August 30, 2018 Sean Skulski

Brexit and Parallel Imports—the end of an era?

A Pricentric Brief

by Sean Skulski

“In short, parallel imports of medicines into the UK provide both certainty of supply, when there is not enough UK stock (because of a sudden spike in demand), and incentivized purchasing competition which saves the NHS over £100m per annum, on current estimates.” 

– Healthcare Distribution Association UK Council (2016)

The United Kingdom has recently released guidance for the Brexit implementation period, but as the UK’s scheduled departure (March 29, 2019) from the European Union looms on the horizon, uncertainty abounds. This is especially true for the pharmaceutical industry in the UK, which has relied extensively on the EU as well as the European Economic Area as a single market.

Within Europe, most national-level health care systems are public and are therefore funded by taxes. In this way, when countries assess a new health technology, authorities rely on clinically- and cost-effective treatments that boast a price tag appropriate for NHS budgets. In turn, parallel importing grew in popularity and practice to allow access to drugs at a cheaper cost.

It is important for drug manufacturers to remain aware of the situation surrounding Brexit, specifically how the UK’s relationship with the rest of the EU will be once it withdraws.

Parallel importing: A “gray market”

Parallel imports are cross-border sales of goods—in this case, pharmaceuticals—by independent traders outside the manufacturer’s distribution system without manufacturer consent. With pharmaceuticals, explained Andrew Hanhauser, Associate Director, Global Pricing and Market Access at Alliance Life Sciences, “parallel importers generally purchase drugs in low-cost markets such as France, Greece, and Spain, and then transport, repackage, and resell the drugs in more lucrative markets such as Germany or the UK, where demand yields higher prices as well as quick profits.”

Since the advent of parallel importing, the practice has come under fire, as pharmaceutical companies understandably seek to protect their patented products. The Court of Justice of the European Union’s (CJEU) allowed the parallel importing of drugs to take off in Europe due to the concept of trademark “exhaustion.

The CJEU outlined the principle of exhaustion as follows: “A community trademark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the community under that trademark by the proprietor or with its consent.”

In other words, once a pharmaceutical labeled with a trademark has been sold by the trademark owners or sold with their consent, the trademark right is said to be “exhausted” and therefore can no longer be enforced by the owner; however, exhaustion is limited to goods first distributed to the market within the EU and EEA – hence, parallel importing is limited to the countries within this scope.

Although technically there are separate patents in the different EU Member States, the single market is a sort of one patent zone: if an item is sold anywhere in the EU, patent protection ends (is exhausted) across the whole single market, which includes EEA states outside of the EU, Iceland, Liechtenstein, and Norway. As such, a patented pharmaceutical could be resold despite patent protection.

Exhaustion is the only thing standing between parallel imports and the ongoing violation of trademark rights and to placate concerned IP rights owners as well as consumers, the CJEU has enacted legal mandates to protect the integrity of resold drugs. Parallel imported drugs, including the product itself and its repackaging, relabeling, and rebranding, cannot be altered if such alterations comprise the addition of a component not approved by the proprietor. Per the ruling of Bristol-Myers Squibb v. Paranova (1996), courts formulated a five-condition test that repackagers must pass to avoid infringement:

  • Repackaging must be necessary to market the product;
  • Repackaging must not affect the original condition of the product and proper instructions;
  • Repackaging must clearly identify the manufacturer and importer;
  • Repackaging must be prevented in a non-damaging, non-detrimental way that it would tarnish the reputation of the trademark owner;
  • Repackagers must notify the proprietor

The CJEU’s ruling in the case of Pharmacia & Upjohn v Paranova (2000) extended the scope of relabeling and rebranding, mandating that any form of repackaging, relabeling, or rebranding need abide by the mentioned conditions to avoid infringement. The CJEU’s ruling on the case Dior v Evora (1998) legalized brand opposition to resale if resale damaged brand reputation.

Parallel importing in the UK

Parallel importing is a common practice within the UK. The European Federation of Pharmaceutical Industries and Associations (EFPIA) noted that parallel imports made up 9% of UK pharmacy market sales in 2015. Moreover, according to Executive Director of the Healthcare Distribution Association Martin Sawyer, 90% of UK medicines are imported, and of that number 45% come from the EU.

Otsuka’s Abilify (aripiprazole) and Parallel Importing

In June 2004, the European Medicines Agency (EMA) approved Otsuka’s Abilify for the treatment of schizophrenia. The 2009 STAR study conducted by UK health professionals found that unlike other antipsychotic treatments, Abilify did not cause adverse effects such as heart problems, diabetes, and weight gain. Because of this, Abilify was deemed a cost-effective treatment over standard-of-care (SOC) that would save NHS England from shelling out money to treat future complications resulting from the negative side effects of SOC.

