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UK industry is the loser from parallel trade in pharmaceuticals

The shipment of bona fide pharmaceutical drugs into Britain from Europe may cost the UK pharmaceutical industry more than 770million a year. The net effect on the UK economy as a whole, taking into account the benefit to consumers of lower pharmaceutical prices, may be more than 290million. In addition it may undermine the long-term viability of R&D on pharmaceuticals, at a time when the Government is trying to promote basic scientific research.

This is the potential impact of parallel trading in pharmaceuticals, according to a new ESRC-funded study. Research led by Dr Stefan Szymanski of Imperial College London investigated the impact of parallel trade on the welfare of consumers, purchasers and producers in UK. "Our study leads us to conclude that overall parallel trade has a negative impact on the UK economy, notwithstanding the short-term benefits for purchasers," states Dr Szymanski.

"The impact of parallel trade on pharmaceutical markets has been the source of great controversy," argues Professor Szymanski. "On the one hand, the parallel traders view themselves as benign agents promoting competition in markets," he continues. "By contrast, pharmaceutical manufacturers view the activities of parallel traders as undermining pharmaceutical company profits and thus investment in research and development."

An estimate of the impact of parallel trade from published figures indicates that parallel traded pharmaceuticals account for around 20 per cent of the UK market and some parallel traded products sell at 15 per cent cheaper than non parallel traded goods. Based on these figures, researchers calculate a gain of up to 480million for the UK economy from parallel trade, assuming all parallel trade profits remain in the UK, against a 770 million loss to UK manufacturers. The net loss is estimated at 290 million.

"Admittedly, this estimate ignores a number of potential influences such as lower prices leading to increased demand," Dr Szy
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Contact: Becky Gammon
becky.gammon@esrc.ac.uk
179-341-3122
Economic & Social Research Council
22-Mar-2004


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