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Imported Drugs from Canada: The Right Prescription?

Imported Drugs from Canada: The Right Prescription?

US Politicos Weigh Options to Circumvent Sky-High Prices
drugs-imports-canada
Canada takes longer and approves fewer drugs for consumption than the United States. (Pexels)

Imported Drugs from Canada: The Right Prescription?

1170 658 Paz Gómez

Senator Bernie Sanders (D-VT) has proposed to import drugs from Canada to increase affordability, and he is far from alone. Politicians in 17 US states have considered and promoted similar measures. Indeed, Vermont passed a law last year, and the Florida House followed suit in late April to deliver low-cost pharmaceuticals imported from Canada for state programs.

President Donald Trump has shared his support for the idea and asked Health and Human Services Secretary Alex Aznar and Florida Governor Ron DeSantis to consider further options to reduce drug prices. However, to come into effect, the new legislation needs federal approval, scheduled for July 2020. This will follow a study on how to import cheaper pharmaceuticals that meet federal safety standards.

Content

  • What quantity of gray-market drugs flow from Canada to the United States?
  • How could President Donald Trump open this up to legal trade?
  • Does Canada have the capacity to serve the US population?
  • How costly is the US research and development process for bringing drugs to market?
  • How much drug research and innovation does Canada offer?

Senator Bernie Sanders (D-VT) has proposed to import drugs from Canada to increase affordability, and he is far from alone. Politicians in 17 US states have considered and promoted similar measures. Indeed, Vermont passed a law last year, and the Florida House followed suit in late April to deliver low-cost pharmaceuticals imported from Canada for state programs.

President Donald Trump has shared his support for the idea and asked Health and Human Services Secretary Alex Aznar and Florida Governor Ron DeSantis to consider further options to reduce drug prices. However, to come into effect, the new legislation needs federal approval, scheduled for July 2020. This will follow a study on how to import cheaper pharmaceuticals that meet federal safety standards. 

What quantity of gray-market drugs flow from Canada to the United States? 

The informal nature of the trade leaves a limited paper trail. However, at least 8 percent of Americans buy or have bought prescription drugs from outside the United States, according to a Kaiser Family Foundation poll conducted in November 2016. In other words, around 19 million adults in the United States have imported a drug at some point. 

Andrew Zullo, a clinical pharmacist and a doctoral student at the Brown University School of Public Health, believes this figure is too low. He contends people are reluctant to admit in surveys they cannot afford the price of their own medicines or that they are doing something illegal.

The Campaign for Personal Prescription Importation conducted a survey between September and November 2018. They found 52 percent of 1,354 respondents—a sample of people purchasing drugs from Canada—saved $199 each month by ordering their medication online. Of the sample, 38 percent saved more than $300 per month. The skewed nature of the results, with a minority saving vast amounts, gave a mean saving for the latter group of $910.

How could President Donald Trump open this up to legal trade?

Trump has embraced Florida’s proposal for drug imports from Canada. That is despite skepticism from Aznar and only minority support among congressional Republicans, notably from Senate Finance Committee Chairman Chuck Grassley (R-Iowa). According to Representative Matt Gaetz (R-FL), Trump can approve the plan in July 2020 only if the proposal has an “actionable plan.”

Policy analysts, such as Joe Antos of the American Enterprise Institute, believe Trump is entering into the conversation over how to reduce drug prices as a ploy for the 2020 election. After all, one in four Americans who take prescription drugs struggle to afford their medicines, according to the KFF Health Tracking Poll of February 2019.

The KFF survey also revealed that large majorities of the respondents favor several alternatives to increase affordability: 

requiring drug companies to list prices in their ads (88 percent), making it easier for generic drugs to come to market (88 percent), allowing the federal government to negotiate with drug companies to get lower prices for people with Medicare (86 percent), and allowing Americans to buy drugs imported from Canada (80 percent). Each of these four options receives support from large majorities of Republicans, Democrats, and independents.

Does Canada have the capacity to serve the US population?

Canada has experienced shortages during the last decade. In the most recent three-year period, Canadians struggled with more than 1,000 shortages that have affected 1,250 products. This equals at least 10 percent of the available prescription drugs in Canada, and many of them are the most commonly prescribed generics. 

Moreover, Canada is still the country with the second-highest prices in the world. She has cheaper drugs than the United States because of provincially negotiated prices with monopsony power. Moreover, the Liberal Party of Canada are building an electoral campaign around “Pharmacare.” If elected, they plan to control or remove prices for eligible recipients, which will exacerbate shortages.

