most common presentation, in €, 2002

Parallel trade in the EUParallel trade in the EU

Regional exhaustion of rights

Considerable jurisprudence by the ECJ

Significant uptake: 1998 – 2002

Actively encouraged by some member-states

Market share of parallel Market share of parallel imports, 1997-2002imports, 1997-2002

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

0,45

PI

pen

etra

tio

n

Europe UK Germany Netherlands

Incentives encouraging the use of Incentives encouraging the use of PI medicines in EuropePI medicines in Europe

United Kingdom 1. Discounts to pharmacy 2. Clawback

Germany 1. Quota to pharmacies

for PI dispensing 2. Penalties for not

adhering to quotaDenmark

1. Information on PI use 2. Mandatory substitution

The Netherlands 1. 1/3 of price difference

accrues to pharmacy 2. Clawback encouraging

pharmacies to procure more cost-effectively

Sweden 1. Information and PI

substitution 2. Aggregate payment to

pharmacy for work on generics and PI drugs

Research agenda and endpointsResearch agenda and endpoints

The Research Agenda1. Quantify economic impact

of parallel trade in six major destination countries

2. Focus on 6 widely used product classes* accounting for 22% of branded retail market (15-28% depending on country); account for some of the most highly PT products

3. Apportion static benefits to individual stakeholders

Research Endpoints1. Examine direct effects,

arising from price differences between locally sourced and PI drugs (list prices and discounts)

2. Competition effects in destination countries and price convergence

3. Competition effects across countries – does arbitrage work?

* Statins, ACE I and ACE II inhibitors, PPIs, SSRIs, and Atypical antipsychotics

 Norway Germany Sweden Denmark UK Netherlands

Atorvastatin 2% 0% 17% 5% 54% 12%

Pravastatin 14% 1% 19% 0% 38% 7%

Simvastatin 36% 10% 0% 56% 65% 51%

Captopril 3% 1% 0% 7% 2% 0%

Enalapril 24% 0% 19% 5% 4% 1%

Quinalapril 0% 8% 0% 39% 8% 17%

Ramipril 0% 3% 18% 19% 0% 21%

Losartan 0% 0% 0% 0% 72% 0%

Valsartan 0% 5% 0% 0% 23% 20%

Clozapine 58% 0% 74% 13% 0% 10%

Olanzapine 11% 63% 24% 0% 47% 8%

Risperidone 42% 62% 32% 25% 45% 33%

Lansoprazole 0% 42% 0% 0% 31% 14%

Omeprazole 4% 0% 16% 0% 19% 11%

Pantoprazole 0% 6% 0% 0% 32% 18%

Citalopram 6% 17% 21% 19% 25% 15%

Fluoxetine 1% 5% 20% 17% 10% 34%

Paroxetine 9% 19% 47% 43% 18% 6%

Sertraline 0% 9% 8% 25% 23% 14%

Market shares of PI products, 2002

A. Direct effectsA. Direct effects

1.1. Health InsuranceHealth Insurance2.2. PharmacyPharmacy3.3. PatientsPatients4.4. Parallel importersParallel importers5.5. IndustryIndustry

Allocation of benefits (1)Allocation of benefits (1)Country Cost-sharing

policyImpact on patients

Pharmacy benefits, 2002

% of market

Norway Co-insurance (0%,12%,30%

with cap per script)

Marginal €563,000 0.3%

Germany Pack-related 0 0 0

Sweden Deductible plus co-insurance up

to a limit

Marginal 0 0

Denmark Deductible plus co-insurance up

to limit

Marginal 0 0

UK Flat fee 0 invisible ?

