24 May 1993 00:00 [Source: ICB]
Attempts to harmonise the licensing and pricing of drugs across the EC have floundered, with many plans being sacrificed on the altar of subsidiarity. Instead of regulation, generic substitution and parallel imports are now being touted as the best way forward to harmonisation.
By Mike Ward
UTOPIAN DREAMS of a harmonised single European market remain exactly that for the pharmaceuticals industry. But the sector is not wholly disappointed because some of the proposals could have turned into a nightmare for companies, particularly in the area of price harmonisation. Companies would, however, have welcomed early introduction of simplified EC-wide approval procedures.
Nevertheless, despite all its efforts, it is clear that the Commission's objectives for creating a single market in pharmaceuticals have only been met halfway. In the spring of 1992, the situation looked promising as the EC's Internal Market Council adopted four of the directives announced in the White Paper on the achievement of the Single Market: the wholesale distribution of medicinal products; the classification of medicines into products subject to medical prescription and products for self medication; the labelling of medicinal products and packaging leaflets; and pharmaceutical advertising.
But progress in other areas has been either slow or nonexistent. The package of proposals - one regulation and two directives - designed to complete technical harmonisation of pharmaceuticals, was the focus of a series of discussions but has moved slowly. And moves to harmonise pricing and reimbursement throughout the Community were abandoned last December.
For a long time, Germany was opposed to the creation of a European agency for decisions concerning product releases onto the market. Early on the Council itself was split on which Article (100A or 235) should be used as the basis for such an agency's creation. Furthermore, France, Ireland, the Netherlands and the UK all contended that after the startup phase, the agency should be entirely financed by fees levied on the pharmaceutical industry. Finally, after months of discussion, most of the stumbling blocks have been removed and progress is now being made.
In late April the European Parliament cleared the way for the Internal Market Council to adopt three directives to establish a new EC-wide drug authorisation scheme. MEPs approved the European Council's common positions on a legislative package designed to create a European Medicines Evaluation Agency, although they proposed several key amendments, some of which EC Industry Commissioner Martin Bangemann said he could accept.
Under the directives a decentralised authorisation procedure for existing products will be established based on mutual recognition, and a separate centralised authorisation procedure set up for new products. Companies that have a product authorised in one member state will be able to apply for authorisation in others using the existing documentation. Member states will be obliged to authorise the products in all but exceptional cases.###1777###
With new products, the intention is that companies apply directly to a new EC medicines agency which will grant authorisations that are valid throughout the community, based on assessments by the CPMP or, in the case of veterinary products, CVMP.
MEPs want to see national procedures for approving new drugs for both humans and animals to be shortened from 210 days to 140 days. Currently, the time required to register new medicines varies from 14 to 20 months in countries such as France and the UK, to an average of 40 months in Spain and Germany.
Bangemann also informed the Parliament that the Commission would accept amendments which would oblige member states to inform the medicines agency of the product authorised and its characteristics. The agency, it is envisaged, would then give the medicine a European register number which would be marked on the packaging to allow supervision.
The proposals will allow medicines to be marketed freely throughout the European Community after 31 December 1994, provided they have been authorised by the competent authorities in a member state. In the event of any disputes, it is envisaged that the medicines agency will arbitrate. This agency, which is the subject of a related draft regulation, will also have the power to authorise new biotechnology medicines and animal growth promoters.
MEPs are scheduled to consider the establishment of the medicines agency next month. They are having to be reconsulted because the Council has changed the legal base for the regulation from Article 100A of the Treaty of Rome, which requires two Parliament readings, to Article 235 of the Treaty, which requires only parliamentary consultation. There is still the possibility that a challenge to the legal base could require a judgment from the European Court, once again delaying full implementation of the new registration system.
There is as yet no real indication of where the seat of the medicines agency will be. Each month seems to throw up another contender. Amsterdam, Barcelona, Copenhagen, Dublin, Lisbon and even Manchester have all been suggested. And it is still unclear whether the deferred startup date of 1 January 1995 is achievable.
At least many of the original hurdles facing the package have been cleared. The same cannot be said for the drug pricing and reimbursement situation. Last December, the Commission dropped its draft legislation after continuous political wrangling had watered down the proposals. Instead, it seems that it intends to allow parallel imports to drive price harmonisation of pharmaceuticals within the European Community. The European Federation of Pharmaceutical Industries' Association (EFPIA) described the EC's failure to proceed with this draft legislation as 'a setback'.
