The term “grey market” refers to the trade in products through distribution channels that are not authorized by the manufacturer or by the IP owner.
Highly regulated prescription medicines are part of this market. When original medications get to consumers through unauthorized distribution channels, this is in fact parallel importation or the gray market.
Are grey market pharmaceuticals legal in the EU?
The trade in medications without the authorization of the drug company for the purpose of exploiting price differences between countries is legal. This means that a legitimate medicine is imported from a lower-priced country and resold to a higher-priced country. Although this practice is widespread, it may undermine R&D and consumers’ health.
Causes for pharmaceuticals gray market
In the EU, one of the most fundamental principles is the principle of free movement of goods across borders. The exception to this principle is the prices of medicines. Medications’ pricing is generally set by national governments, rather than by drug companies.
This issue of prices of medicines is closely connected to the issue of the gray market in pharmaceuticals. Diverting medications out of the legitimate supply chain is usually done because of price differences at the point of sale. The gray market allows people to buy less expensive prescription medications, mostly over the internet.
Although government pricing is a key factor, there are other factors at play, such as exchange-rate fluctuations and national laws. In addition, it may also involve drug shortages and availability issues in different territories.
Pharmaceutical companies oppose parallel importation, but it’s a lucrative business that is still thriving.
How does the market work?
In practice, most fake drugs within the EU are manufactured outside of the EU and bought online, in e-pharmacies that are not strictly legal. They are purchased without prescription, and never enter the main supply chain. A recent report by EUIPO (European Union Intellectual Property Office) and Europol shows that counterfeit pharmaceuticals pose a growing threat to the EU, facilitated by a continuous expansion of unauthorized and unregulated online pharmacies.
As a result of e-commerce of pharmaceuticals, there is an unlimited number of unregulated product entry and exit points.
This is not to say that all online pharmacies are quasi-legal. There are online retailers registered with the relevant national authorities in the EU Member States. This means their imported pharmaceuticals are approved by the local medical authority. To help identify the legally-operating online pharmacies and retailers, the EU has introduced a clickable common logo, see at: https://www.ema.europa.eu/en/human-regulatory/overview/public-health-threats/falsified-medicines/buying-medicines-online.
As for the medications, even when they are bought in the EU, intermediaries must meet national regulations. Some examples include the size of packets, local brand names, and patient leaflets in the local language. After meeting these regulations, they offer the medications for resale.
In the UK, for instance, the National Health Service (NHS) purchases almost all prescription medicines. However, regulated wholesalers and intermediaries can buy medicines from the producers or each other. They then offer competitive pricing, and sell the drugs to pharmacists, who receive a set amount on each product from the NHS and keep the difference as profit. Pharmacies sometimes sell medicines on to others, up to a certain percent of their turnover.
Governments, health insurance services, pharmacies and patients benefit from gray marketing through lower prices. Drug companies, on the other hand, lose profits when their products are disproportionally sold in countries where they make less profit.
This situation is different when availability gaps exist for medications in high demand. In such cases, medications are diverted from the legitimate supply chain to the gray market, where gray market distributors can sell them for inflated price, either directly or through high shipping and handling costs.
EU Falsified Medicines Directive
Starting February 2019, the EU has implemented the Falsified Medicines Directives (FMD), which may affect the business. The FMD requires regulatory compliance regarding serialization of prescription drugs, compliance reporting, and unique identifier for product verification. Manufacturers now must place package protection and a serialized barcode on each package that will be sent to a central European Hub. In addition, each product should be scanned and validated upon being supplied to the public, for identification and verification of authenticity purposes.
Counterfeiters are likely to find new ways to overcome the directive or ignore it altogether, but we have yet to see how and if it affects gray market sellers. For example, they may not comply with the requirements for verification before dispensation, resulting in manufacturers not knowing where and when their medication is dispensed, and consumers not knowing what supply chain was used for the medication they are buying.
Does parallel import of medicines involve health concerns?
Counterfeits may jeopardize patients’ health. As explained, the gray market is not a market of counterfeits. Yet it involves more health concerns than medications offered through the legitimate supply chain.
Sometimes sub-standard drugs enter the legitimate supply chain and gain trust because they came from a highly regulated market. This is more likely to happen in gray markets since sellers don’t comply with the same regulations, products may be resold several times and chain of custody is unclear. As a result, medications may be counterfeits, placebos, or recalled products.
In addition, consumers purchasing from online pharmacies cannot know if the medicines moved through the gray market supply chain with proper care in terms of storage conditions, shipping and handling, or temperature issues, especially when drugs must be refrigerated. This may cause adverse reactions in patients, and medications can lose potency. Other issues include short expiration dates, and errors, such as using the wrong concentration of a medication or a different dosage.
Why Wiser Market for Medications?
Consumers should be educated to have concerns regarding the authenticity of medications. They should require documentation of authenticity, look for the EU logo, or check the manufacturer’s website to see if it contains a list of authorized distributors in order to verify that they are buying from one.
But manufacturers should not rely on consumers alone. We believe in proactive enforcement that includes our PICS solution that allows brand owners to identify the end-sales point of each product. PICS is a plug-and-play solution that can be added to any manufacturing system, packaging process and easily integrated with any SAP/ERP/CRM/MRP system.
We also offer an effective way to combat the online sales of fake drugs and unauthorized sellers. Our advanced monitoring system and team of experts provide full online coverage and end-to-end service that together achieve an exceptionally high success rate in online brand protection.
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