part three of three

Alliance UniChem does not hold any parallel trading licenses itself but runs lower-priced stock from its Spanish and Greek warehouses through licensed parallel traders like Medihealth before returning the drugs to its northern warehouses; redirecting parallel product to its in-house chain of 1,100 pharmacies also significantly boosts its retail margins. Big wholesalers pay parallel traders 65 cents to 90 cents a pack for repackaging services, but also sell 5% to 20% of the pass-through to the traders so they can trade this inventory for their own accounts. It's a license to print money. Says a parallel trader who insists on anonymity: "The biggest problem for parallel traders is getting our hands on inventory."

Alliance UniChem maintains it was forced into the business by competition. "Wholesalers couldn't ignore it anymore," explains Geoffrey Cooper, deputy chief executive at Alliance UniChem. "The danger was, if we didn't supply our [pharmacist] customers with parallel imports, the short-liners could come in and sell them the imports and then say, ‘By the way, we also have some generic.' Manufacturers hate it, and we don't like it, either. Long term we can earn better margins from manufacturers."

Of course, unlike its illegal cousin, Europe's secondary market does not hurt the poor, but hits big pharma in the pocket. But that doesn't mean it's only some bonus-happy execs and shareholders who pay a price.

At this year's World Economic Forum in Davos there was a fierce debate about Europe's "free ride" on America's lab-coattails. Europe spends 60% less per capita on pharmaceuticals than the U.S.; FDA Commissioner Mark McClellan says Americans, while consuming a fraction of the world's output of prescription drugs, are unfairly accounting for half of the industry's revenues.

So drug manufacturers--careful not to look like they are out to gouge the public--must quietly wage a guerrilla war, trying to catch parallel traders out in a supply squeeze.

"They are very clever," says Taybi Mohamedbhai, principal buyer at Medihealth. "A U.K. drug company will approach big parallel traders and say, ‘Why are you importing that drug from Greece? We will give you the drug at the same price here in the U.K.' They will do this for six or seven months and then suddenly cut off the supply. During that time they collect the data on what Greek domestic demand is and what demand bound for the U.K. parallel import market is, and then limit Greek supplies accordingly. It took us a while to figure this out, but when they approached us again, we said, ‘We're not interested.'"