Pharmaceutical & Health Care Politic

“Dual pricing”: Spanish Supreme Court supports free movement of goods

The pharmaceutical industry has ever since been deploying a number of strategies with the aim to limit the parallel trade of pharmaceuticals. The “dual pricing” arrangements can be seen as one of these strategies. Since the practice is targeted against the parallel trade, it hinders the free movement of goods and is respectively contrary to the Single Market principle. A recent ruling of the Spanish Supreme Court gives further support in the fight against this discriminatory measure.

The Spanish “Dual pricing” realities

The so called “dual pricing”, or “free pricing” system is a two-tier price model that is based on the applicability of different price levels depending on the final destination of the supplied pharmaceutical. Respectively, the pharmaceuticals that are to be supplied at the domestic market are sold at lower price levels in comparison to the products dedicated for exports. The practice has particularly gained momentum in Spain. In the 90´s, GlaxoSmithKline (GSK) imposed upon pharmaceutical wholesalers to comply with contractual conditions that fixed two different prices depending on the final destination of the product. The legitimacy of dual pricing has been ever since challenged at the national and EU level alike.

Spanish Supreme Court: Legitimacy of “Dual pricing” contracts undermined

Recently, the Spanish Supreme Court shed more light on one of the ongoing litigations regarding the dual pricing contracts between manufacturers and wholesalers. In its recent ruling, the Supreme Court confirms the previous judgement of the National High Court that rejected the legitimacy of the dual pricing contracts. The ruling of the National High Court and further decisions of responsible authorities has been subsequently challenged by manufacturers and exporters.

The principles established by the recent ruling of the Spanish Supreme Court can be summarised as following: The court highlights the fact that national laws have to be in line with the EU legislation. The judgement particularly points out that the freedom of business recognised under the Spanish Constitution is limited by the application of the European competition rules, to which manufacturers must abide. Further, the compatibility with the Article 101.1 TFEU is being questioned. As the above described practice of pharmaceutical companies restricts parallel trade and hence the free movement of goods, this may be classified as an infringement of the EU rules (Article 101 TFEU). Article 101 prohibits cartels and other agreements that could disrupt free competition in Single Market.

Besides constrains in regards to the applicability of EU legislation, there are also other fact highlighted. The Spanish regulations on the prices of medicines do not force manufacturers to implement the dual pricing systems. Equally import, the Supreme Court considers that the Spanish competition authority failed to conduct a proper examination of the level of harm to the competition caused by dual pricing in the first place.

Taking stock from the Spanish example

The recent ruling supports the argumentation that the dual pricing arrangements are contrary to the EU rules on free movement of goods. The distortion of the Single Market along with the loss of the saving potential due to the limitation of the competition, brought by the parallel trade, would have major implications for the sustainability of health care systems, patients and EU as a whole. In this sense, the EU institutions are urged to preserve the Single Market over the profit-seeking of “Big Pharma”. It also shows to other Member States that the system of dual or free pricing is a dead end.

Pharmaceutical Parallel Trade subject to discussions in London

Europe’s biggest and leading Conference on Parallel Trade took place in London, UK beginning of February. The 10th annual conference brought together stakeholder in field from across Europe to discuss about the latest dynamics on the market and challenges ahead related to the implementation of the Falsified Medicine Directive.

In this year’s edition, the positive effect of parallel trade was particularly highlighted by the Danish Competition and Consumer Authority. The authority favours the practice given the fact that it is the only source of competition to pharmaceuticals with no generics substitution providing for direct and indirect saving for the national health care system. The market share of parallel imports in Denmark is amongst the highest in the EU, amounting to 24% and 10 % in the pharmacy and hospital sector respectively. The markets in Northern Europe have been generally profiting from the parallel trade by having the biggest market share of the parallel imports within EU. The Danish example demonstrates the positive effects of the parallel trade on the otherwise monopolised markets in the EU.

EU Falsified Medicines Directive becomes reality

For one thing, the supply of medicines depends on the functionality of the Single Market. The other factor behind this complex process is the smooth operability of the supply chain and its safety. The protection of the supply chains from infiltration of stolen and falsified medicines is at the EU level covered by the Falsified Medicines Directive 2011/62/EU (FMD).

Safety features disclosed: The countdown has started

Pursuant the publication of the long-awaited Delegated Act 2016/161, the technical guidelines for implementation of FMD, on 9 February, Member States have three years to translate into practice the “safety features” stipulated by the Act. The implementing guidelines set out that almost every prescription pharmaceutical has to carry two safety features at the packaging. This features entail a unique identifier (a two dimensional barcode) and an anti-tampering device that will enable the verification of the authenticity of the pharmaceutical against a Europewide database. The European Medicines Verification Organisation (EMVO) will play the role of the European Hub, by interlining the national repositories and overseeing the activities in the Member States.

Germany’s securPharm: being one step ahead in transposing of EU guidelines

The securPharm project is the German concept for the implementation of the FMD. After being successfully proven under real-life conditions, the next milestone was reached when the German repository system was linked with the European Hub in mid-2015, well ahead of the publication of the technical guidelines. The German stakeholder-driven initiative sees its work confirmed through the publication of the Delegated Act. Given the complexity of the system, there are still some challenges ahead before the system gets fully operational in early 2019.

Harmonised safety features placed on the packaging will play a great deal in assuring the authenticity of pharmaceuticals to the benefit of the public health. Equally important, the security of the pharmaceutical supply chain will be enhanced. To this end, the parallel trade has assumed a key role by acting as the spearhead to ensure the safety of pharmaceuticals.

expert opinion

‘The clock is now ticking’

This month marked the formal publication of Commission Delegated Regulation (EU) 2016/161 in the Official Journal of the European Union on 9th February 2016. This regulation (‘DR’) sets out the requirements regarding the ‘safety features’ intended to prevent the entry of falsified medicines into the legal supply chain, as mandated by the Falsified Medicines Directive 2011/62/EC (‘FMD’).

Manufacturers of medicinal products (originator companies, generics manufacturers and parallel distributors) now have three years in which to modify the packaging of their products to include the ‘unique identifier’, which is designed to ensure authenticity of the product, and tamper evident technology, by 9th February 2019. If compliance with the legislation is not met by this latter date, market authorisation holders will not be able to place their products on the market.

A number of other problematic issues arise from the new regulation, not to speak of the costs, which have to be borne by MAHs (Marketing authorisation holders): the exemptions accorded to Belgium, Greece and Italy until 2015; the existence in the marketplace before 2019 of products not carrying the safety features, and with up to five years shelf life; the encompassing within the definition of ‘falsified’ medicines also of stolen medicines; and not least, the education of the thousands of pharmacies and wholesalers across Europe who will also have to comply with the new rules.

It can be seen then that this new legislation will have far-reaching and fundamental effects on the European medicines supply chain, not only for manufacturers but also for the parallel distribution sector. It is a massive task, which the legislators have imposed upon the industry, and in a form to which none of the players (be they manufacturers or national competent authorities) have ever been accustomed. Let us hope that common sense will prevail as the carpet unrolls towards implementation in 2019.

 Author: Richard Freudenberg,

Chief Executive European Association of Euro- Pharmaceutical Companies