Packaging ruling a victory for parallel traders

- Last updated on GMT

Related tags: International trade, European union, Uk

Companies involved in the parallel trade of pharmaceuticals have
been boosted by a court ruling which gives them the right to re-box
products shipped into the UK from another country in the European
Union.

The verdict means that parallel traders, which according to IMS figures account for 19 per cent of the drugs sold to the UK national health Service, can continue to re-package their merchandise.

This is good news for the traders and their packaging partners, but bad news for the UK's branded pharmaceutical industry, which claims to lose £1.4 billion (€2.1bn) a year in sales due to parallel imports.

Branded companies have a number of methods of fighting parallel trade in medicines, in which lower-priced pharmaceuticals are sourced in one country and imported into another where a higher price can be charged, with a profit made on the difference.

Restricting product availability in low-priced countries and tactical pricing are two common approaches, but latterly the emphasis has switched to repackaging.

In order to comply with local regulatory requirements, importers have to repackage the products which they import into the UK. For example, instructions and other critical information must be in English. This is often achieved by placing stickers on the product's packaging.

Occasionally, the regulatory authorities insist on re-boxing. Importers have, however, gone much further, seeking to develop their own packaging to make their products more appealing in the marketplace.

The parallel traders believe that products bearing foreign language can wrongly be considered inferior to those placed on the market by the UK brand owner. This belief is reinforced by the fact that labels inevitably look messier than the originator's packaging and, if patients refuse to accept an over-stickered imported product then the UK brand will be dispensed.

To get around this, parallel traders can either re-box the foreign product in boxes bearing the originator's trade marks in the country of importation pack it in boxes referring only to the product's generic name.

In Friday's lawsuit, GlaxoSmithKline, Eli Lilly and Boehringer Ingelheim lost a bid to prevent parallel traders Medihealth and Dowelhurst from re-boxing their products. However, the judge in the case did rule that the nature of the repackaging was important, referring the case to the European Court of Justice.

Observers said the decision could trigger an increase in parallel trade, which has been tipped to grow when the European Union expands to 25 members from 15 in May.

However, the latest data from IMS, presented at a meeting in London last month, reveals that there has actually been a small decline in the growth of parallel trade in Europe, which has been accelerating since the early 1990s.

Parallel trade growth in the UK - the EU's most established parallel import market - fell to just 1 per cent last year, compared to 3 per cent a year between 2000 and 2002. Meanwhile, in Germany a similar slowdown was observed, with growth slowing to just 4 per cent compared to the 66 per cent growth registered in each year between 2000 and 2002.

The European Federation of Pharmaceutical Industries and Associations (EFPIA) has estimated that 5 per cent of all European prescription drugs are now parallel imports, a trade representing around €4 billion a year that cuts more than €800 million from industry profits.

The repackaging verdict could mean that brand-name companies now turn their attention to tactical pricing and other defences.

In this regard, they were given encouragement by a case in January, when the EU's top court ruled that Germany's Bayer had been wrongly fined in 1996 for seeking to restrict the amount of its Adalat (nifedipine) heart drug that was available to countries such as Spain and France, where its prices were lower.

Related topics: Drug Delivery, Regulations

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