COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 25.11.1998 
COM(1998) 588 final 
COMMUNICATION FROM THE COMMISSION 
on the Single Market in Pharmaceuticals 

Commission Communication 
on the Single Market in Pharmaceuticals 
Chapter 1 - Introduction 1 
The pharmaceutical industry in Europe 2 
The European pharmaceutical market 3 
The pricing of pharmaceuticals, free movement and parallel trade 4 
Legal context 5 
Progress towards a Single Market in Pharmaceuticals 5 
• Medicines licensing 6 
• Intellectual property 6 
• European Monetary Union 6 
• Access to third country markets 7 
The uncompleted agenda 7 
The Frankfurt Round Tables 8 
The Council's Conclusions 9 
Chapter 2 - Approaches and specific measures 10 
Possible approaches 10 
• Status-quo 10 
• Full integration 10 
• Middle way 11 
Specific mcasu res 11 
• Relaxation of price controls and the development of effective competition 12 
• Contractual policy 13 
• Profit control 14 
• De-listing and greater patient co-payment for certain products 14 
• Reference pricing 14 
• Encouraging generic competition 15 
• Involvement of prescribers 15 
• Access to market 15 
• Market transparency 16 
Electronic commerce and information to patients 16 
Enlargement 17 
Chapter 3 - Conclusion : Looking forward 18 
Annexes 20 
A 
Chapter 1 
INTRODUCTION 
In its 1994 Communication on the outlines of an industrial policy for the pharmaceutical sector 
in the European Community (COM(93)718 of 2 March 1994), the Commission expressed 
concerns that part of the pharmaceutical industry in the European Union may be losing global 
competitiveness, with consequent economic and social cost for Europe. In their responses to 
this Communication, both the European Parliament (Resolution of 16 April 1996) and the 
Council (Resolution of 23 April 1996) have stressed the importance of completing the internal 
market and establishing a stable and predictable environment in order to protect the health of 
patients, to ensure rapid access to the market and to encourage therapeutic innovation. 
In the meantime, several of the key actions identified in the 1994 Communication have been 
accomplished : the new Community procedures for the authorisation and supervision of 
medicinal products are fully operational, the ability to patent innovations in the field of 
biotechnology has been introduced, and some remarkable breakthroughs have been achieved 
in facilitating access to third country markets with the conclusion of the first phase of ICH (the 
International Conference on Harmonisation) and the signature of mutual recognition 
agreements with Canada and the United States. 
There are encouraging signs that the action undertaken was necessary. After a late start, 
Europe's pharmaceutical biotechnology sector is now growing fast, although not so fast as its 
US counterpart. Employment in the European industry had been increasing by an average of 
2,4 % a year for 20 continuous years, when this trend was abruptly interrupted in 1994 (13,500 
jobs - 2,6% of total employment - were lost in that year); since 1996, employment has been is 
growing but, by 1997, it had not yet reached the level that had been attained in 1994. 
Further steps are needed. The purpose of this Communication is to address the operation of 
the pharmaceutical market in the European Union. It is intended to contribute to - and to take 
forward - policy development in this area in the light of recent "Round Table" discussions 
between the Member States, the pharmaceutical industry and the Commission services on the 
completion of the Single Market in Pharmaceuticals and of the recent Council Conclusions on 
the operation of the Single Market in Pharmaceuticals, agreed in the Internal Market Council in 
May 1998. 
The completion of the internal market is the single most important step needed to make 
Europe a more attractive R&D investment location, but it is not the only one. Action will have 
to be taken in parallel to address various other factors shaping the overall climate in which 
research and innovation take place, such as : access to venture capital; public funding of 
research; programmes to exploit synergies between the academia and industry or between basic 
and applied research; public understanding and acceptance of new technologies, including 
biotechnology and gene therapy. These matters are not addressed in this Communication, 
which is concentrating on the challenge of completing the Single Market in pharmaceuticals. 
The purpose of the completion of the Single Market in pharmaceuticals is not just to provide 
an environment which is favourable for pharmaceutical innovation and industrial development, 
it is also to improve consumer choices in pharmaceuticals of the required quality, safety and 
efficacy, at affordable cost. It must be clear that these policy orientations have to lead up to 
improvements in the provision of healthcare for all citizens. This has to be kept in mind at all 
U-
times, when policies are designed, recommended and implemented in this field, and a difficult 
balance has to be drawn between potentially conflicting objectives. 
Issues relating to pharmaceuticals need also to be seen in the wider context of public health 
and of efforts to modernise and improve health systems. With increasing pressure on health 
systems, the Commission is already contributing to work to improve their efficiency, cost-
effectiveness and quality. Details of this contribution are set out in the Commission 
Communication on modernising and improving social protection in the European Union 
COM(97)102.. The Commission's ongoing work on a future Community public health policy is 
also of particular relevance to the sector. The first strand of action proposed - improving 
information for the development of public health - aims to provide a comprehensive health 
information system and infrastructure for policy analysis and development. This could be used 
to examine issues such as patterns for prescribing pharmaceuticals, the cost effectiveness of 
both existing and new pharmaceuticals and the impact of other policies on the sector. The 
Commission expects to present concrete proposals for this new policy early in 1999. In 
addressing some specifics of the operation of the Single Market in pharmaceuticals, it is 
important, therefore, to see this Communication within the context of wider work that the 
Commission is taking forward in this area. 
The efforts undertaken for the completion of the Single Market in pharmaceuticals must take 
into account the particular features of this sector : a research-based global for-profit industry; 
the traditional functions of demand split between the patient, the prescribing doctor and social 
security institutions meeting most of the cost as third-party payers; little private market 
provision; and high consumer expectations that they will have access to the benefits of medical 
advance at affordable cost. These efforts must also be consistent with the principle of 
subsidiarity : Member States have exclusive responsibility in the field of health care; they view 
both the provision of health and its financing as keys to social solidarity; and they have to meet 
public expenditure objectives, notably for the purpose of European Monetary Union. 
There is, however, added value that action at Community level can bring to the economic 
regulation of the pharmaceutical sector, particularly in the context of the Single Market. This 
Communication seeks to set out the totality of the regulatory, social and industrial interests in 
play, in order to ensure that patients and consumers have access to the pharmaceuticals they 
need at affordable cost on the one hand and that appropriate incentives are available for 
innovation and industrial developments on the other. 
The pharmaceutical industry in Europe 
The pharmaceutical industry in Europe is a strong industrial sector which makes a significant 
contribution to Europe's industrial base. In 1997, the trade balance for the European Union 
was some 10M> billion ECU in Europe's favour and over 10 billion ECU was spent in 1997 on 
research and development in the European Union, representing a three fold increase over.the 
previous 10 years. Over 87 billion ECU worth of products left factories in the EU in 1997, 
representing some 40% of global production. The market value (at ex-factory prices) of the 
European Union pharmaceutical market is just over 62 billion ECU (just under 30% of the 
world market); its retail value now exceeds 90 billion ECU; 56 billion ECU of this retail value 
is accounted for by payments by health care systems. In 1997, the pharmaceutical industry was 
employing some 487,000 people in the European Union, including 71,000 people researching 
and developing pharmaceuticals. In addition to a substantial research and development-based 
sector, the pharmaceutical industry in Europe also has active sectors dealing in generic (i.e. 
patent-expired) and non-prescription ("over-the-counter") sectors. 
Nevertheless, there are concerns, particularly in the global context in which this industry 
operates. The Commission's 1994 Communication on the outlines of an industrial policy for 
the pharmaceutical sector in the European Community (COM(93)718 final) expressed 
concerns that the competitiveness of the European industry appears to be weakening: 20 years 
ago Europe led the way in pharmaceutical research and development; more recently, to judge 
from patent filings at least, Europe has been overtaken by the US. The trend identified in the 
1994 Communication has been confirmed by the latest data. Of the 47 new active substances 
launched on the World market in 1997, 19 (or 40 %) had been discovered and developed in 
Europe; 30 years ago, Europe's share of pharmaceutical discoveries was 65%. On the 
biotechnology side, Europe has made a particularly poor start compared with progress in the 
United States, as was noted in the 1994 Communication. Figures compiled in 1995 on the 
invention and marketing of biotechnology-derived new active substances put the US share at 
76%, Japan's at 14%, and Europe's at 10%. There are however welcome signs that this is 
starting to change. Data based on a total of 770 biotechnology-derived medicines (including 
206 genetically engineered ones) under development at the end of 1995 indicate that 25 % of 
the biopharmaceutical development work is currently located in Europe (63% in the US, 7% in 
Japan); in gene therapy specifically, 22% of the development work is located in Europe (70% 
in the US, 1% in Japan). 
