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GSK: given green light to restrict Greek drug supply

Posted on: 20 Sep 06
GSK: given green light to restrict Greek drug supply

Summary

The Hellenic Competition Committee has issued GSK with a favorable decision, indicating that it can restrict the supply of pharmaceuticals to wholesalers to prevent parallel importation of these drugs, without breaking competition laws. This is an important step for legally restricting parallel importation from one of Europe's biggest parallel trade markets, as Datamonitor's Dr Mark Belsey discovers…

In November 2000, Glaxo Wellcome (now GlaxoSmithKline), imposed restrictions on wholesalers' supply of three of its drugs, Imigran (sumatriptan), Lamictal (lamotrigine) and Serevent (salmeterol) in the Greek market. Parallel importation of these drugs was known to take place, whereby these drugs were purchased at a low price in the Greek market and then exported out of the country and into European countries with higher drug prices.


 


Since this cut into GSK's profit margin, the company initially stopped supplying these drugs to wholesalers, instead choosing to directly supply hospitals and pharmacies. Subsequently, the company began to supply these drugs to wholesalers again, but limited its supplies to reflect the quantity that it believed was needed in Greece alone, thereby refusing to meet their orders in full.


 


Maximizing revenues


 


GSK's restrictions prompted Syfait, the Greek association of pharmacists and wholesalers, to file a complaint with the Hellenic Competition Committee in December 2000 about the limited supplies. The Hellenic Competition Committee referred questions to the ECJ in January 2003 based on how and when a dominant company is allowed to refuse to meet wholesalers' orders fully in order to limit parallel trade.


 


Advocate General Jacobs issued a positive opinion on the questions in October 2004, indicating that GSK's conduct in failing to meet orders fully was justified. According to the Advocate General, "restricting the supply of products does not automatically constitute an abuse of a dominant position merely because the dominant undertaking intends to restrict parallel trade." He went on to note that a dominant company "is not obliged to meet orders which are out of the ordinary" and is entitled to take reasonable steps "in order to defend its commercial interests."


 


Despite the positive opinion, which is usually adopted by the European Court of Justice (ECJ), the ECJ referred the case back to the Hellenic Competition Committee in May 2005 without issuing a decision, because the Hellenic Competition Committee was not a court or a tribunal, and because it is not a legal body, it cannot refer questions to the ECJ. This technicality delayed proceedings until September 2006, when the Hellenic Competition Committee followed the Advocate General's opinion and issued a positive opinion.


 


Setting a precedent


 


The Hellenic Competition Committee's opinion means that GSK's restriction on supplying low-priced drugs in Greece did not break competition rules as part of its attempts to limit parallel importation. Parallel importation of drugs out of low-price countries into high-price countries can be very costly for drugs companies, therefore results such as this are viewed as significant victories by Big Pharma.


 


Such victories are key as part of the industry's drive to maintain profit margins in Europe in the face of increasingly cost-conscious European governmental payers. Indeed, restriction of parallel importation is becoming increasingly important in Europe since some countries have begun to institute targets for using a specific percentage of drugs sourced via parallel importation to reduce the cost of pharmaceuticals.


 


Therefore, the emergence of a legal pathway to restrict the practice in Greece - one of Europe's biggest exporters of lower-priced drugs via parallel importation - is likely to prove useful in maintaining profit margins in the future.


 


Related research:


 


Datamonitor

Last updated on: 27/08/2010 11:40:18

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