22 May 2018 - Authored by:Juraj Gyarfas
On 17 May 2018, the European Commission announced that it had decided to close its infringement procedures and the treatment of complaints related to parallel trade of medicines for human use against Poland, Romania and Slovakia.
By way of background, parallel trade has long been a major concern for both governments and pharmaceutical companies in certain member states, particularly in Central and Eastern Europe. Since prices of medicines in CEE countries are capped at relatively low levels and since EU law guarantees the free movement of goods, large volumes of medicines are exported into higher-price markets. According to estimates, parallel exports in the EU generate an annual turnover of several billion Euros, and they keep growing.
This poses several problems. For pharmaceutical companies, it decreases their profit margins in higher price member states by decreasing the consumption of products earmarked for those markets. At the same time, it also drains supplies allocated to lower-price member states, sometimes even leading to shortages of essential medicines.
Some pharmaceutical companies have been trying to implement various mechanisms to mitigate losses resulting from parallel trade. Such mechanisms include contractual clauses restricting wholesalers from reselling drugs in other member states, quotas on supplies to a low-price member state to cover only local demand, or dual pricing for drugs earmarked for both the local market and for export. However, mechanisms curbing parallel trade have usually been viewed with suspicion by competition authorities, thus triggering the risk of significant fines as restrictive vertical agreements or as conduct amounting to abuse of a dominant position.
On the other hand, governments in some lower-price member states have resorted to legislative action to curb parallel exports, often by making exports subject to regulatory approval. These measures have been investigated by the European Commission as potentially infringing the rules on free movement of goods.
The issue has also received political attention. It was an important topic for the Slovak EU Presidency in 2016 and it was discussed during the informal meeting of ministers for health matters held in Bratislava on 3 and 4 October 2016.
Based on the Commission’s press release, it seems that these concerns have been taken into account. The Commission reiterates that parallel imports and exports of medicinal products are a lawful form of trade within the internal market. That being said, the Commission also notes that the lack of appropriate and continued supplies of human medicinal products to pharmacies is a serious and growing problem that has occurred in recent years in a number of member states and can gravely impact the treatment of patients. In light of these considerations, the Commission acknowledges that reconciling respect for the free movement of goods with the right of patients to access healthcare is a fine balancing act.
It appears that Poland, Romania and Slovakia have now found the right balance between the two conflicting principles. The Commission, for its part, has concluded that infringement proceedings are not the optimal solution and has confirmed its willingness to look for other ways to address the issue. It remains to be seen what solutions will be put forward and to what extent the present decision will inspire other lower-price countries in their regulatory policies.
However, whilst it appears that member states have found the right balance, this may not be the case for individual undertakings seeking to curb parallel exports. According to reports in the media, the Commission is looking at two or three parallel imports cases including the pharma sector with a view to opening antitrust probes. We will report on these once more information becomes available.