The reasons for which part of the pharmaceutical industry in the European Union appears to be 
losing global competitiveness are no doubt multiple and complex. The European 
pharmaceutical industry registers significantly lower productivity per worker than its US 
counterpart. The overall profitability and the return on capital employed appear to be 
significantly higher in the US than in the European Union, although a proper assessment of the 
extent and nature of these differences faces formidable measurement problems (because of 
transfer pricing, breakdown between pharmaceutical and other activities, etc.). The continued 
differences between the European markets lead to excess costs (such as higher marketing 
costs, higher distribution and administrative costs) and, in some cases, to excess production 
capacity, that could be off-set by a better operating (single) market. 
The European pharmaceutical market 
There are significant differences between the Member States of the European Union both in 
general macro-economic conditions (especially per-capita income and wealth) and in health 
systems. At an aggregate level of income, the majority of Member States lie within +/- 10% of 
the EU average. There are, however, a few Member States with average incomes per capita 
more significantly below the EU average. Incomes in the Applicant countries of Central and 
Eastern Europe are well below the EU average, and significantly below any current Member 
States. 
There are also marked variances in the prevalence and incidence of major diseases, and -
unsurprisingly - in the medical practices and medical treatments that address these diseases. 
Health care systems differ too, as does the share of health care expenditure represented by 
pharmaceuticals across the Member States. In general, there seems to be a well established 
positive link between health care expenditure and incomes; however differences in health care 
expenditure per capita appear to be greater than those in incomes per capita. Higher 
expenditure on health care as a whole can be related to higher expenditure on pharmaceuticals; 
3. 
as this relationship is not perfect, it suggests that the demand for pharmaceuticals does differ 
across Member States. Further, the relationship between incomes and pharmaceutical 
expenditure appears to be weaker than that between income and total health care expenditure -
an indication that other factors are important in determining expenditure. 
Pharmaceutical expenditure within the EU is highly skewed towards a limited number of major 
markets. Hence the two largest (Germany, France) account for just over half the total EU 
market, and the largest four (Germany, France, Italy, United Kingdom) account for nearly 75% 
of the total EU market. 
The nature and extent of use of in-patent, out-of-patent and non-prescription medicines varies 
significantly among Member States. In particular, the use of generic products varies 
considerably between Member States according to how they arrange the financial incentives 
within their health care systems for the supply, distribution and use of generics. 
The cost of pharmaceutical distribution, including wholesale and retail pharmacy distribution 
differ widely among Member States. Together with the variations in the treatment of 
pharmaceuticals under indirect taxation rules, these costs significantly impact on 
pharmaceutical budgets. It would seem that considerable savings could be realised by adapting 
distribution channels to pro-competitive and less costly models. 
The pricing of pharmaceuticals, free movement and parallel trade 
The pharmaceutical market is regulated at a number of levels, in particular through the 
regulatory mechanisms for the Single Market and through action by Member States at national 
level to manage their health care systems. There is a wide diversity in the ways in which 
pharmaceuticals have been regulated within the health care systems in the different Member 
States. 
. There are important differences between Member States, both in levels of prices and in levels 
of consumption (volumes). These differences can be explained by a number of factors, 
including : divergent medical cultures and prescribing patterns, price discrimination by 
pharmaceutical companies to reflect the differences in the ability to pay, and conjunctural 
factors such as inflation and currency fluctuations. One of the factors in these differences 
appears to be the extent to which Member States rely on price control as the main means for 
controlling aggregate costs - or whether a wider range of policies are used (including demand 
controls and efforts to influence prescribing patterns). Because total expenditure on 
pharmaceuticals has both a volume and a price component, relying on price-fixing to control 
expenditure does not necessarily deliver a lower aggregate spend on pharmaceuticals or a 
lower per capita pharmaceutical budget.. 
To the extent that price fixing by Member States results in the establishment of widely 
divergent prices, conflict can exist between the operation of price fixing mechanisms and the 
Single Market. Wholesale intermediaries buy products in lower priced parts of the European 
Union and sell them in higher-priced parts of the Union. In an effectively integrated market, 
the prices of tradable goods tend to converge towards a situation where arbitrage is no longer 
an issue; in this sector, since maximum prices are fixed in many Member States, the price 
convergence pressure on products already in the market will be towards lower prices, at least 
for out-of-patent products. Unless parallel trade can operate dynamically on prices, it creates 
inefficiencies because most, but not all, of the financial benefit accrues to the parallel trader 
rather than to the health care system or patient. However, parallel trade must equally be seen 
4. 
as an important driving force for market integration and, consequently, for achieving the Single 
Market. In as far as the market structure does not provide for the financial benefits of parallel 
trade to be passed on to consumers and taxpayers, this can normally be ensured through 
adequate national measures. 
Parallel trade has also, to an important extent, been stimulated by price differentials created by 
currency fluctuations. European Monetary Union is therefore an important step in reducing the 
risk of price distortions. For those Member States that participate in the Euro, currency 
movements after market launch, and the considerable effect that these fluctuations have had on 
parallel trade, will be a thing of the past. 
Legal context 
Concern about the interaction between European and national regulation of this sector (and 
parallel trade in pharmaceuticals) is not new. There have been a number of cases in the 
European Court of Justice seeking to establish whether price fixing by Member States is 
compatible with the free movement of goods in the European Union. The Court has noted 
that price control systems, although not in themselves contrary to the principle of free 
movement of goods, may nevertheless be so when the prices are fixed at a level such that the 
sale of imported products becomes either impossible or more difficult than that of domestic 
products - see in particular the judgement in Roussel (case C-J8J/82). In its most recent 
statement on these issues, in the judgement in Merck v Primecrown (cases C-267/95 and C-
268/95), the Court noted that "distortions caused by different price legislation in a Member State 
must be remedied by measures taken by the Community authorities and not by the adoption by 
another Member State of measures incompatible with the rules on free movement of goods". In this 
judgement, the Court of Justice also confirmed that a patent holder may not impede the parallel 
importation of his own products from a Member State where the product could not be protected by 
a patent, unless he can prove that he is under a genuine, existing legal obligation to market the 
product in that Member State. 
In a recent judgement {Decker v Caisse de maladie des employés privés, case CI20/95) about 
consumers moving across borders to access health care products, the Court has noted that "aims of 
a purely economic nature cannot justify a barrier to the fundamental principle of the free movement 
of goods", going on to note, however, that "it cannot be excluded that the risk of seriously 
undermining the financial balance of the social security system may constitute an over-riding reason 
in the general interest capable of justifying a barrier of that kind". Taken together, these judgements 
indicate firstly that the fact that pharmaceuticals are used within the health care systems does not 
exempt them from the rules of the Single Market and secondly that companies normally exhaust 
their intellectual property rights at the time when they willingly place products onto any part of the 
pharmaceutical market within the European Union. . 
Progress towards a Single Market in Pharmaceuticals 
Over the past thirty years, there have been a range of developments towards a Single Market in 
pharmaceuticals, focusing on a number of relevant policy areas, in particular medicines 
licensing and the protection of intellectual property. The coming into force of the European 
Monetary Union will contribute to consolidating these developments, whilst the recent 
5. 
successes in the external trade policy will allow European companies to use the Single Market 
as a springboard from which to launch into new third country markets. 
• Medicines licensing 
Since the 1960s, a comprehensive process for ensuring the safety, quality and efficacy of 
pharmaceuticals delivered to the European market has been developed. The provisions 
applicable include a core set of binding legislation and comprehensive guidance to the 
competent authorities and the regulated industry. These texts are brought together in a 
series of volumes entitled The Rules governing medicinal products in the European 
Union, which have recently been made available on the Internet 
(http://dg3.eudra.org/eudralex/index.htm). Current legislative developments include a 
proposal for a Directive on clinical trials and a Proposal for a Regulation on orphan 
medicinal products. Work is in hand to prepare a Proposal for a Directive on starting 
materials and to codify the entire pharmaceutical legislation in one single text. 
