Part 1 of 3 in a Series on Parallel Trade

Introduction: The Foundation of Parallel Trade

In this series of white papers, we will explore the theme of legally supported parallel trade in the European Union (EU), also known as cross-border trade or parallel import. Throughout this series, we will use the term “parallel trade” for simplicity. This first paper examines the legal framework governing parallel trade in Europe, outlines the regulatory requirements of parallel distributors, explains how Marketing Authorisation Holders (MAHs) can identify parallel trade activity, and analyzes why it is important for pharmaceutical companies operating in the EU market to know that parallel trade activity exists. 

Before diving into why a pharmaceutical company selling products in Europe should be aware of this topic, let’s first go back to its origins. The free movement of goods is one of the four fundamental elements of the EU internal market, along with the free movement of persons, services, and capital. These freedoms have formed the basis for the Treaty on the Functioning of the EU, which entered into force on 1 January 1958. One of the primary objectives of this treaty was to create a single EU market in which products could easily be sold across the various member states, eliminating barriers to trade and fostering economic integration. 

If we examine pharmaceuticals more specifically, EU legislation actively facilitates the free movement of goods through a single Marketing Authorisation process, a single EU market release process, and harmonized regulatory standards across member states. Furthermore, the EU is actively considering trade implications when laying out objectives for new legislation. This commitment is clearly demonstrated in the objectives of Directive 2001/83/EC, the European Community (EC) code relating to medicinal products for human use, which states that “this objective must be attained by means which will not hinder the development of the pharmaceutical industry or trade in medicinal products within the Community.” 

Defining Parallel Trade

The EU defines parallel trade in its Commission communication of 30 December 2003 on parallel imports of proprietary medicinal products for which Marketing Authorisations have already been granted. According to this communication, the parallel import of a medicinal product involves importing the product into one member state from another and then distributing it outside the distribution network set up by the manufacturer or his/her authorised distributor. 

The European Medicines Agency (EMA) offers a complimentary definition, describing parallel distribution as the distribution of a centrally authorised medicinal product from one member state to another by a pharmaceutical company independent of the MAH. The critical element in both definitions is the clarity that parallel trade happens without involvement of the MAH and outside of the distribution network that has been established by the MAH. The independence from the original supply chain is what distinguishes parallel trade from distribution channels setup by the MAH. 

Detectability: How to Identify Parallel Trade Activity for Your Products

The detectability of parallel trade is high due to robust regulatory frameworks. Since May 2004, when Regulation (EC) No 726/2004 came into force, all medicinal products on the market in the EU distributed in parallel have been required to comply with the requirements of the EMA notification procedure for parallel distribution. 

An initial notification is a parallel distributor’s formal communication to EMA, informing the Agency of their intent to source, repackage, and distribute a centrally authorised medicinal product between EU member states. The Agency performs a comprehensive compliance check of the particulars of this notification with the Marketing Authorisation and EU legislation on medicinal products. When this check confirms that the plans of the parallel trader comply with the conditions laid down in the EU legislation and the Marketing Authorisation of the specific product, EMA issues a Parallel Distribution (PD) notice. 

The parallel trader is also required to maintain and update the status of the notification to the EMA on an ongoing basis. Furthermore, the product distributed in parallel must always be following the latest version of the Marketing Authorisation and EU legislation on medicinal products. This may require the parallel trader to introduce changes to the labelling and the package leaflet before they start trading the product or while the product is being traded. Parallel distributors are expected to implement non-safety related changes to the product information within six months of the publication of updated annexes, and within three months for safety-related changes.

Table 1: Key Requirements for Parallel Traders

Furthermore, when submitting the first initial notification for parallel distribution of a centrally authorised product, the parallel distributor will be requested to provide the Agency with images of the final repackaged product. Mock-ups do not suffice in this instance. 

Once the parallel trader has met all requirements, paid the corresponding fees to EMA, and EMA has issued the parallel distribution notice, the parallel trade may commence. Next to the potential special mechanism notification, the MAH may also regularly review the data in the EMA parallel trade registry. This registry publishes all PD notifications to create greater transparency, increase identification of notices, and provide more information to competent authorities and MAHs. It publishes approximately 2,500 PD notices per year, which gives a clear indication of the scope of parallel trade in Europe. This substantial volume underscores why MAHs very actively monitor parallel trade activity affecting their products. 

Impact on Marketing Authorisation Holders

Why should a biopharma company care about legal trade of its products happening outside its established distribution channels? 

The answer lies in the fact that EU pharmaceutical markets operate between two opposing forces. On one hand, parallel trade is legally permitted under the principle of free movement of goods. On the other hand, MAHs carry a legal obligation to ensure sufficient supply to provide adequate access for patients in each individual EU market in which the company is commercially active. 

Figure 1: The Challenge of Balancing Shortage Regulations, Obligation to Supply, and the Impact of Parallel Trade

These forces can pull in opposite directions and balancing them has become increasingly complex as the EU’s growing focus on drug shortage prevention has made supply obligations even more stringent. But what does the legal obligation to supply for MAHs mean? 

Under Article 81 of Directive 2001/83/EC, MAHs are legally obliged to ensure the so-called “appropriate and continued supply” of medicinal products that meet the needs of domestic patients in the member state. At its core, this obligation acts as a public health safeguard, protecting patient access to essential medicines while maintaining market stability and preventing restrictive supply practices. 

For MAHs, meeting this obligation is becoming increasingly challenging as their product supply chains face, among other things, resource constraints including limited raw material availability, finite production capacity, complex manufacturing timelines, and supply chain vulnerabilities. 

