Drug imports don't hurt profits, study says

Analysis rebuts argument of pharmaceutical makers

April 16, 2004|By THE BOSTON GLOBE

Boston University researchers say they have found a big hole in the pharmaceutical industry's argument that cheap prescription imports from Canada would hurt profits that fuel critical research for new drugs.

The analysis, released yesterday, says that drug companies may break even or actually make profits on Canadian imports because the lower-priced imports would spur new prescriptions. If true, that could leave research budgets intact.

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 percent of the Canadian imports represent new prescriptions, then drug companies come out ahead, said Alan Sager, a professor at the Boston University School of Public Health and co-author of the study.

"When you lower prices, people buy more drugs," he said. "Drugmakers 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 drugmakers' profits remain stable or could even increase."

It is a safe assumption that new orders will account for a large portion of sales, Sager said, because Canada offers such deep discounts.

Many elderly people with no prescription insurance coverage could not afford drugs in the United States, but they can buy 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," said Jeff Trewhitt, a spokesman for Pharmaceutical Research and Manufacturers of America, the industry's main lobbying arm.

"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," he added.

Christopher Ward, an Ontario health care consultant who has worked for the trade association and U.S. drug companies, said the Canadian pharmaceutical industry spends less of its revenue on research, just 10 percent compared with 18 percent in the United States. The trade group has said U.S. drug companies spent $32 billion on research and development in 2002.

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 percent and 80 percent 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 Canadian Internet pharmacies they believe are engaging in cross-border sales.

Most recently, Eli Lilly & Co. sent letters to Internet pharmacies saying it would review certain wholesale orders of its drugs before authorizing shipment. Lilly declined to comment on the Boston University study because it has not seen a copy of it, but said the company remains concerned about drug imports.

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