In 1995 two new Community procedures where established which now offer fast access to 
the whole of the European market in a single process, relying either on a common central 
evaluation by the European Medicines Evaluation Agency (EMEA) or on mutual 
recognition between Member States. The close collaboration between the Member States, 
the EMEA and the Commission that is a key factor in the success of this new system. 
Through the appropriate use of new information technologies and the pooling of the best 
available expertise provided by the National Agencies, this new system - perhaps the first 
example of an effective "networking administration" - is already setting the international 
benchmark for pharmaceutical evaluation and monitoring (pharmacovigilance). A 
comprehensive evaluation of the operation of the new system will be conducted in the year 
2000; this will in particular provide an opportunity to address the need to speed up the 
decision-making process and to assess the overall contribution of the new procedures to 
the improvement of public health in the Community. 
• Intellectual property 
On the intellectual property side, Europe now has - through legislation that has been 
agreed by the Community institutions - the highest quality provisions for pharmaceuticals 
in the world. To compensate for the fact that it takes a long time to research and develop a 
new product, the pharmaceutical sector has been granted (through supplementary 
protection certificates) the right to extend its market exclusivity beyond the normal 20-
year patent period, up to 15 years of effective protection from the date of first 
authorization in the Community (in the US, the comparable protection is for a maximum 
of 14 years). Legislation agreed this year by the Community institutions has introduced the 
ability to patent innovations in the field of biotechnology, a key field for this sector. The 
licensing process further protects the data used for license applications for 6, or more 
generally 10, years (whereas in the US, for example, such data exclusivity lasts for a 
maximum of 5 years). The Commission will present next year a proposal for a regulation 
to establish a Community patent, valid throughout the Single Market; this should facilitate 
the penetration of market by patented products, because of streamlined procedures. 
• European Monetary Union 
A large part of price divergence in Europe, and more specifically of price instability, is 
attributable to currency fluctuations. Depreciation of some currencies has widened the 
market price gap between some Member States, creating further incentives for parallel 
trade. The advent of the Euro should help to provide a more stable environment in this 
respect, at least for participating Member States. It will however also make price 
differentials in the existing European market much more visible; this could in turn 
stimulate wholesalers and individual pharmacists to engage in cross border business. On 
the supply side, the development of an integrated capital market could reduce costs and 
improve access to funds, especially for innovative SMEs. 
• Access to third country markets 
Technical requirements for the demonstration of the quality, safety and efficacy of a new 
medicinal products have been almost completely harmonised between the European 
Union, Japan and the United States, under the ICH (International Conference on 
Harmonisation). At the Fourth ICH Conference which took place in Brussels in July 1997 
it was therefore decided that the three regions would now seek to agree in the way this 
information should be presented for the purpose of obtaining authorisation to place the 
medicinal product on the market; this would obviously save unnecessary duplication and 
re-working, thus decreasing the time and resources required for submission of regulatory 
documents, ultimately benefiting patients in the three regions and in the rest of the World. 
In the area of manufacturing, Mutual Recognition Agreements have been concluded with 
Canada, the United States, Australia and New-Zealand; they will allow substantial savings 
for manufacturers and, ultimately, for consumers and social security institutions, as 
inspections and batch controls are no longer duplicated with no benefit in terms of quality 
or safety. Similar arrangements are currently being negotiated with Switzerland and Japan. 
The effort will henceforth concentrate on the implementation of these agreements, on 
resolving the remaining trade barriers with some of the major partners (such as the 
problem of the acceptance of foreign data in Japan), and on improving access to the 
emerging markets of East Asia and Latin America. 
The uncompleted agenda 
As already indicated, there are several areas which deserve further attention : improving access 
to risk capital, especially for start up companies; providing better links between basic and 
applied research; monitoring the trend for large companies to link up or merge; eliminating the 
remaining barriers to entry in the main third country markets. But the operation of the Single 
Market in pharmaceuticals remains the single most important of the uncompleted parts of the 
agenda for establishing the European Union as a firm base for pharmaceutical innovation and 
sustainable industrial development. 
Whilst it is clear that the responsibility for the funding, management and organisation of the 
health care systems is one that is firmly within Member State competence, there are aspects to 
the operation of these systems that relate to a wider European Union agenda, notably in 
respect of the contribution that free movement of goods makes towards the creation of the 
Single Market. 
Of wider relevance still is an industrial policy concern that some of the mechanisms by which 
the financial viability of the health care systems is assured may unnecessarily distort the 
operation of the market leading to a reduction in the competitiveness of this sector in a global 
context. The key remaining issues relating to the completion of the Single Market in 
pharmaceuticals are thus largely ones within Member States' competence. Member States and 
the Commission have a primary concern with the improvement of public health and with 
ensuring that patients and consumers have wide access to pharmaceuticals at affordable cost; 
these priorities have in turn to be reconciled with public expenditure objectives. Measures 
adopted for the completion of the Single Market must therefore be consistent with the 
principle of subsidiarity. Solutions will be found largely within the health care systems which 
are - and are set to remain - widely divergent. 
The Frankfurt Round Tables 
In order, therefore, to initiate a tripartite dialogue about solutions between Member States, 
industrial interests and the Commission, Commissioner Bangemann convened the Frankfurt 
Round Tables on the Completion of the Single Market in Pharmaceuticals. 
The first Round Table took place in December 1996; the second a year later. A wide range of 
interested parties have attended these events, including representatives from the Member 
States, the European Parliament, the full range of industrial interests both within the 
pharmaceutical industry and in related sectors such as the wholesalers. 
The proceedings of the Round Tables - and the reports of two Working' Groups that met in 
1997 to prepare the second Round Table discussions - have been published, and are available 
on the Internet (http://dg3.eudra.org/frankf/index.htm). 
Whilst not necessarily reflecting the views of Community institutions, the Frankfurt Round 
Table process has identified that there are a range of pressures that are growing in this sector 
and that act as factors towards change. These are in particular: 
• The amount of money that Member States are spending on health care in general (and 
pharmaceuticals in particular) has been rising at a rate that is faster than the growth in their 
economies. At the same time, most Member State governments have been seeking to 
restrain government expenditure to meet the requirements for entry into European 
Monetary Union. The need for such fiscal discipline will continue with the Euro. 
Relaxation of price controls - particularly on in-patent products in countries with high 
volume consumption could create difficulties in controlling aggregate expenditure on 
pharmaceuticals. 
• The product pipelines of the research-based industry are delivering a steady stream of new 
products into the market. The recent Council Conclusions on the Single Market in 
Pharmaceuticals, agreed at the Internal Market Council in May 1998, note that the prices 
of new pharmaceuticals should be related to "the therapeutic interest and cost 
effectiveness" of the specific innovation. Nevertheless, the available means of determining 
the "value-added" of a specific new product, particularly at market launch, are 
acknowledged to be relatively unsophisticated and demonstrate the usefulness of 
developing such mechanisms further in the near future. 
• There are observable delays in new products reaching some parts of the European market 
after they have received marketing authorization; the pharmaceutical industry has recently 
claimed that products are entering certain parts of the European market up to 3 years after 
other parts. The reasons for these delays are unclear (although they may in part be found 
in the increasing amount of negotiation about pharmaceutical expenditure) and are hard to 
explain in the light of the specifications in the Transparency Directive (Council Directive 
89/105/CEE of 21 December 1989) that pricing and reimbursement decisions should take a 
maximum of 180 days. A re-evaluation of the content of this Directive - which was always 
8. 
intended as a provisional measure - may be becoming timely so that it can take into 
account new developments in this field. 
• There are concerns expressed in some industry circles that the returns for new, patented 
products in Europe are starting to look comparatively unattractive in a global context. 
Conversely, the Member States are concerned that, unless savings can be made elsewhere 
within existing expenditure in the pharmaceutical sector or elsewhere in the healthcare 
system, the entry of new products onto the market represents additional calls on health 
budgets. 