Since January 2012, the MNF cost of Abilify Tablets 1 Pack 28 Tabs 10 MG has been £96.04. Even after the patent for Abilify expired in Europe, allowing generics to inundate the UK market, the cost of branded aripiprazole (Abilify) has remained the same.

The European patent for Otsuka’s Abilify, an antipsychotic drug indicated in the treatment of schizophrenia and bipolar disorder, was due to expire in October 2009, but it was extended via a Supplementary Protection Waiver (SPC). In turn, the patent was set to expire in October 2014. Otsuka filed for another patent extension, but the UK Intellectual Property Office refused to further protect the patent for six more months in March 2015.

In 2015, multiple generic versions of Abilify were granted marketing authorization. While most of these launched in January 2017, Alliance Healthcare, a pharmaceutical wholesaler, distributor, and retailer, began parallel importing aripiprazole in October 2016 at an MNF cost of £1.70 for Aripiprazole Tablets 1 Pack 28 Tabs 10 MG, a cost that was astoundingly lower than that of Abilify for the same pack presentation.

The chart above shows the current MNF cost (GBP) of Abilify/Aripiprazole Tablets 1 Pack 28 Tabs 10 MG in the UK, including parallel imports and generics.

As seen in the chart above, generic versions of Abilify arrived on the market in January 2017, varying in cost from £96.04 (the same as Abilify) to as low as £1.70 for Aripiprazole Tablets 1 Pack 28 Tabs 10 MG. Nowadays, the MNF cost of Alliance Healthcare’s aripiprazole is set at £3.47 after fluctuating throughout the years since its initial arrival. Further generic competition has brought Aripiprazole Tablets 1 Pack 28 Tabs 10 MG this year at MNF costs of £1.76 (Niche Generics in January 2018) and £1.18 (Aurobindo in April 2018).

Even though Creo Pharma’s aripiprazole arrived on market at the same MNF cost of Abilify, Alliance Healthcare’s parallel imported drug was exponentially less than the brand. In this way, parallel imported aripiprazole saved NHS England quite a bit of money—£94.34 when it was at it’s lowest MNF cost and currently, £92.47. There are other options available for purchase, but until this year, Alliance Healthcare’s aripiprazole was set at the lowest cost, even when the MNF cost rose to £8.73 in January 2018 (it dropped to £3.47 in May 2018).

If parallel trade is to continue, then EU regulation that keeps the UK within the single market would have to continue as well.

Once the UK leaves the EU single market and customs union, common trademark regulations are moot in the UK. UK-based medicine distributors would no longer be able to easily and swiftly import vital medicines from the rest of the EEA to service the varying needs of British patients and the NHS.

The state of Brexit

Recent guidance from the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) stated that the UK would like to continue its relationship with the EMA.

The MHRA announced, “Market access will not change during the implementation period. Firms will be able to continue UK batch release testing and qualified person certification, and this will be recognized by the EU and vice versa. Marketing authorization holders and qualified persons from pharmacovigilance can continue to be based in the UK and access EU markets, and manufacturing and distribution licenses will be recognized by the EU and vice versa, along with inspections. As such, UK-based firms can continue to apply for marketing authorizations via either the centralized or decentralized procedure.”

In mid-July 2018, the UK’s Parliament voted in favor of Amendment NC17 to the Trade Bill, which forefronts negotiation for the UK government to continue UK participation in the EMA. Tabled by Conservative Phillip Lee, the NC17 Amendment ensures the UK will keep ties with its European counterparts regarding the regulation of medicines.

Lee asserted that NC17 was not only vital to the health system, but to the pharmaceutical sector. According to Lee, “The European Medicines Regulatory network partnership makes the process of accessing lifesaving new medicines and moving medicines quick and easy. If we leave that partnership the NHS would get groundbreaking new drugs like those for cancer, dementia, and diabetes long after other parts of the world.”

Additionally, Steve Bates of the Association of the British Pharmaceutical Industry (ABPI) stated UK continuation in the EMA after Brexit would be crucial. Bates also claimed, “Every month, 37 million packs of medicine arrive in the UK from the EU and 45 million move the other way.”

Nonetheless, there are practical difficulties when transitioning to a new exhaustion regime. The UK and EU would need to agree in principle that rights exhausted in the UK and EU before the end of the transitional period should remain exhausted. If the UK switches to national or international exhaustion, it would be required to identify exactly which goods were exhausted before and after the relevant date.

The courses of action for the UK

Regardless, the future of the UK’s relationship with the EU is still circumspect. Until a solid deal is made, the no-deal exit scenario seems more likely. If the UK becomes a separate entity from the EU, then the UK will need to authorize new trademark policies.

In a no deal scenario, the UK asserted that it will align to the EU/EEA exhaustion regime from Exit day to provide continuity in the immediate term for businesses and consumers and ensure that parallel imports of goods, specifically pharmaceuticals, can continue from the EU/EEA.

