PharmacoEconomics
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The potential for parallel trade in the European Union (EU) has grown with the accession of low price countries and the harmonisation of registration requirements. Parallel trade implies a conflict between the principle of autonomy of member states to set their own pharmaceutical prices, the principle of free trade and the industrial policy goal of promoting innovative research and development (R&D). Parallel trade in pharmaceuticals does not yield the normal efficiency gains from trade because countries achieve low pharmaceutical prices by aggressive regulation, not through superior efficiency. ⋯ One policy option to preserve price differentials is to exempt on-patent products from parallel trade. An alternative is confidential contracting between individual manufacturers and governments to provide country-specific ex post discounts from the single 'euro' wholesale price, similar to rebates used by managed care in the US. This would preserve differentials in transactions prices even if parallel trade forces convergence of wholesale prices.
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Parallel trade in pharmaceuticals has become a major European Union policy issue with several 'solutions' being considered by the European Commission, Member State governments and the pharmaceutical industry in the 'Bangemann Process'. This paper discusses the issues from an economic and public policy perspective--considering the economic cases for differential pricing and for 'Euro-prices', concluding that the economic case for parallel trade--to achieve convergence of prices--is not applicable to pharmaceuticals. ⋯ Pricing rules should reflect local willingness to pay for innovation. It concludes, however, that in the absence of policy changes there is a strong likelihood of companies refusing to supply new innovative products at low prices to traditionally 'low price' countries in order to avoid parallel trade undermining prices obtained elsewhere in Europe, with significant implications for the welfare of patients in those countries.