• The forthcoming enlargement of the European Union brings with it the prospect of a 
considerably larger market for pharmaceuticals - and the potential for a considerably 
increased generics industry. However, the average per capita income in the countries of 
Central and Eastern Europe is considerably lower than the average in the current Member 
States and raises therefore the question of how patients are to have access to affordable 
pharmaceuticals at prices which are realistic in the Single Market context: 
The Council's Conclusions 
In response to the Round Table discussions, and as a contribution to the process, the Council 
considered the Single Market in Pharmaceuticals in Conclusions that were agreed in the 
Internal Market Council on 18th May 1998. This was the first time that the Council has 
discussed the tensions at the heart of the Single Market in Pharmaceuticals. In its Conclusions, 
the Council invites the Commission to bring forward a Communication on these issues, but 
stresses the importance of "maintaining the established competencies between Member States 
and the Commission in particular with respect to ensuring the availability of health care to 
citizens and improving the effectiveness of the single market. The Council considers that 
Community policy should address the need to: 
ensure the effective further improvement in the operation of the Single Market in this 
sector based on the principles of free movement and compétition; 
facilitate the delivery of health care in Member States at levels which are affordable and in 
ways which maximise as far as possible, patient access to medicines; 
recognise Member States' need to adopt economic measures to control the total costs of 
pharmaceutical expenditure; 
maintain the regulation n of the pharmaceutical sector to ensure the safety, quality and 
efficacy of medicines; and 
strengthen the competitiveness of the European pharmaceutical industry, in particular by 
encouraging research and development which is required for therapeutic improvement and 
cost-effectiveness." 
The Council considers "that the development of the single market requires Member States to 
take account of European Union dimensions". It therefore invited "the Commission to address 
in its Communication how best to accommodate the requirements set out (...) above in ways 
consistent with Community rules". The Council further considers "that developments in 
Community policy should take account, in particular, of tensions regarding pharmaceutical 
prices and their convergence, and the divergent patterns of wealth in the Union, which are 
likely to increase with enlargement." 
9. 
Chapter 2 
APPROACHES AND SPECIFIC MEASURES 
The tensions identified in the Round Table process do not lend themselves to easy solutions. 
In particular, Member State health care systems (for which the Member States are - and will 
remain - responsible) are widely divergent, both in their operation and in their proximity to the 
market. 
The Round Tables have identified that one of the drivers of this discussion is the concern on 
the part of the industry about parallel trade. The Round Table dialogue has suggested that - in 
the out-of-patent sector - parallel trade can have positive effects for consumers and national health 
care systems by promoting price competition and thereby reducing prices. At the same time, it is 
reasonable to assume that parallel trade has a dynamic restraining effect, particularly on prices at the 
higher end of the European market; by contributing, therefore, to price competition for in-patent 
products, it can help social security systems to deal with the strong market power of certain 
products. Where parallel trade arises because of distortions caused by different price legislation, 
then the Court has indicated, in the Merck v Primecrown judgement, that remedies must be found 
by the Community authorities. These remedies must be consistent with the basic principle of 
market integration and can therefore not include measures the effect of which is to maintain or 
increase the partitioning of the Common Market along national lines. Consequently, solutions 
must be found which are compatible with the principles of the Single Market, rather than ones 
which would delay its completion. 
Possible approaches 
The Commission has considered various approaches, including the possibility that the current 
situation could be left to develop (Status-quo), a fully integrated approach (Full integration) and a 
middle way consisting in developing the co-operation between Member States and introducing 
normal market mechanisms in market segments which are sufficiently suitable for convergence 
(Staged introduction of market mechanisms). 
• Status-quo 
If the current situation is simply left to develop, there is a distinct risk that this could result in a 
long-term segmentation of the Community pharmaceutical market, requiring important 
monitoring activities on the part of the Commission to observe price differentials (through 
benchmarking), to take action in respect of established breaches of the EC Treaty and of the 
Transparency Directive by Member States, and to continue to apply the competition rules to 
companies seeking to limit parallel trade. Whilst it must be acknowledged that the current 
situation has allowed the European Union to ensure a high level of social protection and of 
health protection to its population, it is unlikely that simply allowing this situation to develop 
will suffice to restore the global competitiveness of the European pharmaceutical industry and 
doubtful whether such monitoring activities are, in themselves, the simplest way to achieve the 
proper functioning of the Single Market. 
• Full integration 
A fully integrated approach would seek to relieve the current tensions by forcing price 
convergence within the Single Market. This would probably require a centralised 
10. 
European pricing procedure or, at least, very efficient co-operation between the Member 
States. Irrespective of whether this would be compatible with the principle of subsidiarity, 
it must be stressed that establishing an appropriate level of price across the Community 
would prove extremely difficult. Low levels would benefit immediate health care 
expenditure objectives (at least in the Member States where prices are currently high), but 
would provoke a steady diminution of Europe's contribution to global pharmaceutical 
R&D investment, leading ultimately to disinvestment from the European economy. High 
levels would reduce access to consumers and payers in those countries where economic 
and social conditions mean that such prices cannot be afforded. 
• Middle way 
The Round Table process has identified an approach to the regulation of this sector which 
distinguishes between the different sectors of the market, notably the market for medicines 
which are available without prescription; the out-of-patent sector; and the in-patent sector 
when the investment in research and development needs to be paid for. Within this 
framework, there are a number of possible options which Member States may wish to use 
in order to relieve the tensions that are growing in this sector. These measures, some of 
which are outlined in the following section, aim at introducing convergence through 
sustained co-operation between Member States and health care services providers. They 
also consist in building in normal market mechanisms whenever they can be left to operate 
without compromising the access to medicines at an affordable cost for all patients and 
consumers, and the Member States' ability to meet public expenditure objectives. The 
common features of these measures is their reliance on market transparency, open 
competition and patient empowerment 
The Commission concurs with the conclusions of the Second Frankfurt Round Table and with 
the Internal Market Council's Conclusions of 18 May 1998 that a centrally administered 
European pricing system for medicines is undesirable and, currently, impracticable Therefore, 
as suggested at the Round Table and as recommended by the Council, the Commission 
considers that there is a potential for advancing the Single Market in ways which recognise the 
differing patterns and pace of development in different segments of the market (non­
prescription, out-of-patent, and in-patent), through the staged introduction of normal market 
mechanisms whenever they can be implemented without compromising the access to medicines 
at an affordable cost for patients and consumers, and the Member States' ability to meet public 
expenditure and health care objectives, while fully recognizing the benefits of the Treaty rules 
on free movement of goods in all these segments.. 
The implications of enlargement should also be considered. Such a balanced approach would 
however facilitate the preparation of enlargement in the pharmaceutical sector, both from an 
economic and public health point of view. 
Specific measures 
The specific measures described here are not mutually exclusive, nor do they represent a 
"blueprint" that might be imposed onto the health care systems in the different Member States. 
Rather, they represent a series of options and devices from which better, less distorting, ways 
of meeting the range of objectives sought in this sector can be developed. Many of the more 
challenging measures are not implementable "over-night" and will take some time to develop 
11. 
and operate effectively. All these possibilities need also to be considered in the context of 
wider efforts to improve the efficiency, quality and cost-effectiveness of health care systems in 
the Member States; indeed without such developments, some of these possibilities, pursued in 
isolation, risk bringing significant drawbacks both to the sound management of health care 
systems and to patient and consumers access to pharmaceuticals at an affordable cost. Most of 
the options discussed below are under the exclusive competence of Member States and it is 
therefore, in accordance with the principle of subsidiarity, for them to consider whether and 
when some of these measures could be introduced within their national health system. 
• Relaxation of price controls and the development of effective competition 
As the Council pointed out in its Conclusions of 18 May 1998, there is a potential for 
advancing the Single Market in ways which recognize the differing patterns and pace of 
development in different sub-sectors of the pharmaceutical market : products which are 
available to patients without medical prescription (and for which reimbursement is, 
normally, not available), out-of-patent products (for which generic competition is possible) 
and in-patent products (in principle, these include the most innovative products). 
Non-prescription products 
The remaining price controls on pharmaceuticals sold without prescription could be 
removed, subject to appropriate accompanying measures to take into account differing 
therapeutic, economic and social circumstances of patients and their need to access a wide 
range of medicines. Consideration could also be given to accompanying measures aiming 
at reinforcing competition in this sector, such as the abolition of resale price maintenance, 
the relaxation of restrictions on the place of sale of non-prescription medicines and the 
relaxation of restrictions on the use of brand names for products switched from 
prescription-only to non-prescription. Such a relaxation, assuming that the market is 
competitive, could reduce marketing costs considerably by allowing companies to benefit 
from the economies of scale and scope that could come from cross-border marketing. 
