Do you know the key determinants of parallel trade?
By Gary Johnson, expert-trainer of the Value Pricing for Market Access - The Fundamentals course.
Parallel trade is the trade organised by distributors between countries: they purchase a pharma brand in country A and sell it in country B at a higher price. This is obviously only a lucrative business for the distributors when the price difference between those two countries is high.
When discussing parallel trade, many pharma executives think of price differences between countries as the only determinant for the amplitude of parallel trade. There are however other important drivers. One of these is how big a product is (in terms of sales).
Even with large price differences between countries, “smaller” products (in terms of sales) will not be heavily affected by parallel trade. “Bigger” products, however, will be affected at much smaller price differences.
For each pharma brand, this 3-dimensional relationship Parallel Trade - Price Difference – Product Size can be visualised in a 3-dimensional curve and forms the basis for the process of determining the size of parallel trade across countries: