Communication from the Commission on the single market in pharmaceuticals
Date: 1998-11-25
Institutions: European Commission
Subjects: biotechnology, free movement of goods, pharmaceutical industry, pharmaceutical product, single market

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 

The pharmaceutical  industry  in Europe 
The European pharmaceutical  market 
The pricing of pharmaceuticals, free movement and parallel  trade 
Legal  context 
Progress towards a Single Market  in Pharmaceuticals 
•  Medicines licensing 
•  Intellectual  property 
•  European Monetary Union 
•  Access to third country  markets 
The uncompleted  agenda 
The Frankfurt  Round Tables 
The Council's Conclusions 

Chapter 2  -  Approaches and specific  measures 

Possible approaches 
•  Status-quo 
•  Full  integration 
•  Middle way 
Specific  mcasu res 
•  Relaxation of price controls and the development  of effective  competition 
•  Contractual  policy 
•  Profit  control 
•  De-listing and greater patient co-payment  for certain products 
•  Reference  pricing 
•  Encouraging generic competition 
•  Involvement  of prescribers 
•  Access to market 
•  Market  transparency 
Electronic commerce and information  to patients 
Enlargement 

Chapter 3  - Conclusion  : Looking forward 

Annexes 

1 
2 
3 
4 
5 
5 
6 
6 
6 
7 
7 
8 
9 

10 
10 
10 
10 
11 
11 
12 
13 
14 
14 
14 
15 
15 
15 
16 
16 
17 

18 

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 
impact  on 
pharmaceutical budgets. It would seem that considerable  savings could be realised by adapting 
distribution channels to pro-competitive and less costly models. 

these  costs  significantly 

indirect  taxation  rules, 

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 
In an effectively  integrated market, 
Union  and sell  them in higher-priced  parts of the Union. 
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 
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. 

been  made 

available 

recently 

have 

the 

on 

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  full  range  of  industrial  interests  both  within  the 
pharmaceutical  industry and in related  sectors such as the wholesalers. 

the  European  Parliament, 

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 
launch,  are 
the  "value-added"  of  a  specific  new  product,  particularly  at  market 
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 
take  into  account  the  capital  employed,  in 
and  what  belongs  to  the  private  sector, 
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 
in  the 
pharmaceutical  treatments  for  minor  illnesses  were  de-listed  from  reimbursement; 
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). 

in  certain  circumstances, 

Some  consideration  is  timely  of  the  extent,  at  the  margin,  for  patients  to  make  greater 
contributions, 
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. 

to  meeting 

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 
is  unlikely  to  be  simply  that  of 
depth;.  The  context  of  such  consideration,  however, 
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) 

Population 
(million) 

Total GDP 
($ billion) 

GDP per capita 
<iy 
(S) 

Pharmaceutical 
market ($ billion) 

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 

Source :  EPISCOM Data 

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 

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 

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 

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 

21. 

Health expenditure and pharmaceutical expenditure (as % of GDP) 

Annex 2 

' 

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) 

Pharmaceutical 
expenditure 
(%ofGDP) 

Pharmaceutical 
expenditure 
(% health exp.) 

Pharmaceutical 
expenditure 
($ per capita) 

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% 

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 % 

13% 

12% 

11 % 

25% 

16% 

17% 

10% 

14% 

12% 

13% 

10% 

18% 

1 1% 

16% 

10% 

35% 

28% 

28% 

30% 

29% 

25 % 

19% 

23% 

17% 

13% 

7% 

20% 

11 % 

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 

Public 
expenditure 
on health 

Total 
expenditure 
on harmaceuticals 

Public 

.  expenditure 
on pharmaceuticals 

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 

Belgium 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

United  Kingdom 

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 

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 

European Urjiorr 

595  6 5 8 ; ;; 

*  463 $82 ?:;;  j 

\;;  9t $55  |§S| 

United States 

Japan 

Switzerland 

815 024 

261 323 

23 529 

380 376 

205 737 

16 465 

72 002 

54 353 

1 791 

1996 data-in  Million ECU 
Source  : OECD Health Data 98 

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 

23. 

Annex 4 

Pharmaceutical  production, imports, exports and trade  balance 

Production 
(ECU million) 

Imports 
(ECU million) 

Exports 
(ECU million) 

Trade balance 
(ECU millions) 

Belgium 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

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 

United  Kingdom 

15111 

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 

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 

European Union \* 

87 915 

9 590  . , : : </ 

1x\  '  18 725 

;;>;1 

United  States 

Japan 

Switzerland 

50 142 

10 706 

3 997 

3 834 

3 881 

5 121 

1 500 

10 194 

1996 data -  in Million ECU 
Source  : OECD Health Data 98 

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 

24. 

Evolution  of production in the pharmaceutical  industry  (1986-1996) 

Annex 5 

Figures  : billion ECU, current  prices 
Source  : Eurostat 

25. 