Out-of patent products 
From an economic point of view, out-of-patent products are far closer than in-patent ones 
to products in normal markets, in which cost-containment can normally be achieved 
through price competition. Consideration could be given to the possibility of removing 
price control in this sector whilst stimulating competitive arrangements for the supply of 
generic products (see below). Clearly, the removal of price controls in this sector would 
require high levels of transparency of information about products. 
In-patent products 
In this sector of the pharmaceutical market, the evidence suggests that greater reliance on 
market mechanisms, and greater levels of price freedom for in-patent products available 
under health care systems, would require mechanisms of market competition able to 
ensure that Member State aggregate expenditure targets are met. Where specific products 
have few or no therapeutic alternatives, they are likely to have considerable market power. 
This is likely to influence the extent to which liberalization can be achieved without 
negative impact for patients and health care systems: liberalization can be expected to 
require much higher levels of price sensitivity on the part of prescribers and careful 
attention to budgeting. This would therefore require an examination of the financial 
incentives within the health care systems and, in particular, whether these incentives 
12. 
increase competition or erode it, and the scope for developing greater price sensitivity on 
the part of prescribers and greater levels of price competition between products within the 
market. Two key points should be noted in this context. 
Firstly, the removal of mechanisms for setting prices should not be considered as a "prior 
requirement" for developing greater competition within this sector. Whilst it is clearly the 
case that this industry competes strongly on innovation, and there are indications that price 
competition may be an increasing factor in the context of pricing decisions at market 
launch, there is relatively little dynamic price competition in this sector once a product has 
been launched onto the market. Without such dynamic competition and in a market with 
little transparency, there is a risk - and some anecdotal evidence in the case of this 
industry - that "market" pricing simply equates to higher prices where the health care 
system pays for brand image. There is scope for developing further the assessment of the 
relative effectiveness of healthcare interventions - often the information that is necessary 
to do this can only be generated once products are in more general use within healthcare 
systems. 
Secondly: Although intellectual property rights legitimately prevent competitor products 
from entering the market during the patent period, they do not somehow "protect" 
products - even those still under patent - from mechanisms that might be developed to 
encourage price competition between products that are legally placed on the market. 
A sustainable solution for the longer term may need not only to reduce the reliance on 
price fixing as the means of meeting budgetary objectives but also to introduce higher 
levels of competition into the market to free up resources to help to pay for new products. 
Allowing for greater price freedom in this sector needs to take into account a range of 
legitimate objectives, including : that Member States need to be able to control how much 
is spent in aggregate on pharmaceuticals; that the R&D expenditure required to create 
innovative products needs an adequate level of profit in the pharmaceutical sector; and 
that patients should have access to pharmaceuticals. Thus, freeing-up this sector will have 
to be balanced with developments to ensure that these other legitimate objectives continue 
to be met or are met better than currently. This suggests in particular that removing price 
controls on all pharmaceuticals would require significantly increased levels of effective 
competition within the market in order to ensure continued control of aggregate 
expenditure : a free market does not imply an unregulated market. 
The public health impact of any relaxation would also need to be taken into account, such 
as the benefits - in terms of advice and protection - that the consumer can gain from 
pharmacists. Reforms in this area need to be set within the wider context of improving 
the efficiency, cost effectiveness and quality of health systems more widely. The 
Commission is contributing to this debate by studying how and where market forces 
within health care systems can help save costs while promoting quality and access for all. 
Contractual policy 
Moving from a mechanism whereby prices are fixed by public authorities to a dialogue 
between public authorities and enterprises could constitute an appropriate method in order 
to reconcile price liberalisation and cost-containment in the health care sector. The 
contractual framework allows for a price negotiation which takes into account the interest 
of both industry and the Member States, in the context of multi-annual commitments 
covering the entire turnover obtained with the pharmaceutical portfolio of the contracting 
13. 
company. Such a contractual policy allows to progress towards pricing freedom by 
exchanging consumption volumes which are not medically justified for greater freedom in 
respect of price determination. Provided that it is in conformity with the Treaty rules on 
free movement of goods and competition, this method, based on the extension beyond 
price fixing of the scope of the discussions to a wider range of subjects (prices/volumes/ 
promotion/R&D spending/priority choices in respect of public health), involving the entire 
pharmaceutical portfolio could allow for the establishment of levels of growth for 
pharmaceutical expenses which are compatible with the increase in the national wealth, the 
epidemiology and the need to meet the cost of major pharmaceutical innovations. 
Profit control 
A profit control policy can produce similar results whilst allowing to the industry to decide 
to launch new products at the price they deem appropriate as long as the profits obtained 
are in line with public health and social protection objectives. Such system is also based 
upon negotiations between interested parties on a level of profit which allows reasonable 
prices, competitive development and sustainable research. For such a policy to be 
acceptable for all, it should distinguish clearly between what belongs to the health service 
and what belongs to the private sector, take into account the capital employed, in 
particular in respect of R&D, as well as promotion expenses. 
De-listing and greater patient co-payment for certain products 
De-listing of certain indications or treatment areas which are considered to be appropriate 
for self-treatment, or moving them to lower reimbursement classes, might help to achieve 
greater cost-consciousness in the use of medicines and thereby contribute to savings in 
reimbursement budgets. Such an effect might be strengthened by a reduction in the 
reimbursement of products of lesser therapeutic evidence. Clearly, a savings effect would 
only arise within an indication-based model of pharmaceutical prescribing whereby 
pharmaceutical treatments for minor illnesses were de-listed from reimbursement; in the 
absence of such a prescribing model, de-listing might simply result in the use of more 
expensive prescription products to treat the same indication. At the same time, 
consideration needs to be given to the widely differing therapeutic, economic and social 
circumstances of patients and in particular their need for access to basic products which 
can help relieve some of the effects of long-term treatments (in particular in cancer and 
AIDS). 
Some consideration is timely of the extent, at the margin, for patients to make greater 
contributions, in certain circumstances, to meeting the costs of prescribed 
pharmaceuticals. In the Commission's view, particular care is needed in any reflections by 
Member States or industry concerning any idea of transferring financial burdens to the 
patient: the principles of social solidarity that underpin the health care systems in the 
Member States are an asset to the European Union and the consumer should expect to 
continue to benefit from such principles. 
Reference pricing 
Setting ceilings or reimbursement levels by therapeutic categories may help containing 
pharmaceutical expenses. Under such systems, social security institutions accept to cover 
or reimburse the cost of pharmaceuticals in a given therapeutic category up to the 
reference price, which is normally fixed against the cheapest products in the category, 
14. 
which are thus fully reimbursed. The difference between the reference price and the actual 
price of any product in the category can be considered as a form of patient co-payment. 
When circumstances allow, reference prices should be preferred to price controls, to the 
extent that they spur, rather than stifle, competition : they encourage companies to bring 
prices in line with the reference prices or justify the higher price requested, and leave it to 
the doctor/patient to choose between a cheaper medicine at no extra cost or a more 
expensive one for which a co-payment will be required. 
Encouraging generic competition 
The Frankfurt Round Tables has identified that a more competitive generic market has an 
important contribution to overall competition in the pharmaceutical sector. Many of the 
measures that are mentioned more generally in this section on specific measures are of 
relevance to the generic sector. However, of particular importance to this sector are: 
• encouraging the prescribing by doctors and the dispensing of generics by pharmacists 
so as to stimulate consumer choice; 
• increasing consumer awareness of the availability of generic medicines; 
• ensuring that the licensing process for generic products operates speedily to ensure that 
consumers have access to lower prices generics as soon as possible after patent 
protection of the original product expires; 
• developing financial mechanisms within the health care systems in ways that favour 
price competition between generic products and originator brands. 
Involvement of presenters 
Greater competition in the pharmaceutical sector requires a higher involvement of 
prescribers which decide, for most of the market, both on whether a product should be 
used and, if so, which product. Mechanisms, such as prescription budgets, together with 
information about the comparative cost of products with the same therapeutic interest, can 
help to increase price sensitivity on the demand side, which is a prerequisite for a more 
competitive pharmaceutical market. 