The UK noted, “Our intention is to convert all currently approved Parallel Distribution Authorizations of Centrally Authorized Products (CAPs) into parallel import licenses. In order to grant parallel import licenses after exit day the MHRA would also require full product information from the source country competent authority in order to verify the safety of the medicine and that the product is essentially the same as the reference product on the UK market.”

However, a new exhaustion regime will need to be enacted in the UK to ensure access to cheaper, more affordable drugs.

Regional exhaustion, known as “the Norwegian model,” is the first avenue the UK could take. Norway is not an EU Member State but rather a part of the EEA, which grants the Scandinavian country access to the European single market. Because of this, Norway is mandated to make a financial contribution and accept EU regulation.

To be like Norway (i.e. to retain similar IP exhaustion rights), the UK would need to remain a member of the EEA. Such a relationship would be the result of a “soft” Brexit, which is beginning to appear less likely due to negotiations. But, UK Prime Minister Theresa May has ruled out EEA membership, believing such a relationship with the EU would contradict her positions on free movement, EU budget contributions, and the CJEU.

A national exhaustion system for drugs is a feasible option for the UK as well; however, this scheme offers stronger protection for trademark owners, as owners could oppose any onward sale of a protected product outside the UK. In short, national exhaustion is extremely restrictive on parallel imports. A national exhaustion system allows trademark holders to enforce their rights globally against parallel importers, and as a result, IP rights owners could possibly prevent the resale of drugs within the UK that were not initially placed on the UK market. Protectionist, national exhaustion could be a barrier to free trade with other countries, driving up UK prices.

Lastly, the UK could enact an international exhaustion policy, which would be the least restrictive path for the Brexiteer. In this way, the UK would be following in the footsteps of Australia, Canada, and the US. Once IP rights owner puts the goods on the market anywhere in the world, the owner is unable to prevent the resale of goods based on IP rights in any other country where international exhaustion is applicable. Behind international exhaustion is the idea that IP rights owners were already rewarded for the initial sale, so the owners should not use their national IP rights to prevent resale.

Opting for international exhaustion would be in accordance with a post-Brexit world in which the UK would embrace global free trade, as such exhaustion offers trademark owners less ability to enforce trademarks against parallel importers.

Despite which way trademark rules sway post-Brexit, pharma has been largely against parallel imports. European medicine prices tend to be set via regulation and “bluff-and-delay” tactics by pharma as the legal lives of patents wheeze a death rattle. Overall, pharmaceutical pricing is an interesting practice, even outside Europe. According to Alliance Life Sciences President Alan Crowther, “you give your worst price to your best customer and your best price to your worst customer.” As such, there are price differences between wealthier markets and those charged in poorer markets.

Parallel importers and resellers benefit from exploiting currency and demand fluctuations to secure lower prices for goods. In this way, although the UK seeks to work with the EMA, it would be a “third-party” member of the EU, and as such, UK currency could depreciate, changing the face of parallel importing to the British Isle. Brexit specialists forecast that the UK could remain a victorious player in pharmaceutical development and regulation, although companies have begun stockpiling drugs.

What should manufacturers do?

Sanofi and Novartis are stockpiling medicines ahead of Brexit, planning for supply-chain disruption in lieu of a no-deal scenario. AstraZeneca too is boosting inventory levels; whereas AZ usually stocks inventory for three months out, the pharma has started stockpiling for 4 months ahead.

Believing Brexit will devastate the NHS and the nation’s health, ABPI has urged the UK to reveal the no-deal Brexit contingency plan to further enable pharma and the NHS to make necessary preparations to avoid drug shortages.

Co-chair of the Brexit Health Alliance Niall Dickson shared his concern over patient access due to drug shortages. Dickson stated, “We may be able to accept delays for some goods crossing borders, but that is simply not acceptable for medicines and other materials on which patients rely every day. Whatever happens in the negotiations, there is an absolute requirement on all those in office to make sure that patients continue to receive the medicines and the treatment they need.”

Even the EMA issued a June warning, suggesting companies need to step up efforts in preparedness for Brexit. And in August 2018, the EMA outlined key priorities for its task force to ensure an adequate supply of medicines.

For manufacturers, distribution chains that pass through the UK should be heavily monitored and perhaps re-imagined to ensure the supply of medicines is not disrupted. Additionally, manufacturers should stay abreast of guidance documents released by the UK, particularly those focused on the possible deals – positive and negative. These details are crucial to understanding trade with the UK in light of its departure from the EU, as regulatory practices and policies will undoubtedly change, seeing as negotiations are still ongoing.

On March 29, 2019, the UK will withdraw from the EU. British conservatives are leaning towards a Norwegian model to ensure access to the European single market, but what will happen after the transitional period is vague.

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