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**NEW LSE STUDY CONTRADICTS ACCEPTED BENEFITS OF EU PHARMACEUTICAL
PARALLEL TRADE**

*Study Demonstrates No Direct Savings to Patients, Majority of Benefits
Accrue to Parallel Traders*

*London, UK, 25 November 2003*: A new study from the London School of
Economics and Political Science, launched today, challenges the accepted
view that pharmaceutical parallel trade benefits healthcare stakeholders
and patients through opening up medicine provision and lowering costs.

The study, which analysed the impact of cross-border brand-name
prescription medicine trade within the European Union, suggests that
although the overall number of parallel imports is continuing to
increase, healthcare stakeholders are realizing few of the expected
savings. Further, the study demonstrates that profits from parallel
imports accrue mostly to the benefit of the third-party companies that
buy and resell these medicines. Coming as most EU countries have
introduced legislation to encourage the use of parallel-imported
medicines, the study provides essential reading for all involved in the
debate, from the consumer to Government.

The LSE study's key objective was to provide a basis for assessing the
relative future healthcare and industrial policy implications of
parallel imports, with particular consideration for the fundamental
principle of free movement of goods within the European Union. Parallel
trade refers to the practice of importing brand-name pharmaceuticals
from other EU countries, whose governments have set relatively low
prices for innovative new medicines. Pharmaceutical parallel trade is
thus the result of national price setting in the EU and the free
movement of goods. A key driver behind the study was the lack of
official data on pharmaceutical parallel imports or exports from the
majority of EU countries, making informed debate on the pros and cons of
the practice impossible.

Parallel trade of prescription medicines has to date been justified by
several key and widely-supported economic hypotheses, summarised as
follows by the LSE team:

1.  Cross-country effect: Parallel trade leads to price equalisation
    across countries -- 'arbitrage' leading to more efficient market
    operation

2.  Destination country effect: Increased price competition in
    destination countries reduces overall pharmaceutical prices,
    benefiting payers and patients

3.  Aggregate welfare effects: If price competition is the result of
    parallel trade, then the resulting price convergence may lead to
    overall welfare improvements for payers

4.  Patient benefits: Patient access to innovative medicines is
    improved, with lower direct and indirect costs

5.  Industry impact: Parallel trade has minimal impact on the
    pharmaceutical industry as a whole, in terms of profitability and
    potential to innovate, and indeed, improves overall industry
    efficiency

Top-line results of the LSE study, which was part-funded by Johnson &
Johnson, has now provided concrete evidence to refute all of these
hypotheses. The study demonstrated clearly that the vast majority of
benefits from parallel trade accrue directly to parallel importers,
where gross profits and revenues accrue over time in line with higher
penetration rates. Taking the same sample of products across all study
countries it is shown that parallel imports for 2002 sales to the 6
major destination countries accounted for only 0.3-2% of national
medicine budgets, representing a total saving of just €43.1 million (or
€99.2 million if the clawback is included) over locally developed and
manufactured products. In contrast, the parallel importers who bought
these same medicines from across the EU, made profits of €622 million.
In the UK, the NHS saved €55.9 million (if the clawback is included), or
2.4% of the medicines budget from parallel imports in 2002, versus a
mark-up of 49% and profits of €469 million made by the parallel
importers who sold these products.

Dr Panos Kanavos, lecturer in international health policy at LSE, said:
"The study clearly makes the case for urgent further debate before any
additional legislation in support of parallel trade is passed, at EU or
country level. There is no evidence of sustainable dynamic price
competition in destination countries, with no corresponding indirect
cost savings. The supposed benefits of this system need to be reviewed."

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Key study findings were outlined today at an event in the British
Medical Association, London. The study is currently undergoing peer
review and will become available in due course on the LSE website.

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-Ends-

For more information contact Ranbir Sahota or Tristan Jervis, Ruder
Finn, <rsahota@ruderfinn.co.uk>, <tjervis@ruderfinn.co.uk>, + 44 20 7462
8900.

**Methodology**

The LSE research team used the IMS pharmaceutical sales database to
track the sources, acquisition costs and sales of specific medicines in
the European Union. Research focused on the sales of nineteen high
volume medicines from six major drug classes over the period 1997--2002,
including 3 widely-prescribed types of heart medicines -- statins, ACE I
and ACE II inhibitors; the newest and best selling categories of
gastrointestinal and anti-depression treatments -- proton pump and
selective serotonin reuptake inhibitors respectively; and atypical
anti-psychotic agents.

EU destination countries were considered as Denmark, Germany, the
Netherlands, Norway, Sweden and the UK; EU source countries were
considered as including all member states other than the destination
country examined at the time.

**About LSE**

The London School of Economics and Political Science (LSE) is the
world\'s leading social science institution for teaching and research. A
'laboratory of the social sciences', the School\'s academic profile
spans a wide range of disciplines, from Economics, International
Relations, Government and Law, to Sociology, Information Systems, and
Accounting and Finance. Teaching and research are conducted through 18
departments and more than 30 Research Centres and Institutes. LSE has
nearly 7,000 full-time students and around 750 part-time students. Since
its foundation in 1895, LSE has maintained high levels of scholarly
achievement. LSE was ranked second after Cambridge for the quality of
its research in the most recent Research Assessment Exercise of UK
universities. LSE submitted 97 per cent of its staff for assessment,
more than any other UK university.