Access to market 
Steps should be taken to improve the speed with which products access the market after 
they have received their marketing authorizations. This should include an examination -
with a view to taking any appropriate legal steps - of the reasons why licensed products 
are not entering the market until long after the deadlines for pricing and reimbursement 
negotiations stipulated by the Transparency Directive (which imply that pricing and 
reimbursement negotiations should be completed within 180 days). 
There are also reports of long delays in issuing licenses for generic products in some 
Member States. The review of the European licensing system in 2000 provides an 
opportunity to consider the licensing of generic medicines in greater depth and for 
developing the access of generic products to specific health care systems and the demand 
for generic products within those systems. 
15. 
• Market transparency 
The Transparency Committee already provides an appropriate forum for Member States to 
exchange information about, and to discuss, mechanisms that are successfully addressing 
the issues raised by the Single Market in this sector. This discussion could usefully 
address not only the systems for paying for pharmaceuticals but also the systems for 
pharmaceutical distribution. The Transparency Committee also offers the basis for 
promoting greater transparency of pharmaceutical prices (the EudraMat database of 
pharmaceutical prices is now operational). 
There is a need to underpin discussions and policy-making with better empirical data than 
is currently available to the Commission and to national regulators. Benchmarking price 
levels and movements, volumes, margins and discounting arrangements would allow to 
develop useful economic data and analysis for the formulation of future policies and for 
the preparation of Enlargement. 
Work might also be undertaken on how to improve the assessment of relative effectiveness 
of pharmaceuticals and on how to exchange that information between regulators. The 
EMEA and the European Commission Joint Research Center are currently working up a 
pilot project to collate and make available electronically summaries of product 
characteristics and patient leaflets. The Council has itself noted the relative absence of 
reliable data in this area: this may need to be addressed, if necessary by setting out 
requirements for data disclosure in legislation. 
Whilst there is a need for certain market restrictions to safeguard high standards of 
qualitative and professional information in the retail pharmaceutical distribution sector, 
national bans on distance selling of non-prescribed pharmaceuticals could be re-examined 
in the light of the principle of proportionality. When cross-border marketing restrictions 
are combined with remuneration systems that favour the sale of high-cost products, 
competitive pressures in the internal market to offer the best value (in terms of 
price/quality) pharmaceuticals and pharmacy services risk being neutralised. 
Electronic commerce and information to patients 
The pressures for change that have been identified in the Round Table process can be expected 
to fall on all parts of the pharmaceutical sector, not just the pharmaceutical industry itself. 
The pharmacy service in many Member States accounts for over 25% of the final cost 
(excluding taxation) of a pharmaceutical. It may be only a matter of time (and ability to enter 
the market) before new systems for delivering products to the consumer - particularly through 
the increasing possibilities of electronic commerce - cause regulators to consider what savings 
might be made in this part of their expenditure on pharmaceuticals. 
There are two key aspects of the pharmaceutical sector that are likely to be particularly 
affected by development of electronic commerce : the wholesaling of pharmaceuticals (where 
electronic commerce may reinforce the considerable consolidation in the wholesaling function 
currently underway in the European Union), and, where authorised, the sale of pharmaceuticals 
to patients (and the effects on pharmacists). Developments in these area raise the prospect that 
the delivery of prescription medicines could be performed through electronic commerce 
mechanisms at considerably less cost to the health care systems so long as there is no 
detrimental effect on safety: of particular relevance here is the public health implications of 
16. 
global trade in pharmaceuticals in particular where the public health interest requires medical 
supervision of the prescribing and use of a given product. 
A range of more general issues can be expected to be raised by developments in the area of 
electronic commerce. These issues notably include the prospect that advertising legally placed 
on the Internet in the United States (which allows direct to consumer advertising of 
prescription pharmaceuticals) will be accessed in the European Union where such advertising is 
explicitly banned. The issue of direct to consumer advertising needs to be examined in greater 
depth;. The context of such consideration, however, is unlikely to be simply that of 
advertising directly to patient; the wider issue of what information is made available about 
products - especially for the purposes of independent third party assessment of relative 
effectiveness - will also need to be addressed in this context. 
Enlargement 
The issue of the Single Market in pharmaceuticals is being raised with the countries of Central 
and Eastern European in the context of the preparations for Accessions negotiations. A more 
developed dialogue between the current Member States, the applicant countries and the 
pharmaceutical industry is important to ensure that all the interests in this sector can engage 
constructively in the complex set of issues, relating to health policy, industrial policy, 
competition and market policies that the Single Market raises in this sector. In particular, 
there needs to be a thorough consideration of the implications arising from lower abilities to 
pay for pharmaceuticals given that levels of GDP per head in these countries are lower - often 
substantially lower - than the average of the current EU-15. The Commission could, therefore, 
arrange a dedicated discussion conference in 1999 on the pharmaceutical market aspects of 
accession to ensure full understanding of the challenges ahead. 
17. 
Chapter 3 
CONCLUSION : LOOKING FORWARD 
The completion of the Single Market in Pharmaceuticals raises a complex set of issues that do 
not lend themselves to easy solutions. This is an area of direct and central relevance both to 
Europe's industrial base in pharmaceuticals and to the financial viability of the health care 
systems on which the European citizen relies. This Communication has aimed to stimulate 
discussion about these issues with all interested parties. The approaches that are developed as 
a result of these discussions must be developed in full respect of the principles and priorities 
established by the EC Treaty, in a manner consistent with the principle of subsidiarity. 
The Round Table dialogue has, in this respect, been valuable, in particular in identifying factors 
for change but also in establishing a forum to discuss better regulation of this sector. But, to 
be meaningful, that discussion now needs to be taken forward within clearer parameters. The 
third Round Table, in December 1998, provides an opportunity for testing whether the 
interested parties can agree not only on some basic assumptions which will allow this debate to 
move forward constructively but also on a process for handling future discussions. 
The first key question has to be whether the parties to this discussion can agree a set of 
common objectives founded on agreed basic assumptions. Without this, there is little point in 
continuing the process. This Communication confirms the basic principle that pharmaceuticals 
should not be exempted from the Single Market because they are used in health care systems; 
furthermore it notes that the existence of price control systems are not themselves contrary to 
the principle of free movement of goods. Parallel trade acts as an important driving force for 
market integration where there are important differences in prices between Member States. 
These differences must be addressed in a way that is consistent with the principles of the Single 
Market and cannot justify measures the effect of which is to maintain or increase the 
partitioning of the common market along national lines. The aim of ensuring sufficient overall 
revenue to the pharmaceutical industry to allow continued funding of research and 
development has to be considered within the context of Member State responsibilities to 
promote health and treat illness within limited budgets, access at an affordable cost for 
patients and consumers and the principles of the Single Market. 
The Commission has considered various approaches which could be pursued, including the 
possibility that the current situation could be left to develop, subject to adequate monitoring and a 
fully integrated approach . Both these approaches have drawbacks, which have been outlined;. 
There is, however, a middle way consisting in reinforcing co-operation between Member States and 
health care service providers and introducing normal market mechanisms in market segments which 
are sufficiently suitable for convergence, whenever this can be done without compromising the 
access to medicines at an affordable cost for patients and consumers, and the Member States' 
ability to meet public expenditure objectives . A range of specific measures can be considered in 
this context; most of them relate to the exercise of exclusive competence of the Member States. In 
accordance with the principle of subsidiarity, it is therefore for the Member States to decide whether 
these measures could or should be adopted. 
The Round Table meeting in December 1998 could be used to discuss the feasibility of the 
various options identified in this Communication to build the consensus for change - taking 
into account the different segments of the pharmaceutical market, the need to encourage 
competition, and the requirement that Member States must be able to ensure the financing of 
18. 
their health care systems.The specific measures addressed in this Communication are intended 
to serve as the basis for advancing practical solutions. Some of the approaches discussed in this 
Communication are easier than others. The focus now needs to be on achievable 
developments that work in the context of the existing health care systems and the Single 
Market. Policy development by consensus is better than trying to .impose solutions in this area; 
however, the Treaty requires the development and maintenance of a Single Market. 
If the interested parties wish to pursue this agenda within these parameters, the practical next 
steps might be: 
• Discussions between the Commission and the Member States to develop ideas for greater 
reliance on market mechanisms to meet regulatory objectives and to develop increased 
competition in the context of individual national health systems; these discussions should 
complement a dialogue between the Member States and the major stakeholders, including 
patients and consumer associations, to seek to identify ways of addressing these issues 
within their domestic health care systems: these discussions might be given a greater focus 
by the agreement of action plans. The outcome of these discussions, and the action plans, 
might be part of the discussions of future Round Tables. 