At the same time, the EU’s growing focus on shortage prevention has made managing this balance even more complex. Several member states have introduced minimum stockholding obligations to secure local availability and protect against supply disruptions. As an example, France requires MAHs to maintain at least a two-month safety stock of each medicine to ensure continuous patient access. Despite being a smaller market, the Netherlands has also introduced stockholding requirements across the supply chain to reduce the risk of shortages. Additional member states have implemented or are considering similar measures, creating a patchwork of national supply requirements that MAHs must navigate and meet. 

The positive news for MAHs on this front is that the EU is working on an EU Pharmaceutical Package (2023–2024) introducing harmonised EU rules on shortage prevention and monitoring of critical medicines. This initiative aims to standardize shortage reporting requirements across member states, improve early warning systems, enhance coordination between national authorities, and strengthen supply chain resilience. The potential downside, however, is that it will likely introduce more stringent obligations for MAHs, expand reporting duties, and enhance oversight of supply continuity. 

Failure to uphold the obligation to supply can have serious regulatory, financial, and reputational consequences. Authorities may impose fines or suspend Marketing Authorisations, while shortages leave patients without access to essential treatments and cause serious patient safety concerns. Beyond these direct consequences, shortages also create a heavy administrative burden. MAHs must promptly notify authorities of actual or anticipated shortages, justify root causes, and outline recovery plans, all under strict reporting timelines. So, while these measures aim to strengthen supply resilience and protect patient access, they also significantly increase the supply chain and compliance burden on MAHs. 

Another key element that may impact MAHs is pharmacovigilance. According to Title IX of Directive 2001/83/EC and Section 5 of Regulation (EU) 2019/6, the responsibility for pharmacovigilance lies with the member states and the MAH. The EMA does not request any information regarding pharmacovigilance or the responsible person for pharmacovigilance from the parallel trader during the notification procedure. 

This creates a critical compliance risk because the MAH must be able to fulfill the pharmacovigilance requirements for products that have undergone processes outside their control—re-packing or re-distribution—or in markets in which they may not distribute directly. This presents a key compliance risk for patient safety monitoring and puts an additional strain on the MAH’s resources. For example, it makes adverse event tracking and reporting more complex. It also makes it more difficult to maintain pharmacovigilance systems across markets where the MAH may have limited presence. 

The Dynamic Nature of Parallel Trade

How is legally permissible parallel trade influencing supply obligations, you might ask? The answer lies in the nature of the trade, namely it is not static. Because parallel trade happens outside the view and control of the MAH, it is very difficult to predict in which direction it flows. Market dynamics, price differentials, and opportunistic trading patterns can shift rapidly, creating significant challenges for supply planning. 

A company may experience an unexpected increase in demand in one market and, as a response, increase production of the relevant market SKU only to find that the week thereafter, the demand surges in a different market. Given the scarcity of raw materials, production capacity and with that finished product availability, an MAH may find itself allocating valuable resources to producing materials not required to meet critical demand. This not only potentially leads to scrapping of product due to market-specific labeling, language requirements, or expiry concerns, but more importantly, it may prevent an MAH from producing the right SKU at the right time. The inability to anticipate parallel trade flows can lead to an unexpected shortage in a specific market. As described earlier, due to the heightened regulatory scrutiny on shortages, this can result in financial penalties, serious reputational damage, and most critically, potential negative patient impact. 

Due to the scarcity of resources and the inherent constraints in pharmaceutical manufacturing, it is not simply a matter of increasing overall stock levels. Holding excess inventory across all markets is financially and operationally prohibitive. Many pharmaceuticals have limited shelf lives, making excess stock risky. Specialized storage conditions add significant costs, each market SKU requires specific labeling and regulatory compliance, and manufacturing facilities typically operate near capacity. All those factors conspire to make it impossible to simply manufacture more product. 

Looking Ahead

In this first paper we have: 

  1. Examined the legality of parallel trade in the EU and its foundation in the principle of free movement of goods 
  2. Listed the requirements that parallel traders must meet to remain compliant with EMA regulations 
  3. Explained the mechanisms by which an organization can become aware of parallel trade activity affecting its products, and 
  4. Analyzed the potential impacts on MAHs 

Clearly, we are dealing with several legal principles that are intended to improve the flow and availability of medicines to patients, but nevertheless present opposing forces that pull MAHs in different directions. MAHs must simultaneously meet stringent supply obligations in each market, comply with shortage prevention regulations, maintain comprehensive pharmacovigilance systems, optimize production capacity, and respect the legal right to parallel trade. Ultimately, this makes it a difficult balancing act. 

In the next paper, we will create a practical framework to help companies assess their product supply chain and evaluate the chances that their product will be the subject of parallel trade. Factors we will consider include geographical scope and launch sequence, supply chain and distribution channel strategy, artwork and packaging considerations, and more. 

The third and final paper in this series is all about tactics and tools. We will explore what practical tools and tactics an organization can apply to manage the effects of parallel trade, how to maintain compliance while optimizing supply chain operations, best practices for monitoring, and responding to parallel trade activity. Stay tuned for more insights. 

The complexities associated with parallel trade often require specialized expertise in process development and system implementation. AIM helps companies establish guidelines and processes around parallel trade to create monitoring capabilities, optimize supply chain design, and develop compliant methods and responses for managing the impact of parallel trade activities. 


AIM publishes information and provides expertise on supply chains for a wide range of biopharma products. Please follow our LinkedIn page or visit our Insights page to stay up to date. To discuss the contents of this article, or if you would like to have an introductory consultation, please contact our team. 

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