The Pricing of Pharmaceuticals facing Grey Imports - PowerPoint PPT Presentation

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The Pricing of Pharmaceuticals facing Grey Imports

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Title: pharmaceuticals pricing Author: Claude Crampes Last modified by: Edwige Sauve Created Date: 11/13/2002 2:41:23 PM Document presentation format – PowerPoint PPT presentation

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Title: The Pricing of Pharmaceuticals facing Grey Imports


1
The Pricing of Pharmaceuticals facing Grey
Imports
Toulouse, December 2003 Claude Crampes - Abraham
Hollander
2
Outline
  1. What are parallel imports?
  2. A normative approach for pharmaceuticals
  3. Implementation

3
1. What are parallel imports?
Austria
sunglasses exports
discount chain
Silhouette International
The Silhouette case
Bulgaria
retailer
broker
parallel imports
European Court of Justice, Case C-355/96, 1998
4
Parallel imports are grey
  • Not imports of black products
  • no piracy, no counterfeiting genuine products
  • not forbidden products
  • Not totally white
  • re-imported against the will of the manufacturer
    and/or of retailers
  • IP infringement is controversial

5
Economic and legal literature on grey imports
  • Legal literature
  • focus on the exhaustion of IPRs
  • balancing the utility of local consumers and the
    profit of domestic producers
  • Economic literature
  • focus on models of competition
  • for drugs, unique normative tentative Danzon
    (2001), but assumes that grey imports can be
    banned

6
Economic rationale of parallel trade
  • Price arbitrage
  • Free riding on other agents promotional effort
  • Unauthorized outside sales by retailers
  • Discrimination within a single market
  • Differences in regulatory regimes

7
Additional arguments for pharmaceuticals
  • Big pharmas need high profits to recoup huge RD
    costs
  • Price discrimination among geographical zones
    allows high profits without impairing access to
    drugs in low-income countries
  • There are high potential gains from arbitrage.
    The Internet-drug-trade from Canada towards USA
    is estimated at 1b/year.

8
2. A normative approach for pharmaceuticals
  • Obvious need for a global approach
  • Before experimenting alternative policies, we
    need a global view of
  • what is feasible?
  • what is desirable?
  • what is the resulting second best?

9
Model setting
  • Two products i D, H
  • Two countries j A, E
  • Demand functions

10
Model setting (cont'd)
  • Net consumers' surplus in country j
  • Net profit of firm i

11
The problem
  • Characterize the pricing policy that solves
  • under alternative set of constraints

12
separate budget constraints



_
_

_


_


13
budget pooling



_


_





14
3. Implementation
  • Extra charge for health services in rich
    countries
  • Taxes
  • Bundling

15
Extra charge for health services in rich countries
16
Taxes
  • finance pharmaceutical labs by taxes under the
    constraint that they supply drugs worldwide at
    marginal cost
  • on average, it is less easy to do arbitrage on
    the domestic gross revenue of rich countries than
    on their consumption of drugs
  • the taxation solution does not require drastic
    institutional reforms.

17
Local bundling in A
  • in Africa, H and D cannot be sold separately
  • alleviates the former extra charge for H in E

18
Local bundling in A and in E
  • does not eliminate arbitrage but potential
    profits from arbitrage are lower

19
Conclusion
  • without some form of pooling or bundling, empty
    feasible set is most likely
  • need for radical changes in pricing policy
  • mixing tools
  • use the "Global Fund" for H in A
  • no sale of D without H
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