• In the light of progress in the above discussions and negotiations, the Commission will 
assess whether the Transparency Directive requires modification. Key parts of that 
assessment would concern the reasons for delays in launching products onto the market 
and consideration of whether the Directive needed updating to take account of evolutions 
in health care systems since the original Directive was agreed. 
• As stated in the Commission Communication on the development of public health policy in 
the European Community COM(l998)230, future work should address and promote co­
operation on the evaluation of the therapeutic value of pharmaceuticals, in particular in 
comparison to alternatives, as well as the systematic collection and analysis of data on the 
utilization of data and brands, especially prescription and consumption patterns. 
A more developed dialogue between the current Member States, the applicant countries and 
the pharmaceutical industry is important to ensure that the applicant countries can consider 
fully the implications for their health care services of entry into the Single Market. The 
Commission could , therefore, arrange a dedicated discussion conference in 1999 on the 
pharmaceutical market aspects of Accession to ensure full understanding of the challenges 
ahead. 
19. 
ANNEXES 
Annex 1 - Key figures (European Union, Applicant countries, OECD) 
Annex 2 - Health expenditure and pharmaceutical expenditure (as % of GDP) 
Annex 3 - Total and public expenditure on health and on pharmaceuticals 
Annex 4 - Pharmaceutical production, imports, exports and trade balance 
Annex 5 - Evolution of production in the pharmaceutical industry (1986-1996) 
Annex 6 - European Union trade balance in pharmaceuticals 
Annex 7 - Evolution of European Union trade balance in pharmaceuticals 
Annex 8 - Pharmaceutical employment and R&D investment 
Annex 9 - Evolution of employment in the pharmaceutical sector (1986-1996) 
Annex 10 - In-patent and out-of-patent products (% of reimbursable packs) 
Annex 11 - Self-medication and non-prescription pharmaceuticals 
Annex 12 - Price structure (Wholesaler and Pharmacist margins) 
Annex 13 - Parallel imports (as % of total market) 
Annex 14 - Sales, operating profits, R&D spending (top 20 firms in 1996) 
20. 
Annex 1 
Key figures (European Union, Applicant countries, OECD) 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
Bulgaria 
Czech Republic 
Estonia 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovak Republic 
Slovenia 
United States 
Japan 
Switzerland Population 
(million) 
10 
5 
81 
11 
39 
58 
4 
58 
0.5 
15 
8 
10 
5 
9 
59 
8 
10 
2 
10 
3 
4 
39 
23 
5 
2 
263 
125 
7 Total GDP 
($ billion) 
228 
173 
1,835 
100 
559 
1,538 
52 
1,018 
11 
395 
233 
83 
126 
229 
1,104 
10 
46 
2 
41 
4 
6 
93 
30 
17 
14 
7,246 
4,591 
304 GDP per capita 
(S) <iy 
22,546 
33,185 
22,539 
9,576 
14,264 
26,462 
14,576 
17,797 
27,053 
25,591 
28,844 
8,368 
24,651 
25,779 
18,848 
1,127 
4,402 
1,132 
4,033 
1,767 
1,495 
2,402 
1,324 
3,220 
7,024 
27,538 
36,739 
42,989 Pharmaceutical 
market ($ billion) 
2,70 
1,10 
21,80 
1,20 
7,60 
25,30 
0,40 
12,10 
0,10 
4,20 
2,10 
1,30 
1,00 
2,80 
8,40 
0,20 
1,00 
0,03 
0,60 
0,05 
0,10 
1,40 
0,20 
0,10 
0,10 
84,00 
53,20 
2,90 
Source : EPISCOM Data 
21. 
Annex 2 
Health expenditure and pharmaceutical expenditure (as % of GDP) 
' 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
Bulgaria 
Czech Republic 
Estonia 
Hungary 
Latvia 
Lithuania 
Poland 
Romania 
Slovak Republic 
Slovenia 
United States 
Japan 
Switzerland Health 
expenditure 
(%ofGDP) 
7,6 % 
7,7 % 
10,4% 
7,1 % 
7,4 % 
9,9 % 
7,0 % 
7,6 % 
7,1 % 
8,5 % 
7,9 % 
8,2 % 
7,3 % 
8,6 % 
6,7 % 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
14,0% 
n.a. 
10,2% Pharmaceutical 
expenditure 
(%ofGDP) 
1,4% 
0,7 % 
1,3% 
1,8% 
1,5% 
1,7% 
0,7 % 
1,4% 
0,8 % 
0,9 % 
1,1 % 
2,2 % 
1,1 % 
1,1 % 
1,2% 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
n.a. 
1,1 % 
n.a. 
0,8 % Pharmaceutical 
expenditure 
(% health exp.) 
13% 
12% 
11 % 
25% 
16% 
17% 
10% 
14% 
12% 
13% 
10% 
18% 
11% 
16% 
10% 
35% 
28% 
28% 
30% 
29% 
25 % 
19% 
23% 
17% 
13% 
7% 
20% 
11 % Pharmaceutical 
expenditure 
($ per capita) 
267 
215 
269 
118 
193 
435 
111 
209 
260 
272 
260 
127 
192 
315 
143 
25 
94 
20 
63 
19 
19 
36 
10 
23 
52 
319 
425 
396 
Data : 1997 - Source : OECD Health Data 98 + EPISCOM Data 
22. 
Annex 3 
Total and public expenditure on health and on pharmaceuticals 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
European Urjiorr 
United States 
Japan 
Switzerland Total 
expenditure 
on health 
• 16 412 
10 953 
195 335 
6 546 
33 891 
117 334 
3 924 
74 875 
903 
26 904 
14 349 
6 743 
7 304 
17 107 
63 078 
595 658;;; 
815 024 
261 323 
23 529 Public 
expenditure 
on health 
14 397 
7 142 
152 912 
5 073 
26 686 
94 630 
2 911 
52 293 
835 
19 385 
10 329 
4 036 
5 727 
14 194 
53 332 
* 463 $82 ?:;; j 
380 376 
205 737 
16 465 Total 
expenditure 
on harmaceuticals 
2 942 
1 003 
24 822 
1 740 
6791 
19 931 
389 
13 416 
106 
2 945 
2 028 
1 773 
1 107 
2 230 
10 432 
\;; 9t $55 |§S| 
72 002 
54 353 
1 791 Public 
. expenditure 
on pharmaceuticals 
1 338 
507 
18010 
290 
5 055 
12 222 
304 
5 405 
85 
1 882 
1 196 
1 120 
515 
1 588 
6 599 
10 479 
35 849 
1 094 
1996 data-in Million ECU 
Source : OECD Health Data 98 
23. 
Annex 4 
Pharmaceutical production, imports, exports and trade balance 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
European Union \* 
United States 
Japan 
Switzerland Production 
(ECU million) 
3 595 
2 004 
17 449 
470 
5 996 
20 113 
2 301 
11 505 
n.a. 
3 664 
1 086 
418 
566 
3 637 
15111 
87 915 
50 142 
10 706 Imports 
(ECU million) 
3 127 
748 
6 150 
561 
2 378 
4 931 
585 
5 441 
n.a. 
3 095 
1 688 
568 
541 
1 086 
3 821 
9 590 .,::</ 
3 997 
3 834 
3 881 Exports 
(ECU million) 
4 241 
2 105 
10 187 
65 
1 355 
5 838 
2 201 
753 
n.a. 
3 292 
1 356 
133 
189 
2 657 
6 585 
1x\ ' 18 725 ;;>;1 
5 121 
1 500 
10 194 Trade balance 
(ECU millions) 
1 114 
1 357 
4 037 
-496 
-1 023 
907 
1 616 
8 908 
n.a. 
197 
-332 
-435 
-352 
1 571 
2 764 
1 124 
- 2 334 
6313 
1996 data - in Million ECU 
Source : OECD Health Data 98 
24. 
Annex 5 
Evolution of production in the pharmaceutical industry (1986-1996) 
Figures : billion ECU, current prices 
Source : Eurostat 
25. 
