RM
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RM Issue #030805

Canada's free ride on prescription drugs
Saturday, August 02, 2003

As the issue of prescription- drug pricing heats up south of the border, two questions come to mind. First, why should U.S. patients pay exorbitant prices for their medicines while heath-care systems in other developed countries -- Canada most notably -- get their medications at cut-rate prices, and thereby avoid paying their fair share of drug R&D costs? Second, why would U.S. drug companies continue to ship us their pills, capsules and serums if those products are then being "reimported" right back into the United States at the same low prices? The short answers are: They shouldn't and they won't.

As things stand, drug reimportation is taking place piecemeal, with individual U.S. patients ordering U.S.-source products from Canadian pharmacies, typically through the Internet. But the trade is expanding: This past week brought news that the town of Springfield, Mass. has struck a deal to buy drugs for its employees and retirees from a pharmacy in Ontario. And a bill passed by the U.S. House of Representatives last month would expand reimportation drastically by requiring the Food and Drug Administration to allow U.S. pharmacies and wholesalers broad access to drugs from Canada, the EU, and various other developed nations.

The bill would save U.S. consumers billions: On average, drug prices in the United States are 67% higher than those in this country. In some cases, the difference is enormous. Toprol-XL, for instance, a medication for high blood pressure, costs $50-$55 per 100 mg dose in Canada, but about $160 in the United States.

The differential arises thanks to a phenomenon economists call price discrimination. Because Canada and the United States comprise segregated markets, the pharmaceutical companies can apply different marketing strategies: High prices in the United States because consumers there are wealthier; lower prices in Canada because we are poorer and, in many cases, our market is controlled by government-imposed caps.

Under the current regime, drug companies are generally willing to supply a secondary market like Canada even if the price they can get is barely high enough to recoup marginal production and distribution costs. But at the end of the day, someone's got to pay for fixed costs -- i.e., the research and development that leads to the discovery of new medicines in the first place. This is why drug costs are so high in the United States. Because it is the only major Western nation without price caps, drug makers depend on the high prices U.S. consumers pay to finance their lab work.

The result is that Americans are getting ripped off. Since the R&D that goes into a medicine benefits everyone who takes it -- not just the Americans who pay the lion's share -- Canadian and EU patients are, essentially, free riders.

Unfortunately, our cozy scam may soon expire. If the bill passed last week by the House of Representatives becomes law, there will be a short-term dip in drug prices for U.S. consumers. But drug makers will then respond by either insisting on price increases in non-U.S. markets to discourage reimportation, or by delaying the introduction of emerging, leading-edge medications abroad until after they have recovered their R&D costs stateside.

Either way, Canadian consumers will be forced to start paying the real, economic cost of the drugs they consume. At just US$3-billion annually, sales in Canada by U.S. pharmaceutical companies are a pittance compared to the US$131 billion they earn globally. Big Pharm could thus easily afford to forego all Canadian sales while it waited for the practice of reimportation to stop. (Already, GlaxoSmithKline, maker of Amoxil, Zantac and Zyban, has cut off sales to Canadian pharmacies known to be supplying U.S. patients.) Since losing access to vital American drugs would be disastrous for Canadian patients, health-care officials here would have no choice but to accept higher prices.

Admittedly, the bill approved by the U.S. House of Representatives appears to have little chance of passing the U.S. Senate: Last month, 53 of 100 senators signed a letter opposing it -- and President George W. Bush has promised to veto any legislation that comes across his desk. But with cash-strapped U.S. consumers and local governments looking north to buy drugs, it seems only a matter of time before Washington gives in to populist pressure on this file. When that time comes, Canadians will no doubt blame pharmaceutical firms for the ensuing price spike. But all the higher prices will mean is that we are finally paying our fair share for good medicine.

Copyright 2003 National Post

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Canada's drug policies 'parasitic,' U.S. says
Interview with FDA head sparks debate on issue of reliance on American research

By JANE TABER
Thursday, July 31, 2003 - Page A5
OTTAWA -- The head of the U.S. Food and Drug Administration is accusing Canada of being "parasitic" in its drug policies that he believes keep drug prices lower here than in the United States.

Mark McClellan agreed with suggestions by a television interviewer that Canada has not developed a new drug since 1940, does no research and development on new drugs, and is simply benefiting from drug research paid for by U.S. taxpayers.

"That's right. The United States is definitely far and away the world leader in medical innovation," Dr. McClellan said in reply to questions and suggestions by PBS television broadcaster John McLaughlin.

Mr. McLaughlin's program, One on One, was broadcast last weekend. In it, he made a number of accusations about Canadian government drug policy to which Dr. McClellan agreed.

"Do you think -- without causing an international crisis here -- that Canada's behaviour is parasitic?" Mr. McLaughlin asked.

"They're parasitic because they're living off the research we do, and that research is paid for by the taxpayer who has to pay the prices for it through the price of prescription drugs . . . "

"That's right," Dr. McClellan said.

They're wrong, Canadian officials say.

"The first order of business is get the facts straight, because there is so much rhetoric right now," said Industry Canada's Kathryn Howard.

She and Canada's Research-Based Pharmaceutical Companies, which manufacture brand-name drugs, noted that several new drugs have been developed in Canada as recently as the late 1980s and 1990s, including a drug to treat AIDS and one for asthma.

As well, Industry Canada statistics show that the average price of Canadian drugs is actually 1 per cent higher than prices for the same drugs in seven different countries, including the U.S.

The other countries surveyed were France, Germany, Sweden, Italy, Switzerland and the United Kingdom.

"It tells us we are not out of whack," Ms. Howard said.

The campaign by some to attack Canada seems to have been sparked by the trading of drugs to the United States over the Internet, and a debate there over high drug prices.

However, Ms. Howard says Internet sales from Canada account for less than 1 per cent of the $293-billion U.S. drug market.

The idea that Canada is parasitic is simply wrong, says Jeff Connell of the Canadian Generic Pharmaceutical Association.

"That is absolutely false, absolutely, positively false," he said.

He said the controversy is caused by Americans looking across the border and seeing their drugs being sold back to them at lower prices.

"What that [the activity of Internet pharmacies] does is threaten the brands' most lucrative customers, which is of course the United States," he said.

"That is the biggest market for drugs. It's also got the highest prices. So that's what this is all about."

The U.S. House of Representatives recently passed legislation to legalize importation of drugs from Canada and Europe, which is causing much controversy.

The week before his interview with the head of the FDA, Mr. McLaughlin interviewed the chief executive officer of Pfizer, Henry McKinnell.

Again, the interview concerned the importing of prescription drugs from Canada.

"Why are drugs cheaper in Canada than they are in the United States?" Mr. McLaughlin asked.

Dr. McKinnell said: ". . .the Canadian government sets prices for patented products from the research-based industry, mostly American, at a very low level.

Dr. McKinnell also suggested that terrorist organizations operating in Canada may be financing themselves through the illegal export of drugs.



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