Annex 6 

European  Union trade balance in  pharmaceuticals 

Exports 
from  the 
European  Union 

Imports 
into  the 
European  Union 

Trade  balance 
of the 
European  Union 

United  States 

Switzerland 

Japan 

Australia 

Canada 

Norway 

China 

CEEC 

CIS 

Mediterranean  Basin 

Latin  America 

OPEC 

Others 

Total 

1996 data -  in  ECU  millions 
Source: Euros tat, SITC 54 Rev. 3 

3,226 

2,181 

1,627 

660 

496 

390 

289 

1,521 

574 

1,583 

1,292 

1,210 

3,676 

3,394 

4,028 

666 

101 

96 

123 

306 

169 

6 

114 

128 

13 

446 

-168 

-1,847 

961 

559 

400 

267 

- 17 

1,352 

568 

1,469 

1,164 

1,197 

3,230 

18,725 

9,590  ' 

,  *  ; 9*135*  ' 

'V 

26. 

Evolution of European Union trade balance in pharmaceuticals (1986-1996) 

Annex 7 

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 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

United  Kingdom 
European UnioryJ  _

United States 

Japan 

Switzerland 

20 117 

15 672 

115 500 

7 800 

38 500 

87 600 

10 900 

64 119 

n.a. 

13 500 

9 260 

9 000 

5 606 

16 000 

74 000 

__ 

203 009 

160 300 

26 700 

1 996 

4 045 

14 826 

n.a. 
2 320 

14 900 

n.a. 

5 441 

n.a. 

2 250 

n.a. 

n.a. 

1  173 

5 300 

19 000 

71 2S1 

49 409 

30 700 

16 465 

413 

361 

2 700 

n.a. 

260 

2150 

n.a. 

753 

n.a. 

260 

n.a. 

n.a. 

81 

1  052 

2 553 

13 314 

5 221 

1 791 

2 197 

811 

15 735 

1 027 

5 305 

13 875 

362 

8 908 

n.a. 

1 908 

1 196 

1 429 

1 118 

1  814 

6 425 

^M 

58 255 

47164 

1 094 

1997 data, except : Ireland, Portugal and UK (1996) and Japan (1995) 
Source : EFPIA, PliRMA, JPMA 

28. 

Annex 9 
Annex 9 
Annex 9 

Evolution  of employment  in the pharmaceutical  sector  (1986-1996) 
Evolution  of employment  in the pharmaceutical  sector  (1986-1996) 
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) 

In-patent 
products 

Out-of-patent 
products 
multi-source 

Out-of-patent 
products 
single-source 

Non-prescription 
reimbursable 
products 

Belgium 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

United Kingdom 

16% 

10% 

5% 

9% 

15% 

8% 

n.a. 

31 % 

n.a. 

16% 

13% 

3% 

11 % 

n.a. 

11 % 

34% 

54 % 

40 % 

4 8% 

36% 

3 0% 

n.a. 

4 3% 

n.a. 

58% 

34% 

50% 

49 % 

n.a. 

4 6% 

49% 

24% 

22% 

30 % 

36% 

56 % 

n.a. 

25% 

n.a. 

18% 

49% 

47 % 

40% 

n.a. 

28% 

European Uqlon'S 

*  -'12% 

r ' / - - 3 6 % ; ^ -V 

V^  , 4 2 %:^$  $ 

Source : Merck & Co, Inc. analysis of  1996 IMS data 

0% 

12% 

33 % 

13% 

13% 

6% 

n.a. 

1 % 

n.a. 

8% 

4% 

0% 

0% 

n.a. 

15% 
^ c r i o ^ f gl 

30. 

Annex 11 

Self-medication  and non-prescription  pharmaceuticals 

Inhabitants 
per pharmacy 

Self-medication 
(market share) 

Non-prescription 
(market share) 

VAT rate on 
non-prescription 
medicines 

Belgium 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

United Kingdom 

Bulgaria 

Czech  Republic 

Hungary 

Romania 

Slovak  Republic 

Slovenia 

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. 

1997 data 
Source : AESGP Facts and Figures, 1998 

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% 

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% 

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% 

31. 

Annex  12 

Price structure (Wholesaler and Pharmacist margins) 

Belgium 

Denmark 

Germany 

Greece 

Spain 

France 

Ireland 

Italy 

Luxembourg 

Netherlands 

Austria 

Portugal 

Finland 

Sweden 

United Kingdom 

65 

70 

62 

69 

64 

68 

65 

66 

62 

63 

63 

72 

64 

75 

64 

as % of Retail price (VAT excluded) 

Source : GIRP European Pharmaceutical Data  1997 (except : Ireland) 

Q  Ex-factory 

B  Wholesaler 

H  Pharmacist 

32. 

Annex 13 

Parallel imports ( as %  of total market) 

Belgium 

1 1 

Denmark 

Germany 

Netherlands 

Finland 

Sweden 

United Kingdom 

Source : GIRP European Pharmaceutical Data 1997 (IMS ) 

33. 

Pharmaceutical sales, operating profits, R&D spend (Top 20 firms in 1996) 

Annex  14 

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 

Source : Chemical  Insight, Late December  1997 

Operating 
Profit 
(million $) 

Margin 
(%) 

R&D 
spend 
(million $) 

R&D/sales 

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 

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 

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 

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 

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 

L-2985  Luxembourg