Transcript
Page 1: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

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

TradeTrade in Europe in Europe

Panos Kanavos, PhDLondon School of Economics & Political Science,

London, UK

FDA oral testimony on Drug Re-importation

Wednesday, 14 April 2004

Page 2: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

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

3. Apportion benefits to individual stakeholders

Research Endpoints1. Examine direct effects,

arising from price differences between locally sourced and PI drugs

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

Page 3: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

The justification for parallel trade in the EU:The justification for parallel trade in the EU:Prices of most common presentation, in €, 2002Prices of most common presentation, in €, 2002

Page 4: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

HypothesesHypothesesH1: Arbitrage effect: Parallel trade leads to price equalisation or

approximation across Member StatesH2: Price competition effect: Increased price competition in destination

countries reduces overall pharmaceutical prices, benefiting payers and patients

H3: Aggregate welfare effects: price differences and competition lead to welfare improvements for payers

H4: Patient benefits: Patient access to innovative medicines is improved, with lower direct & indirect costs

H5: Industry impact: Parallel trade has minimal impact on industry ability to innovate, and indeed, improves overall industry efficiency

Page 5: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

Direct effectsDirect effects

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

Page 6: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

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 €500,000 0.3%

Germany Pack-related 0 0 0

Sweden Deductible plus fixed fee per

script

0 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%

Page 7: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

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

Page 8: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

Indirect effectsIndirect effects

Competition in destination countries

1. Prices for PT drugs not significantly lower than locally sourced drugs

2. Price co-movement rather than price convergence over time

3. No statistical evidence that there is competition

4. Little evidence of competition between parallel traders

Competition across countries

1. Price differences between source and destination countries hold – regulation effect

2. No convergence over time

3. Intensity of parallel trade in some source countries can cause supply problems and shortages

Page 9: The Economic Impact of Pharmaceutical Parallel Trade in Europe Panos Kanavos, PhD London School of Economics & Political Science, London, UK FDA oral testimony

Concluding remarksConcluding remarks

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 importers

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


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