What's the problem with medicine from Canada?

[Guest guest]

What's the problem with medicine from Canada?

By J. Bradford Delong

Special to the Los Angeles Times

11/28/04

If you listen to drug companies such as Pfizer or Merck, or to Bush

administration health policy officials such as Tommy or Mark

McClellan, or to congressional leaders such as Bill Frist, you will hear

that it is absolutely necessary to ban drug imports from Canada to protect

Americans from adulterated or poisoned medicines.

They are lying.

Tony Pugh of Knight Ridder Newspapers asked the Food and Drug Administration

for examples of Americans who had been harmed by pharmaceuticals imported

from Canada.

" I can't think of one thing off the top of my head where somebody died or

somebody got put in the hospital because of these medications. I just don't

know if there's anything like that, " Tom McGinnis, the FDA's director of

pharmacy affairs, told him.

Health Canada reported that it " does not have any information that would

indicate that any Americans have become ill or have died as a result of

taking prescription medications purchased from Canada. "

Even Rost, Pfizer's vice president for marketing, says he is tired of

hearing colleagues say drug imports from Canada are unsafe: " The safety

issue is a made-up story, " he said.

On the other hand, there is a potentially more compelling argument for

stopping drug imports from Canada.

It runs like this: Drugs are expensive to develop; but once developed, they

are cheap to manufacture. As long as you have one market where you can sell

the drug at a high price and recoup the development costs, it makes economic

sense to develop it. And then it makes sense to sell it everywhere -- even

in markets where its price will be low.

Canada caps the prices of drugs so that drug companies cannot recapture

their development costs by selling to Canadians. If we let U.S. consumers

buy at the capped Canada price, they will.

Drug companies will no longer be able to cover their development costs by

selling at high prices in the U.S. market. Instead, they will either stop

developing new drugs -- which would be bad -- or they'll raise prices for

everyone, which would make drugs unaffordable in many countries and cancel

the benefit of importation for Americans.

How strong is this argument? How much of what drug companies claim as

" development " costs are really marketing costs?

If we allow competition from price-capped Canadian pharmacies, would it in

fact reduce U.S. prices enough to seriously degrade the returns to drug

research and development and markedly slow the pace of drug development and

innovation?

Or would allowing drug imports from Canada simply add some competitive

pressure to the drug market so that more Americans would get the medicines

they need more cheaply?

These are all good questions.

In addition to cheaper drugs, supporters of drug importation see other

benefits in the short run. They see it as a way of starting an international

government-to-government process of bargaining over who will bear the large

fixed costs of drug development.

At the moment, the United States -- which gives drug companies generous

monopoly intellectual property rights -- pays the major share through high

drug prices, while Canada and Europe -- which control drug prices -- pay

little. I can't think of a reason that the United States should bear that

disproportionate share.

And supporters see drug importation as a way of curbing the political power

of the drug industry.

Whether you look at the provisions of the U.S.-Australia free-trade treaty,

at last year's Medicare drug bill or at the FDA's phony claims that Canadian

drugs are unsafe, it is hard to argue that public policy during the Bush

administration has been insufficiently solicitous of pharmaceutical

companies and insufficiently concerned with boosting their profits.

What are the answers to all of these questions? I don't know for sure. The

data needed for full and proper analyses are locked up inside the drug

companies, and they don't like to share.

But the fact that opponents of drug importation are using the fake argument

that Canadian drugs are unsafe -- and that they are not using the (maybe

true) argument that importation could undermine incentives for drug

development -- does tell us a great deal about the strength of the

anti-importation arguments. J. Bradford DeLong is an economics professor at

the University of California at Berkeley. This essay appeared previously in

the Los Angeles Times.

© 2004 Star-Telegram and wire service sources. .

http://www.dfw.com

[Guest guest]

What's the problem with medicine from Canada?

By J. Bradford Delong

Special to the Los Angeles Times

11/28/04

If you listen to drug companies such as Pfizer or Merck, or to Bush

administration health policy officials such as Tommy or Mark

McClellan, or to congressional leaders such as Bill Frist, you will hear

that it is absolutely necessary to ban drug imports from Canada to protect

Americans from adulterated or poisoned medicines.

They are lying.

Tony Pugh of Knight Ridder Newspapers asked the Food and Drug Administration

for examples of Americans who had been harmed by pharmaceuticals imported

from Canada.

" I can't think of one thing off the top of my head where somebody died or

somebody got put in the hospital because of these medications. I just don't

know if there's anything like that, " Tom McGinnis, the FDA's director of

pharmacy affairs, told him.

Health Canada reported that it " does not have any information that would

indicate that any Americans have become ill or have died as a result of

taking prescription medications purchased from Canada. "

Even Rost, Pfizer's vice president for marketing, says he is tired of

hearing colleagues say drug imports from Canada are unsafe: " The safety

issue is a made-up story, " he said.

On the other hand, there is a potentially more compelling argument for

stopping drug imports from Canada.

It runs like this: Drugs are expensive to develop; but once developed, they

are cheap to manufacture. As long as you have one market where you can sell

the drug at a high price and recoup the development costs, it makes economic

sense to develop it. And then it makes sense to sell it everywhere -- even

in markets where its price will be low.

Canada caps the prices of drugs so that drug companies cannot recapture

their development costs by selling to Canadians. If we let U.S. consumers

buy at the capped Canada price, they will.

Drug companies will no longer be able to cover their development costs by

selling at high prices in the U.S. market. Instead, they will either stop

developing new drugs -- which would be bad -- or they'll raise prices for

everyone, which would make drugs unaffordable in many countries and cancel

the benefit of importation for Americans.

How strong is this argument? How much of what drug companies claim as

" development " costs are really marketing costs?

If we allow competition from price-capped Canadian pharmacies, would it in

fact reduce U.S. prices enough to seriously degrade the returns to drug

research and development and markedly slow the pace of drug development and

innovation?

Or would allowing drug imports from Canada simply add some competitive

pressure to the drug market so that more Americans would get the medicines

they need more cheaply?

These are all good questions.

In addition to cheaper drugs, supporters of drug importation see other

benefits in the short run. They see it as a way of starting an international

government-to-government process of bargaining over who will bear the large

fixed costs of drug development.

At the moment, the United States -- which gives drug companies generous

monopoly intellectual property rights -- pays the major share through high

drug prices, while Canada and Europe -- which control drug prices -- pay

little. I can't think of a reason that the United States should bear that

disproportionate share.

And supporters see drug importation as a way of curbing the political power

of the drug industry.

Whether you look at the provisions of the U.S.-Australia free-trade treaty,

at last year's Medicare drug bill or at the FDA's phony claims that Canadian

drugs are unsafe, it is hard to argue that public policy during the Bush

administration has been insufficiently solicitous of pharmaceutical

companies and insufficiently concerned with boosting their profits.

What are the answers to all of these questions? I don't know for sure. The

data needed for full and proper analyses are locked up inside the drug

companies, and they don't like to share.

But the fact that opponents of drug importation are using the fake argument

that Canadian drugs are unsafe -- and that they are not using the (maybe

true) argument that importation could undermine incentives for drug

development -- does tell us a great deal about the strength of the

anti-importation arguments. J. Bradford DeLong is an economics professor at

the University of California at Berkeley. This essay appeared previously in

the Los Angeles Times.

© 2004 Star-Telegram and wire service sources. .

http://www.dfw.com