Netherlands No co-pays 0 € 6,382,000 1.2%

Allocation of benefits (2)Allocation of benefits (2)Country Savings to health

insurance, 2002

(1)

Benefits to Parallel Traders (PT), 2002

(2)

Ratio of

(2)/(1)

€ % of market

€ % mark up

Norway € 563,000 0.3% € 12,447,000 46% 22.7

Germany € 17,730,000 0.8% € 97,965,000 53% 5.5

Sweden € 3,770,000 1.3% € 18,453,000 60% 4.9

Denmark € 3,002,000 2.2% €7,371,200 44% 2.5

UK €55,887,000 2.8% € 469,013,000 49% 8.4

Netherlands €19,119,000 3.6% € 43,199,000 44% 2.3

Total impact €100,071,000 1.8% € 648,449 ,000 53% 6.5

Costs of parallel importers in destination Costs of parallel importers in destination countriescountries

Country Cost of obtaining marketing authorisation

Denmark Annual fee of DKK 7,950 (€1,071) plus application fee of DKK15,095 (€2,033.4) or renewal fee of DKK13,975 (€1,882.5)

Germany €1,380

The Netherlands €1,021 per year

Sweden SEK15,000 (€1,637)

UK £1,465 (€2,125)

Norway NOK 70,000 – 80,000 (€8,489 - €9,701.8) plus control fee of 0.7% of the turnover of the MA holder

Distribution of benefits: comparative Distribution of benefits: comparative presentation by stakeholder (3)presentation by stakeholder (3)

1879817720

558875902

0

040692

97965

469450

0 100000 200000 300000 400000 500000 600000

Netherlands

Germany

UK

Insurance Pharmacy Importers

563

37703,002

563

00

12447

18453

7371

0 5000 10000 15000 20000 25000

Norway

Sweden

Denmark

Insurance Pharmacy Importers

B. Competition effectsB. Competition effectsin destination countriesin destination countries

0.84

0.86

0.88

0.9

0.92

0.94

0.96

1997 1998 1999 2000 2001 2002

Simvastatin Simvastatin PI

Competition effects within countries- Germany

4

4.2

4.4

4.6

4.8

5

5.2

5.4

1997 1998 1999 2000 2001 2002

Olanzapine Olanzapine PI

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1997 1998 1999 2000 2001 2002

Fluoxetine Fluoxetine PI

1.35

1.4

1.45

1.5

1.55

1.6

1.65

1.7

1997 1998 1999 2000 2001 2002

Lanzoprazole Lanzoprazole PI

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1997 1998 1999 2000 2001 2002

Paroxetine Paroxetine PI

0

1

2

3

4

5

6

1997 1998 1999 2000 2001 2002

Risperidone Risperidone PI

C. Competition effects C. Competition effects across countriesacross countries

Price convergence with lowest price country, 1997-2002Price convergence with lowest price country, 1997-2002

NOR GER SWE DEN UK NL

Atorvastatin X X X X X

Pravastatin X 0 0 0 X

Simvastatin X X 0 0 0

Captopril X 0 X X 0

Enalapril X 0 X 0 X 0

Quinapril N/A

Ramipril 0 0 0 0 0

Clozapine 0 X X X

Olanzapine X X 0 0 0

Risperidone 0 0 0 X

Impact on industryImpact on industry

Pharmaceutical manufacturers incur a significant loss of business in destination countries from the conduct of parallel trade.  

The conduct of parallel trade reduces manufacturers’ overall profitability (loss of producer surplus), without necessarily increasing societal welfare.  

Reduced overall profitability may lead to downsizing in source countries over the medium term.

Threatens European industry competitiveness

Concluding remarks – the Concluding remarks – the European experienceEuropean experience

Modest savings to health insurance organisations through direct (price) effects

Zero or, at best, marginal benefits to patients Little evidence of intra- or inter-country competition

effects and price convergence Some benefits to pharmacies Most pecuniary benefits accrue to parallel distributors

and the overall distribution chain Transfer from industry (producer) surplus mostly to the

distribution chain and less so to health insurance and patients

Evidence of product shortages in source countries

Concluding remarks - Concluding remarks - Lessons for the USALessons for the USA

1. Safety concerns2. Exhaustion of rights3. Savings to stakeholders

InsurancePatientsWholesalers

4. Supply issue5. Competition and Pricing