Annex 6 
European Union trade balance in pharmaceuticals 
United States 
Switzerland 
Japan 
Australia 
Canada 
Norway 
China 
CEEC 
CIS 
Mediterranean Basin 
Latin America 
OPEC 
Others 
Total Exports 
from the 
European Union 
3,226 
2,181 
1,627 
660 
496 
390 
289 
1,521 
574 
1,583 
1,292 
1,210 
3,676 
18,725 Imports 
into the 
European Union 
3,394 
4,028 
666 
101 
96 
123 
306 
169 
6 
114 
128 
13 
446 
9,590 ' Trade balance 
of the 
European Union 
-168 
-1,847 
961 
559 
400 
267 
-17 
1,352 
568 
1,469 
1,164 
1,197 
3,230 
, * ; 9*135* ' 'V 
1996 data - in ECU millions 
Source: Euros tat, SITC 54 Rev. 3 
26. 
Annex 7 
Evolution of European Union trade balance in pharmaceuticals (1986-1996) 
Figures : million ECU 
Source : EFPIA member associations 
27. 
Annex 8 
Pharmaceutical employment and R&D investment 
Total 
employment 
(units) Employment 
in research 
(units) Investment 
in research 
(ECU million) : Market value ; 
at ex-factory prices 
(ECU million) 
Belgium 20 117 1 996 413 2 197 
Denmark 15 672 4 045 361 811 
Germany 115 500 14 826 2 700 15 735 
Greece 7 800 n.a. n.a. 1 027 
Spain 38 500 2 320 260 5 305 
France 87 600 14 900 2150 13 875 
Ireland 10 900 n.a. n.a. 362 
Italy 64 119 5 441 753 8 908 
Luxembourg n.a. n.a. n.a. n.a. 
Netherlands 13 500 2 250 260 1 908 
Austria 9 260 n.a. n.a. 1 196 
Portugal 9 000 n.a. n.a. 1 429 
Finland 5 606 1 173 81 1 118 
Sweden 16 000 5 300 1 052 1 814 
United Kingdom 74 000 19 000 2 553 6 425 
^M European UnioryJ ___ 71 2S1 
United States 203 009 49 409 13 314 58 255 
Japan 160 300 30 700 5 221 47164 
Switzerland 26 700 16 465 1 791 1 094 
1997 data, except : Ireland, Portugal and UK (1996) and Japan (1995) 
Source : EFPIA, PliRMA, JPMA 
28. 
Annex 9 
Evolution of employment in the pharmaceutical sector (1986-1996) Annex 9 
Evolution of employment in the pharmaceutical sector (1986-1996) Annex 9 
Evolution of employment in the pharmaceutical sector (1986-1996) 
Figures : thousand units 
Source : Eurostat (Japan, USA). EFPIA (EU-15) 
29. 
Annex 10 
In-patent and out-of-patent products (% of reimbursable packs) 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
European Uqlon'S In-patent 
products 
16% 
10% 
5% 
9% 
15% 
8% 
n.a. 
31 % 
n.a. 
16% 
13% 
3% 
11 % 
n.a. 
11 % 
* -'12% Out-of-patent 
products 
multi-source 
34% 
54 % 
40 % 
48% 
36% 
30% 
n.a. 
43% 
n.a. 
58% 
34% 
50% 
49 % 
n.a. 
46% 
r'/--36%;^-V Out-of-patent 
products 
single-source 
49% 
24% 
22% 
30 % 
36% 
56 % 
n.a. 
25% 
n.a. 
18% 
49% 
47 % 
40% 
n.a. 
28% 
V^ ,42%:^$ $ Non-prescription 
reimbursable 
products 
0% 
12% 
33 % 
13% 
13% 
6% 
n.a. 
1 % 
n.a. 
8% 
4% 
0% 
0% 
n.a. 
15% 
^crio^fgl 
Source : Merck & Co, Inc. analysis of 1996 IMS data 
30. 
Annex 11 
Self-medication and non-prescription pharmaceuticals 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom 
Bulgaria 
Czech Republic 
Hungary 
Romania 
Slovak Republic 
Slovenia Inhabitants 
per pharmacy 
1,922 
17,966 
3,890 
1,450 
2,150 
2,560 
3,080 
3,460 
5,063 
10,400 
4,036 
4,250 
6,482 
9,780 
4,730 
3,283 
6,435 
5,073 
5,630 
5,250 
n.a. Self-medication 
(market share) 
17,6% 
16,0 % 
17,7% 
n.a. 
12,7% 
10,9% 
20,0 % 
8,2 % 
n.a. 
9,0 % 
9,5 % 
10,8% 
14,9% 
9,4 % 
20,1 % 
n.a. 
16,0% 
16,2% 
27,0 % 
17,8% 
12,0% Non-prescription 
(market share) 
19,8% 
16,0% 
32,1 % 
n.a. 
15,5% 
32,2 % 
21,0% 
13,9% 
n.a. 
12,5 % 
11,2% 
10,8% 
14,9 % 
10,3% 
24,0 % 
n.a. 
16,0% 
16,2% 
27,0% 
21,0% 
12,0% VAT rate on 
non-prescription 
medicines 
6,0% 
25,0 % 
16,0 % 
8,0 % 
4,0 % 
5,5 % 
21,0% 
10,0% 
5,0 % 
6,0 % 
20,0 % 
5,0 % 
12,0% 
25,0 % 
17,5% 
22,0 % 
5,0 % 
0,0% 
11,0 % 
6,0 % 
5,0% 
1997 data 
Source : AESGP Facts and Figures, 1998 
31. 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Austria 
Portugal 
Finland 
Sweden 
United Kingdom Annex 12 
Price structure (Wholesaler and Pharmacist margins) 
65 
70 
62 
69 
64 
68 
65 
66 
62 
63 
63 
72 
64 
75 
64 
as % of Retail price (VAT excluded) Q Ex-factory 
B Wholesaler 
H Pharmacist 
Source : GIRP European Pharmaceutical Data 1997 (except : Ireland) 
32. 
Annex 13 
Parallel imports ( as % of total market) 
Belgium 
Denmark 
Germany 
Netherlands 
Finland 
Sweden 
United Kingdom 1 1 
Source : GIRP European Pharmaceutical Data 1997 (IMS ) 
33. 
Annex 14 
Pharmaceutical sales, operating profits, R&D spend (Top 20 firms in 1996) 
Merck & Co 
Glaxo-Wellcome 
Novartis 
Bristol-Myers Squibb 
Hoechst Marion Roussel 
Pfizer 
SmithKline Beecham 
American Home Products 
Roche 
Rhone-Poulenc 
Bayer Group 
Johnson & Jonhson 
Pharmacia & Upjohn 
Eli Lilly 
Abbott Laboratories 
Astra 
Schering-Plough 
Takeda 
Corange 
Zeneca Sales 
(million $) 
18,475 
14,284 
9,110 
8,702 
8,455 
8,188 
8,148 
7,924 
7,808 
7,636 
7,679 
7,188 
7,176 
6,799 
6,307 
5,657 
5,050 
4,573 
4,226 
4,170 Operating 
Profit 
(million $) 
5,541 
5364 
2,911 
2,871 
1,461 
3,090 
2,019 
2,770 
n.a. 
932 
1,214 
2,477 
1,420 
2,031 
1,898 
1,773 
1,606 
965 
561 
1,296 Margin 
(%) 
27,9 
37,5 
24,0 
33,0 
17,3 
32,1 
24,8 
24,5 
n.a. 
12,1 
15,8 
34,5 
19,8 
27,6 
30,1 
31,3 
28,4 
21,1 
13,3 
31,1 R&D 
spend 
(million $) 
1,487 
1,988 
1,711 
1,276 
1,453 
1,522 
1,204 
1,100 
1,574 
1,100 
1,127 
1,093 
1,266 
1,190 
-
1,024 
733 
5.80 
566 
668 R&D/sales 
7,5 
13,9 
18,8 
14,7 
17,2 
15,8 
14,8 
13,9 
20,2 
14,3 
14,7 
15,2 
17,6 
16,2 
-
18,1 
13,0 
8,6 
13,4 
16,0 
Source : Chemical Insight, Late December 1997 
34. 


ISSN 0254-1475 
COM(98) 588 final 
DOCUMENTS 
EN 01 15 10 05 
Catalogue number : CB-C0-98-715-EN-C 
Office for Official Publications of the European Communities 
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