Tackling counterfeit drugs is one pillar of the European Commission's package of new proposed pharmaceutical legislation. It will mean higher costs for most drug firms, while significant loopholes will remain.

In the last Congress, measures to combat counterfeit drugs were back in the spotlight, perhaps most prominently with anti-counterfeiting legislation from Reps. Jim Matheson, D-Utah, and Steve Buyer R-Ind. (¹ [A#00700180004], p. 8). Counterfeiting was also an element in Rep. John Dingell's, D-Mich., legislation to strengthen import safety, prompted by imports of adulterated drugs and foods (² Also see "FDA’s Price Tag For Foreign Facility Inspections Tops $225 Million" - Pink Sheet, 5 May, 2008., p. 5).

But counterfeit drugs are a growing problem across the globe. Not only are volumes increasing - European authorities reported a 628 percent increase in fake drugs seized between 2005 and 2007 - but counterfeiters are also infiltrating supplies of drugs to treat increasingly serious, sometimes life-threatening diseases.

One of the most obvious, and some say overdue, measures is to impose stricter safety features on drug packages. Thus the commission proposes making elements such as bar codes, holograms and seals mandatory on certain drug categories to help identify, authenticate and trace individual products to source.

In the U.S., FDA is developing standards for technologies to track and trace drugs throughout the U.S. distribution system (³ Also see "RFID’s Possible Interaction With Biologics Queried By Biogen, Pfizer" - Pink Sheet, 16 June, 2008. p. 16).

Tracking Measures At Odds With Parallel Trade

These technologies have been around for many years. But in Europe, a debate has arisen with regard to repackaging drugs. In theory, the point of seals and bar codes is to prevent illegal repackaging and warn an end-user or pharmacist when a package has been opened or tampered with.

But the commission was unable, or unwilling, to propose a complete ban on drug repackaging since this would stamp out parallel traders. These firms buy drugs in low-priced countries, such as Spain or Greece, and re-sell them in higher-priced nations, pocketing some of the difference. At a minimum they need to open the boxes to replace the patient information leaflet with one in the correct language for the country of resale.

Parallel traders' activities are entirely legal under Europe's free movement-of-goods principle, but their repackaging opens up glaring loopholes in any attempt to tighten supply chain safety.

Strong lobbying from both innovators and parallel traders forced the commission into a clumsy compromise, imposing stricter safety measures, but allowing these features to be removed or replaced albeit "only under strict conditions and control."

These conditions and controls will have "a significant impact on parallel trade," mostly through cost increases, according to lawyers at Sidley Austin in Brussels, Belgium.

Still, given that parallel traders escaped the alternative - a total ban on re-packaging outlined in the previous draft of the legislation - the European Association of Euro-Pharmaceutical Companies, their trade group, seemed relatively happy. "We're quite pleased," EAEPC Secretary General Heinz Kobalt said in an interview. "The original draft [with a total re-packaging ban] was too blunt an attempt to block competition."

Innovators are disappointed to have missed the opportunity to stamp out an activity they claim costs them millions per year (more than £1 billion for those operating in the UK, according to the UK Association of the British Pharmaceutical Industry).

All the more so since a long-running European Court of Justice case involving GlaxoSmithKline and parallel traders in Greece recently resulted in a ruling in the traders' favor. The court declared that GSK's supply restrictions to wholesalers in low-priced Greece is anti-competitive. For Richard Barker, ABPI's director general, "patient safety should trump the free flow of goods."

When it comes to the flow of goods into, rather than within, the European Union, the commission appears to agree. The second component of its anti-counterfeit measures is new rules governing the import of active pharmaceutical ingredients. This provision may put an end to cheap imports from countries such as China and India, which have become more popular as companies seek to lower costs and outsource.

"There has been a huge increase in ex-EU imports over the last few years, and people say the rules governing quality have been too lax," noted Laurent Ruessmann, a partner at Sidley Austin. The EC proposals include obligations on manufacturers to audit all the companies who make their APIs, and ensure that imported APIs have been manufactured to standards equivalent to those in the EU (⁴ Also see "EC Considers API Regulation In Effort To Fight Counterfeit Drugs" - Pink Sheet, 28 April, 2008., p. 24). They also mandate member states to enhance inspections in third countries where health protection measures are thought to be lower than in the EU.

But although responsibility for quality control is said to be spread among wholesalers, API suppliers and importers, the bulk of costs will hit manufacturers and importers of medicines, according to the Sidley Austin lawyers, particularly those who have been "less careful" about quality control up until now. One effect of discouraging imports, suggests Ruessmann, could be to "revive local EU API manufacturers, to the detriment of [countries such as] China."

All this will depend on how quickly and effectively such controls come into place at member-state level; it will not happen overnight. None of the measures will become law for another 18 months, at least, and the European Parliament may tweak them in the interim.

Commission Not Tackling Internet Sales

One channel that the European Commission is not even attempting to tackle at the EU level is the Internet. The EC specifically is not setting rules for Web sales of medicines - even though 50 percent of medicines bought from Web sites that conceal their address are fake, according to the World Health Organization.

Some countries, including Germany, have fairly elaborate programs to attempt to certify "genuine" online pharmacies, but few such measures are effective. As a result, the Web remains a huge loophole in the EC's efforts to clamp down on counterfeits.

Another loophole, according to Europe's wholesalers, is the proposal's failure to address the number of licenses granted to drug distributors across the EU. The number is too high and the licenses are poorly-controlled, in their view.

The two other pillars of the EU package are simpler and stronger pharmacovigiliance practices and clearer rules on what kind of information drug firms can supply directly to patients. Both are aimed at harmonizing standards across Europe. The European Medicines Agency's pharmacovigilance role will be reinforced through the creation of a Pharmacovigilance Risk Assessment Advisory Committee within the agency.

This body will assess the safety of even those drugs approved at member state level (through the mutual recognition procedure rather than via the centralized procedure). The new approach should avoid issues that arise when different countries hold different views on the severity of an adverse effect. According to Carl-Michael Simon, an associate at Sidley Austin, "the EU decision could override a member state's view in this instance."

The Eudravigilance database, already in place, will become the single point of receipt for pharmacovigilance information, regardless of where a drug is authorized. Companies will be required to supply a risk management system for every product they submit for approval in Europe, and there will be greater emphasis on post-approval adverse event reporting, as seen in the U.S. (⁵ Also see "The REMS Era Begins: FDA Applies Soft Touch With New Drug Safety Tools" - Pink Sheet, 1 May, 2008.).

The EC's proposals on what kind of information drug firms can supply directly to patients are also supposed to smooth out national differences in this area. In France, for instance, there is skepticism about any information from manufacturers, whereas the UK and Scandinavian countries are slightly more relaxed in this area. The proposed rules do not take Europe - where direct-to-consumer advertising is banned - very far toward the U.S. model, however.

There would be tight restrictions on the kind of information that is allowed, and it could only be disseminated in print, or online in writing (no TV, radio or video). Plus, at least some of this information would have to be pre-vetted by national or European authorities - a process that could become "very burdensome," according to the ABPI's Barker. (⁶ IN VIVO Blog, Dec. 10, 2008).

Implementing any of these proposals will be a burden on companies. "Higher requirements mean higher costs," concludes Sidley's Ruessmann, even if ultimately they lead to more efficient business practices. But in general, "companies seem to welcome a more level playing field" across Europe.

-Melanie Senior (m.senior@elsevier.com)

EU Tackles Counterfeits, But Parallel Trade Poses Tough Issues

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