[Pharm-policy] Ganslandt and Maskusy on Sweedish parallel imports

[James Love]

http://spot.colorado.edu/~maskus/papers/piphv212.PDF

Parallel Imports of Pharmaceutical Products in
the European Union
Mattias Ganslandt¤
and
Keith E. Maskusy
Please do not quote without permission.
January 24, 2001

3.1 The Pharmaceutical Market and Parallel Imports
The Swedish pharmaceutical market was approximately 0.8-0.9 percent of GDP
valued at wholesale prices during the period 1995-1998. It ranged from 13.393
million Swedish Kronor (SEK) in 1995 to 16.567 million SEK in 1998, as summarized
in table 1. Sales were relatively concentrated in a number of patented
molecules. The 50 highest-sold molecules accounted for a third of the total market.
In 1998 these 50 top drugs accounted for 37 percent of total sales in the
pharmaceutical market valued at wholesale prices.
Parallel imports have increased substantially since Sweden joined the European
Union, both in terms of actual sales and approvals to engage in the activity.
In 1995 no parallel imports occurred and no applications to import were …led.
By 1998 parallel imports had grown to 1.007 million SEK, which corresponded
to 6 percent of the total market, and 226 approvals to import pharmaceutical
products had been granted by the Medical Products Agency. In 1995 no …rms
entered the market and in 1996 still only one …rm was granted permission to
start parallel trade. However, by 1997 the number had grown to four …rms and
in 1998 the number was ten. The market was nevertheless dominated by a small
number of parallel importers. The largest parallel-importing …rm accounted for
100 percent of total parallel trade in 1996, 85 percent in 1997 and 59 percent in
1998. The four largest companies accounted for 96 percent of all parallel trade


in 1998.
[TABLE 1 ABOUT HERE]
Parallel imports from 13 di¤erent countries had been approved by 1998.
The source of parallel imports was, however, heavily concentrated in a few lowprice
countries in Southern Europe. Two countries, Spain and Italy, were the
exporters in approximately two thirds (63 percent) of all cases. The three most
important export countries, Spain, Italy and Greece, accounted for 74 percent
of all approvals.
In 1998 parallel trade accounted for 6 percent of the total pharmaceutical
market in Sweden, which was mainly concentrated in the largest products. Sixteen
percent of the sales of the top 50 molecules was parallel imports, but the
distribution of parallel trade as a share of total sales for these 50 molecules was
not equal. Measured on a unweighted product basis the median share of parallel
trade was 0.0 percent and the maximum 72.1 percent. Parallel imports existed
in approximately 15 percent of all products. Ranking products from lowest to
highest parallel-import shares, at the 95th percentile such imports accounted
for 53.6 percent of total sales.
A similar picture appears for approvals on a product basis. Approvals to
parallel import drugs into Sweden in 1998 were concentrated in a few highvalue
products. For 68.3 percent of all products on the top 50 list no entry of a
parallel-importing …rm had occurred. More than one approval had been granted
for 21.9 percent of products.6
To summarize this overview we conclude that our sample covers approximately
38 percent of the pharmaceutical market in Sweden. The growth of parallel
imports from 1995 to 1998 was considerable and such imports accounted
for 16 percent of sales in 1998. A large and rapidly growing number of parallelimporting
…rms entered the market, in some cases to sell the same products
as other …rms already present. Overall, sales are largely accounted for by four
major parallel importers. Parallel trade is concentrated in a minority of the
products in the sample but the share of parallel imports is considerable for approximately
15 percent of the top-value products. Italy and Spain are the source
countries for 63 percent of parallel imports.
\3.2 Price e¤ects in the Import Market
Next, consider the e¤ect of parallel imports in the Swedish market. We start
with a comparison between products which are subject to parallel imports and
products which are not. For this purpose we calculate the relative price change
for a speci…c product between a base year (1994 or 1997) and 1998. The relative
price change is de…ned as the price in SEK in 1998 divided by the corresponding
price in the base year minus one. We calculate the change for the average price
including parallel imports, referred to as the ”Mean incl. PI”, as well as the
change for the manufacturing …rms’ prices.
Table 2 reports the unweighted and weighted average price changes for all
products. The unweighted average is a simple arithmetic mean. In the weighted
average, however, product weights are computed as the product’s sales in 1998
divided by the sum of sales for all products included in the average.
[TABLE 2 ABOUT HERE]
Our discussion will primarily focus on the unweighted average. Over the
whole period 1994-1998 prices increased on average 6.64 percent for all products
and manufacturing …rms’ prices increased somewhat more at 7.34 percent. On
average prices for products subject to parallel imports increased 2.88 percent
while manufacturers raised their prices 6.38 percent for these products. As a
contrast, prices for products not subject to parallel trade rose 7.57 percent.
The di¤erence was even more pronounced over the shorter period 1997-
1998. Average prices increased 0.25 percent. Average manufacturing …rms’
prices declined 0.34 percent for products subject to parallel trade but rose 0.95
for products not subject to parallel imports. Prices of parallel-imported products
fell on average by 3.12 percent.
This …rst overview seems to con…rm that prices of parallel-traded products,
and products facing such actual competition, fell in the import market relative
to the prices of products not subject to parallel trade. The main e¤ect, approximately
three quarters of the fall, results from parallel trade itself while the
remaining e¤ect is the change in manufacturing …rms’ prices.

-- 
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
http://www.cptech.org, mailto:love@cptech.org
voice: 1.202.387.8030 fax 1.202.234.5176 mobile 1.202.361.3040