Canadian Drug Reimports Won't Dry Up Drug Profits

April 15, 2004 ( - Pharmaceutical industry claims that Canadian drug reimportation needs to be blocked because it could slash the revenue that pays for important drug research may not hold up after all, according to a new study.

Alan Sager, a professor at the Boston University School of Public Health and co-author of the study, found that U.S. drug companies may actually break even or make profits on Canadian imports, the Boston Globe reported. Sager said the lower-priced imports would spur new prescriptions, which, in turn could generate more revenue that would help leave research budgets intact.

Sager said key to the equation is the balance between new drug sales and sales that are simply shifted to Canadian sources from U.S. pharmacies. If more than 44.5% of the Canadian imports represent new business, said the researcher, then drug companies come out ahead.

“When you lower prices, people buy more drugs,” Sager said. “Drug makers tremble and say publicly that importing drugs from Canada cripples their profits, but our analysis shows that if a reasonable share of the drugs that Americans import from Canada are new prescriptions, then drug makers’ profits remain stable or could even increase.”

The issue has become a major public policy conundrum as a steady stream of state and local government officials have jumped on the Canadian drug reimportation bandwagon, saying that was a good way for them to slash health-care coverage costs. The U.S. Food and Drug Administration and steadfastly insisted that the practice would be illegal.

According to the researcher, it is a safe assumption that new orders will account for a large portion of sales because Canada offers such deep discounts. Many elderly people with no drug coverage could not afford drugs in the United States, but could afford them for the first time from Canadian Internet pharmacies, he said.

The drug industry stands by its assertions that America’s pharmaceutical innovation pipeline would dry up if imports of cheaper medicine were allowed. Sager’s “premise has nothing to do with the reality of price controls,” Jeff Trewhitt, a spokesman for Pharmaceutical Research and Manufacturers of America, the industry’s main lobbying arm, told the Globe. “One of the major reasons that Canada barely registers on the radar screen of innovation and research and development spending is because of artificially low prices on many of its medicines.”

Americans have fueled a strong Internet pharmacy business in Canada, boosting the trade to an estimated $1.1 billion in 2003, up from $700 million in 2002, according to industry estimates. They are taking advantage of discounts of between 20% to 80% for brand-name drugs — made possible because of Canadian price controls on drugs.

A half-dozen drug manufacturers, including Pfizer Inc., the nation’s largest, have responded to the growing importation phenomenon by limiting wholesale supply to Internet pharmacies they believe are engaging in cross-border sales.

But former Springfield, Massachusetts Mayor Michael Albano, who made national headlines last year with a program to import Canadian drugs for city employees and retirees, said that, after sparring with drug companies and studying their operations, he was not surprised at all by the BU analysis.

“The profit margin is less in Canada, but it’s still a healthy profit margin,” Albano said. “Of course they’re making money. They’re not a charity.”