Strategic manoeuvres: regulatory and tax implications related to the EU draft directive of the Union code for medicinal products

A key focal point of the proposed directive is Article 166, outlining the obligations for wholesale distribution authorisation (WDA) holders. Some of the highlights worth noting include:

Stricter sourcing rules
One major change requires that WDA holders procure their medicinal product supplies exclusively from entities holding either a WDA in the Union or a manufacturing authorisation. This highlights a heightened level of scrutiny in the supply chain and echoes the game-changing German court case (BVerwG 3 C 1.20).

Safeguarding authenticity
The proposed directive introduces a new obligation for WDA holders to verify the authenticity of the medicinal products they receive. This involves thorough checks of safety features on the outer packaging, aligning with delegated acts specified in Article 67(2), second subparagraph. Unlike previous directives, this step goes beyond mere authorisation confirmation, adding an extra layer of security.

Ensuring continuous supply
The directive now places an obligation on WDA holders to consistently guarantee the appropriate and uninterrupted supply of a diverse range of medicinal products. This commitment extends to meeting the specific requirements of a designated geographical area, ensuring timely delivery across the entire region. The exact timeframe will be defined by national legislation.

Introducing ‘brokers’
One addition worth noting is the introduction of the term ‘broker’ in the directive. Brokering of medicinal products is defined as all activities related to the sale or purchase of medicinal products, excluding wholesale distribution which requires a respective licence issued by the national competent authorities and compliance with regulatory requirements such as Article 164 (Requirements for a WDA), Article 165 (Granting of a WDA) and Article 166 (Obligations of a WDA holder). Although brokers don’t physically handle products, they negotiate independently and on behalf of legal or natural persons. 

When obtaining medicinal products through brokering, WDA holders must verify that brokers meet the requirements set out in Article 171. This includes, for example, making sure that brokered medicinal products have a valid marketing authorisation. What’s more, brokers must be registered with the competent authority of the member state where they have their permanent address.

Supply chain resilience and environmental sustainability
The reform not only addresses legal aspects, but also places a strong emphasis on environmental sustainability within the pharmaceutical industry. It reinforces requirements for the environmental risk assessment (ERA) in the marketing authorisation of medicinal products, thus aiming to make products more ecologically sustainable. The ERA, now extended to medicines that have been on the market since before 2005, covers new protection goals, including the risks of antimicrobial resistance. Supply chain actors are urged to actively consider the environmental impact of their activities and products. The proposed measures call for the implementation of strategies to prevent, minimise and mitigate potential adverse effects on both the environment and public health.

Crisis management framework to protect patients
The legislation introduces a robust crisis management framework, empowering competent authorities of member states and – in the case of centralised marketing authorisation – the Commission. In situations where medicinal products pose a risk to public health, are harmful under normal conditions of use or lack therapeutic efficacy, urgent measures may be taken. These measures include the suspension, revocation or variation of marketing authorisations, as well as the prohibition, restriction or control of the supply, distribution or use of medicinal products. 

Article 166(1)(c) of the proposed directive poses a significant challenge for non-EU/EEA based companies. This provision stipulates that WDA holders in the European Union may only obtain their supply of medicinal products, including through financial transactions, from entities that possess a WDA within the Union. This mirrors the game-changing German court case BVerwG 3 C 1.20 from 25 February 2021, introducing challenges that demand an in-depth analysis of the current supply chain and its compliancy. 

The German court case: a regulatory turning point
The German Federal Administrative Court’s ruling (BVerwG 3 C 1.20) has changed how non-EU/EEA based pharmaceutical companies manufacture, store, sell and import medicinal products in the EU. This court case is connected to medicinal products sourced from Swiss companies. According to this ruling, German pharmaceutical wholesalers are restricted to purchasing products exclusively from companies holding licences issued in EU member states and not from third countries like Switzerland. 

Fast forward to April 2023 and the draft directive seeks to institutionalise the widely adopted practice of the German court case into European law.

Implications for non-EU established companies
For non-EU established companies, particularly those holding a wholesale authorisation in Switzerland, significant implications arise from this change in the legislation. A WDA issued in Switzerland, governed by Swiss law, is no longer deemed sufficient to sell medicinal products on the European market. The crucial ‘equivalent’ status is absent, as Swiss regulations fall outside the scope of EU law. The German court case, embraced by most EU countries, will therefore apply universally in the Union if the draft directive comes into force, requiring strategic adjustments to the supply chain or mitigation strategies.

Proactive mitigation strategies
To proactively mitigate these challenges and ensure compliance, an in-depth review of the supply chain is necessary. Swiss companies must align their operations with both current and proposed regulatory landscapes. PwC has been instrumental in assisting large multinational, SME and start-up pharmaceutical companies in securing their supply chains with tailored and integrated solutions that have been pressure tested on multiple occasions.