Global Insight Perspective | |
Significance | In the case of GlaxoSmithKline versus the association of Greek wholesalers, the European Court of Justice (ECJ) has issued a halfway house decision, which leaves the door wide open for the pharmaceutical industry to limit but not to cease drug supplies to parallel traders. According to the ECJ, such quotas should be based on "requirement of the market" and "previous business relations." |
Implications | The pharmaceutical industry will see in the ruling an opportunity to fight its corner to control parallel trade of their medicines. On the other hand, wholesalers and parallel traders will argue that the ruling means business as usual. |
Outlook | Although both sides have rejoiced at the ruling, neither has secured a full victory and the next battle will revolve around clarifying the meaning of "ordinary orders" and "previous business relations." As it stands, the final settlement for this specific case lies with the Athens court, but further legal proceedings are likely to arise in other low-priced member-states as they will individually have to stamp a definition on these concepts. |
The European Court of Justice (ECJ) has issued a ruling that seems wide open for interpretation in the legal case opposing U.K. manufacturer GlaxoSmithKline (GSK) and a number of Greek wholesalers, reports The Wall Street Journal. After nearly a decade of legal proceedings between the two parties, the ECJ has concluded that GSK may have failed to abide by European laws by limiting supplies of epilepsy drug Lamictal (lamotrigine), migraine treatment Imigran (sumatriptan) and asthma drug Serevent (salmeterol) to Greek wholesalers. The ECJ also went on to state that "a pharmaceutical company is abusing its dominant position if it refuses ordinary orders by wholesalers in order to prevent parallel exports"; however the ECJ shifted the necessary assessment of "ordinary orders" back onto the Athens court, adding that it should reflect "previous business relations" and market needs. Hence, the cases will only be settled once the Greek court has ruled on that matter.
The legal proceedings were initiated in Greece by the association of Greek wholesalers and pharmacists in 2000 after GSK stopped supplying wholesalers with its three above-mentioned drugs and started to sell them directly to pharmacies and hospitals for three months. GSK eventually resumed supply of the drugs to wholesalers, albeit in a limited quantity that the U.K. company deemed sufficient to satisfy demands of the local market. By doing so, GSK hoped to curb the parallel trade of its medicines from lower-priced Greece to other European Union (EU) states with higher prices, a practice that results in financial losses for the pharmaceutical industry. The association of Greek wholesalers took the case to the Greek courts, claiming that by refusing to supply the required quantity of the drugs, GSK was abusing its dominant position in the Greek market for these specific three treatments. The Greek competition authority eventually passed the case on to the ECJ.
Outlook and Implications
Although the halfway house decision is wide open for interpretation and further legal proceedings, GSK and the pharmaceutical industry at large will find comfort in the ruling. In a nutshell, the court found that although pharmaceutical companies have the obligation to fill "ordinary orders" from parallel traders, they can impose quotas based on "previous business relations" and local market demand. The battle is now likely to shift to the definition of "ordinary orders" and "previous business relations." In this respect, one can expect the pharmaceutical industry to argue that "ordinary orders" should be in line with the medicine requirements of the Greek market, while the wholesale sector will argue that "ordinary" should be in line with previous order volumes based on the mention of "previous business relations" in the ruling.
The ruling will apply to the EU and could potentially give pharmaceutical manufacturers the power to limit the supply of their medicines in all lower-priced market such as Greece, Spain, Belgium and Luxembourg, although it will fall under each country's jurisdiction to define "ordinary orders." The stakes are high for the pharmaceutical industry as parallel trade of their medicines within the EU results in an annual financial loss of 4.5 billion euro (US$6.4 billion) at ex-manufacturer prices. The shortfall prevents manufacturers from maximising returns on their R&D investments and often do not result in lower medicines prices for patients and national health systems. For instance in the United Kingdom, innovative drugs are reimbursed at the National Health Service (NHS) list price as defined under the Pharmaceutical Price Regulation Scheme minus clawback (on average 9%). The price that the NHS pays for medicines is the same whether or not the drug is sourced domestically or from parallel imports, while pharmacists and parallel traders share the financial benefits of the price differential between the two markets. However, a regular survey of pharmacy invoices allows the Department of Health to share some of the resulting discounts.