As late as last September, it looked like the Commission would salvage at least some of its efforts to get its so-called Transparency directive adopted. But the plans, which had been moving towards an increasingly non-interventionist position, were sacrificed on the altar of subsidiarity. The proposals were effectively scuppered by arguments from member states that pricing and reimbursement should remain the responsibility of national governments.
By December it was clear that the Commission had lost patience over the issue. Leading Commission officials believed that it would be impossible to get agreement on EC drug pricing rules and so decided to drop plans to update the 1989 Transparency directive. Sir Leon Brittan, Commission vice president for competition at the time, revealed that while he and his colleagues believed price harmonisation was desirable, such measures were not possible. But, he added, parallel imports could prove the best mechanism for price harmonisation.
Europe is the home of a number of different pricing regimes and so, not surprisingly, drug costs differ significantly throughout the Community. Prices in countries like Portugal, France, Spain and Greece are often half those for the same products in Denmark, Germany and the Netherlands. 'With such disparate forms of pricing regulation, markets remain resolutely national, and consumers are not able to reap the benefits of a free market,' Sir Leon argued. But in taking measures to achieve a single market, the EC must tread carefully and balance the needs of the common market with those of national sovereignty, he warned.
Sir Leon believes the route to harmonisation is via greater generic substitution and increased use of parallel imports. But generic substitution in the EC is still minimal. So far, only the UK, Germany and the Netherlands are pushing generic substitution.
Despite the significant differences between drug prices across the EC, parallel trade in drugs, where products are bought in a low-price country and sold to distributors or wholesalers in the high-price countries, has remained relatively small. The total volume of parallel trade for the EC is estimated at around Ecu 400m, or about 2% of the prescription medicines market. This leads many to believe that impediments to parallel trade in pharmaceuticals exists. Indeed, UK consultancy Remit has prepared a report for the Commission identifying regulatory impediments resulting from differing approval mechanisms.
Remit's report reveals that parallel importers in the UK and Germany consider government licensing procedures cumbersome, expensive and slow. Parallel importing in Germany is valued at about DM100m ($60.2m) at wholesale prices - only 1% of the market. By contrast, Dutch sales of parallel imported drugs represent some 5-10% of prescription markets, while in the UK they account for around 8%. This is partly explained by the length of time it takes to get approval for a parallel import in Germany (about a year) compared with the Netherlands (three months). Both timescales exceed the EC's recommendation of 45 days.
Sir Leon believes that application of existing EC competition rules to parallel imports would bring drug prices down towards the lowest in member states. 'This is a good thing. We cannot accept the argument that parallel imports should be limited because companies are obliged to charge excessive prices in countries without strict price controls to compensate for low margins in the lower price member states. This would simply result in the higher price countries subsidising the cost of healthcare elsewhere in the Community, and is unacceptable.'
Clearly, Sir Leon does not support the industry view that such circumstances would force companies to withdraw from the cheapest markets. Instead, he argued, application of market forces will act as a catalyst for the gradual convergence not only of prices, but also of price control mechanisms. 'Prices in the high-cost countries will reduce, whereas those in the low-cost countries will, if they really fail to offer pharmaceutical companies a reasonable return on investment, increase in reaction to the real threat of product withdrawal.'
Nevertheless, the position on pricing between industry and Brussels is not totally polarised. A joint Commission-pharmaceutical industry working party was established last December to produce a document on industrial policy which would include pricing and reimbursement controls, and is expected to unveil its report in the near future.
When a truly harmonised market for pharmaceuticals is created, many companies will be major beneficiaries, according to a survey of the European pharmaceuticals sector by Deutsche Bank Research. Some companies will benefit more than others, with the biggest net gainers being those companies with strong R&D-oriented portfolios. Such companies would be boosted both by extended patent protection and by faster and more harmonised product approvals.
Increased patent terms - the EC is proposing to extend protection from about eight years to 13 years - will be a boost to those companies which received patents after 1 January 1985 and were due to expire after 1 July 1993. On the downside, DBR notes, pharmaceutical pricing across the EC will converge as trade barriers disappear.
This will have a negative impact on those companies currently enjoying strong positions in the higher priced markets such as Germany, the Netherlands and the UK. Hardest hit would be the German companies Bayer, Hoechst and Schering, although Astra, Fisons and Novo Nordisk also have significant sales exposure in the German market.
By calculating the supposed impact of a number of key factors, DBR forecasts that the major beneficiaries of a single market would be Astra, Glaxo, Hoffmann La Roche, Sandoz, SmithKline Beecham and Wellcome; it would be less beneficial to Ciba, Fisons, Hafslund Nycomed, Novo Nordisk and Zeneca.
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