Court Refuses To Hear Case On European Drug Pricing
"Europe's highest court said Tuesday that it had no jurisdiction in a case involving the practice of buying drugs in low-priced countries within the European Union and diverting them to nations that set higher prices.
The decision was a setback for drug companies, which were hoping for a ruling against the practice. The rerouting undercuts the profits of drug makers, while enriching wholesalers. Supporters of the practice say consumers pay less for medicine.
The European Court of Justice said Tuesday that it could not rule on a case referred by the Greek competition commission on a battle between GlaxoSmithKline and Greek drug wholesalers, because the Greek regulator is not a court or tribunal.
The European court, based in Luxembourg, sent the case back to Greece's competition commission, which is expected to rule on it late this year or in early 2006.
The case was closely watched in Europe by drug companies and free trade specialists alike. The practice is known as parallel trading, a fast-growing business that generates about 5 billion euros ($6.2 billion) a year for drug wholesalers.
The business has sprung from a pricing policy in Europe unique to the drug industry. Each European country sets the price that drug manufacturers charge for medicines based on how wealthy the country is. The prices drug makers set for Eastern Europe can be as much as 30 percent to 70 percent less than in Britain, for example.
A network of wholesalers buys the drugs, and sells some of them locally. In lower-priced countries, however, the wholesalers often divert some of the drugs to countries that have higher prices, including Britain, Germany and some Scandinavian countries. The wholesalers repackage the drugs with instructions in the local language, but otherwise make no changes to the product, and they can make a substantial profit.
''There is a big incentive for wholesalers to come to Spain or Greece where drugs are very cheap, and simply make parallel imports into the U.K. or Germany, where the price is higher,'' said Miquel Montañá, a partner at the Clifford Chance office in Barcelona, Spain.
Coming just days after French voters rejected the European constitution, Tuesday's case highlighted the friction surrounding the Europe Commission's stated goal of uniform trading rules and the insistence of individual countries on setting their own agendas in certain areas.
''Here you can see the tension between the commission's wish to have free trade and measures taken at the national level, which distort the conditions of free trade,'' Mr. Montañá said.
Drug companies estimate that parallel trading can cost them several billion euros a year in lost profits, money they say could be used on drug research. But the practice's advocates, mainly the wholesalers who work across Europe, claim they are ultimately saving governments and consumers money.
Governments, for their part, are very willing to buy the lower-priced drugs. In Britain, for example, which provides free national health care to all residents, about 16 percent of all pharmaceuticals are supplied through parallel trading.
GlaxoSmithKline, based in London, said Tuesday that it was ''disappointed that the court did not take the opportunity to accept the reference'' from the Greek regulator. ''Parallel trade in pharmaceutical products is of no benefit to patients and gives very little, if any, benefit to payers, but can harm pharmaceutical industry competitiveness,'' it said.
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