British Association of European Pharmaceutical Distributors and Another, R v Secretary of State for Health
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE THOMAS |
| Judgment Date | 14 March 2001 |
| Neutral Citation | [2001] EWHC 183 (Admin) |
| Date | 14 March 2001 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/4132/1999 |
[2001] EWHC 183 (Admin)
IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT
QUEENS BENCH DIVISION
Civil Justice Centre
Chester
The Honourable Mr Justice Thomas
Case No: CO/4132/1999
Nicholas Green QC, Mark Hoskins and Colin West (instructed by Roiter Zucker) for the Applicants
Philip Sales and Jason Coppel (instructed by the Solicitor to the Dept. of Health) for the Respondent
David Anderson QC and Alan Griffiths (instructed by CMS Cameron McKenna) for the Party Directly Affected
I: INTRODUCTION
There is before the court an application by the Association of Pharmaceutical Importers (API) (now known as the British Association of European Pharmaceutical Distributors) and one of their members, Dowelhurst Limited, against the Secretary of State for Health (the Department) seeking relief in respect of certain provisions of Pharmaceutical Price Regulation Scheme made in July 1999 (the PPRS) which they contend are contrary to provisions of community law, Articles 28EC (formerly Article 30) and 81EC (formerly Article 85).
The PPRS is a voluntary scheme agreed between the Department and the Association of the British Pharmaceutical Industry (ABPI) to achieve a price reduction and regulate the profits made from pharmaceutical products purchased by the National Health Service. It will be necessary to set out the details of the PPRS in due course, but it is more convenient first of all to explain in outline the operation of the market in pharmaceuticals, as it appeared from the evidence.
The API is the representative body for parallel importers of pharmaceuticals into the UK; out of the 16 companies licensed to bring parallel imports of pharmaceuticals into the UK 14 are members of the API and one is in the process of joining; Dowelhurst is one of the largest.
The market in pharmaceutical products
On the evidence before the court, there was little dispute about the operation of the market in pharmaceutical products in the United Kingdom.
The dominant purchaser in the market is the Department which through the National Health Service (NHS) spends approximately £7bn on medicines each year. It does not have, however, the power of a dominant or almost monopoly purchaser to force down prices through the ordinary operation of a market. Although the Department pays for the purchase made by the NHS and can be described as "a monopoly payer" (a description put forward by the Department), the decision to initiate the purchase of individual products is made by individual medical practitioners in response to the needs and demands of the ultimate consumer, the patient. Doctors who respond to the therapeutic needs of patients are only affected to a limited extent by price; although the Department has made extensive efforts to make available information about pricing to medical practitioners and introduced schemes such as Primary Care Groups and established the National Institute for Clinical Excellence, the evidence is clear that, because therapeutic need must be the major determinant in prescribing a pharmaceutical, there is more limited sensitivity to price. Thus the operation of the relationship between buyer and seller in this market is very different to an ordinary market.
The second characteristic of the market is the nature of the product. There are three distinct categories:
i) Branded products protected by patents where there is no therapeutic interchangeability:
At any one time there are on the market products protected by a patent where there is no therapeutic alternative.
ii) Branded products protected by a patent where there is a therapeutic interchangeability –
There are also on the market at any one time many instances where two or more products objectively can perform the same therapeutic function; they are referred to as branded products within the same therapeutic class. These products therefore compete against each other. However the competition is limited by the fact that such products may not be interchangeable in respect of a particular patient. The different chemical or molecular composition of pharmaceutical products within the same therapeutic class may affect individual patients in different ways, in particular as regards their side effects. Moreover medical practitioners, if persuaded of the particular value of a branded product, may be reluctant to use another branded product within the same therapeutic class, because of the risks of different side effects.
iii) Branded products not protected by patents where there is competition from generics
When a pharmaceutical product loses its patent protection or its supplementary protection certificate, other manufacturers will generally (save where the market is very small) produce identical copies of the product. These are then marketed in direct competition with the branded product which no longer has patent protection. These products, known as "generics", are sold at a price generally far below that which the product enjoyed when it was protected by a patent; the manufacturer of a generic will have no research costs and very low development costs. The holder of the patent must therefore drop the price dramatically at about the time it loses the protection of the patent, if it wishes to maintain a sufficient volume of sales; it is not usually necessary for the manufacturer to drop the price to the level at which the generic is sold, as the value inherent in the brand will generally enable the branded product to command a premium. Where there are generic alternatives, there is strong and effective competition.
The market also has a high degree of opacity; each manufacturers' pricing policy is commercially confidential. Many of the manufacturers of branded products supplied to the NHS operate on a transnational basis and manufacture products in the UK and overseas; a significant proportion of products supplied by these companies are therefore imported.
Government intervention in the market
The characteristics of the market in other developed countries, apart from the United States where there is much less state funded health care, are similar. Because of these characteristics, governments intervene in the market to control the price of prescription medicines. The governments of the EU use one or more of the three following methods:
i) In 9 out of the 15 EU Member States, the government controls the price of prescription medicines directly. It sets the price either by negotiation or by reference to prices charged in other countries.
ii) Most of the other EU member governments intervene in the markets by setting a price for a group of products which the government considers interchangeable; this is known as reference pricing and the price set becomes the maximum price which will be reimbursed by the government.
iii) The government of the UK intervenes primarily by controlling the profits of pharmaceutical manufacturers. This policy is implemented by the Department. It is described by the Department as "relatively light touch regulation" as it seeks to influence the market less than rigid price fixing. It will be necessary to describe this in more detail.
The market has been the subject of EU action. For example, the Transparency Directive, 1989/105/EEC, on transparency in governmental drugs pricing regimes (the recital to which emphasises the inadequacy of competition in the market) specifies a number of requirements intended to ensure that action taken by Member States to control pharmaceutical prices does not infringe provisions of Community law relating to the importation of goods; they are required to publish certain information.
The parallel trade
Although parallel trade is a feature of several markets, it has become important in the market in the EU in pharmaceuticals because of the wide differential in the price paid or reimbursed for the same branded product between some states and other states. This differential has arisen as a result of the different policies to which I have referred. It is, therefore, profitable for traders to import branded products from a state where the price is low to a state where the prevailing price is higher. This is particularly the case where in some southern EU Member States the price fixed by the state is much lower than the prices at which products are marketed by the manufacturer in the UK. A parallel importer will identify such products, seek a licence and then import them into the UK, making the necessary changes to the labelling and instructions which UK regulations require.
The major category of pharmaceutical product against which parallel imports are made are branded pharmaceuticals still subject to patent protection where there is no therapeutic alternative. Parallel imports provide the only competition in such cases.
There have been other factors which have made parallel importing attractive. First, the recent strength of Sterling relative to the Euro has increased price differentials. Secondly the system for reimbursing pharmacists encourages them to find the cheapest source of supply, as they are reimbursed on the basis of scales reflecting average prices and discounts; if a pharmacist can purchase at prices below the scale, he is entitled to keep the balance.
The evidence before the Court was that in 1994, parallel imports represented 3% of the market; by 1998, their share had risen to 7%. There was a 226% rise in the...
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