Sunday Strategist: What’s Wrong With Importing Cheap Drugs From Canada

(Bloomberg Businessweek) -- Importing cheap prescription drugs from Canada seems like an easy strategy to save money for American consumers. Eight in 10 people surveyed by the Kaiser Family Foundation last year gave it a thumb's up. But its main effect could be to deprive Canadians of needed drugs, creating a rift between the nations.

Canada has only about a ninth as many people as the U.S., and many drugs there are already in short supply. So sucking drugs out of Canada and shipping them to the U.S. in volumes large enough to affect prices in the American market would create serious shortages in Canada. That's why the Canadian federal government and private organizations are trying to get the U.S. to back off from the importation plan.

"Most of us in Canada do not take kindly to the idea of American politicians of any party thinking they can get an easy ride, to appear to do something about high drug prices, by raiding our pharmacies or our wholesalers," says John Adams, the board chair of the Best Medicines Coalition, a coalition of Canadian patient advocacy organizations. Adams has a son with the rare genetic disorder phenylketonuria and lost his wife to amyotrophic lateral sclerosis, also known as Lou Gehrig's disease or ALS. 

On Dec. 18 President Trump announced a rule that if finalized will allow importation of certain prescription drugs from Canada. He also announced draft guidance that would allow importation of FDA-approved drugs from other foreign countries.

The Trump Administration's stratagem has set off a range of counter-stratagems by other players. Pharmaceutical Research and Manufacturers of America, the trade group known as PhRMA ("pharma"), which opposes importation, is emphasizing safety concerns. "Canada has said that it cannot and would not be able to certify that medicines shipped through Canada to the United States are safe," PhRMA says on its website.

Drug distributors in the U.S. are also against importation, with the Healthcare Distribution Alliance, a lobbying group, saying it would "threaten patient safety without any meaningful cost reductions."

In 2018 a Canadian online pharmacy was fined $34 million for importing counterfeit cancer drugs and other unapproved pharmaceuticals into the U.S. The importation of prescription drugs from Canada has been legal since 2003, but only on the condition that the secretary of the Department of Health and Human Services certify that there's no danger to American patients. No secretary was willing to make that commitment until HHS Secretary Alex Azar did so last year.

The Canadian government, for its part, has zero financial interest in certifying that drugs imported to the U.S. from Canada are safe because that would simply encourage the flow, leaving Canadians undersupplied. Adams says he believes the Canadian government might punish Canadian wholesalers that shipped drugs south of the border. "The government of Canada has tools to shut this down," says Adams, who says he's in regular communication with government officials. "They’re not going to tip their hand unless and until it’s absolutely necessary. Don’t back us into a corner, please." 

The federal legislation requires states to devise implementation plans. Adams, for one, is making the rounds of state capitals pleading with them to reconsider. 

Pharmaceutical companies are in an awkward position when it comes to strategizing their response. They make much fatter profit margins in the U.S. than in most other countries, where prices are controlled, but they know that no one wants to hear them complain that importation would curtail their ability to charge higher prices in the U.S. That appears to be why they're stressing safety issues instead.

An executive of a pharmaceutical company who spoke on condition of anonymity told Sunday Strategist that importation of drugs from Canada would wreak havoc on their business plans. Cheap drugs from Canada would displace some of the domestic supply of drugs, which would then have to be discarded, since they can't be sold anywhere else, he said.

Furthermore, pharma companies could not instantly ramp up production of more drugs to sell in Canada to replace the ones diverted to the U.S., he said. Nor would they want to, since it would enable a process that killed their business model. Yet underserving the Canadian market is also unacceptable.

"We're between a rock and a hard place," he said. "It's an ugly mess."

Indeed it is. "It seems crazy that so many politicians/states are wasting their time on an idea that won't work," Rafi Mohammed, founder of Culture of Profit, a Cambridge, Mass., pricing-strategy consultancy, writes in an email. Importing cheap drugs from Canada, writes Mohammed, is "a fake solution."

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To contact the editor responsible for this story: Silvia Killingsworth at skillingswo2@bloomberg.net

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