The annual consumption growth of the Canadian pharmaceutical industry peaked above 16 percent in 2011, and then it began to decline. In 2011, Canadian consumers were still the eighth largest market in the world and accounted for 2.6 percent of global purchases (PDF p.7). Then, in 2016, the industry fell into 10th place with a global share of 2.0 percent.

Canada’s main strength is the talent of her workforce, a key criterion for research and development investment decisions in the industry. In the same fashion, Canada has been globally recognized for clinical trials and clinical-research infrastructure (p. 27). Still, according to Industry Canada, “the Canadian drug market alone is insufficient to financially support or justify the full development costs of a pharmaceutical product” (p. 28).

Steve Morgan, a professor of health policy at the University of British Columbia, explains that Americans are not actually importing drugs made in Canada or especially Canadian. “They are just international medicines, manufactured typically at one or two plants worldwide to supply the entire market with a particular drug,” he says. 

In fact, Canada imported $6.65 billion in packaged medicines during 2017, mainly from the United States and the European Union. For this reason, the Atlantic Institute for Market Studies (AIMS) has referred to the phenomenon of “Americans buying lower-priced prescription drugs from Canada” as re-importation. AIMS indicates notes a 2003 study estimated this trade exceeds $1 billion per year. 

Moreover, in 2017, the Great White North declared a public-health crisis due to the increasing amount of fentanyl containing deadly synthetic opioid that arrived at her ports, mostly from China. If Canada becomes an intermediate transshipment point of medicines to supply the United States, she will not have the capacity and resources to inspect those drugs—at least not in the near term. 

In addition to counterfeit products, authorities have identified criminal organizations operating as legitimate online pharmacies. Ali Schroer, a family therapist from Denver, was a victim of this scam after buying anti-allergy pills from an online pharmacy that caused her severe migraines and stomach complications. She references a 2005 FDA operation that determined “85 percent of the drugs sold by supposedly Canadian pharmacies come from 27 countries other than Canada.”

The Structure of Canada’s Pharmaceutical Industry (pp. 10–11)

  • Branded sector: foreign multinationals (MNEs) and one Canada-based enterprise, which represent the largest part of sales and R&D investment in Canada. 
  • Generic sector: a combination of Canadian-based and foreign MNEs and smaller companies. 
  • Small and medium-sized enterprises (SMEs): a small part of the market. They focus on early-stage R&D with few marketed products. 
  • Contract service providers (CSPs): the fourth major actor in the industry, a mix of smaller local companies and larger foreign companies. They serve specific niches of the market.

How costly is the US research and development process for bringing drugs to market?

Developing a new prescription drug under the FDA standards costs approximately $648 million, according to a 2017 study by JAMA International Medicine. The study, developed by researchers at Oregon Health and Science University and Memorial Sloan Kettering Cancer Center, estimated a cost increase to $793.6 million when they included a 9 percent per year opportunity cost of delays.

To estimate the figures, the authors analyzed 10 companies that introduced a new drug into the US market with FDA approval in January 2006. Their median time to develop a drug was 7.3 years. Five of the companies received accelerated approval from the FDA, and the others went through the regular procedure.

Published estimations, however, differ significantly between them. Studies in 2014 and 2016 by the Tufts Center for the Study of Drug Development—a non-profit research center at Tufts University School of Medicine in Boston, Massachusetts—determined a new drug costs $2.6 billion and $2.87 billion, respectively. Medicins Sans Frontiers and Aaron Carroll of the New York Times have criticized the results and argued the Tufts Center applies assumptions that favor the pharmaceutical industry.  

A report to Congress prepared by the Department of Health and Human Services in December 2016, makes reference to studies that estimate bringing a new drug to market costs a range from $1.1 billion to $2.6 billion. However, the authors acknowledge published estimates have several limitations because of time assumptions in each stage of development and the rise of narrowly focused orphan-drug approvals (PDF p. 31). 

Some Republicans legislators claim importing prescription drugs from Canada would also import price controls. Their concern is this policy of artificially lower prices would stifle investment and innovation in the US pharmaceutical industry.

Due to their higher prices, the US pharmaceutical industry only supports importation as long as the products remain under their control. US-based multinational pharmaceutical companies know introducing the same products at lower prices would threaten their market shares. 

How much drug research and innovation does Canada offer?

Canada takes longer and approves fewer drugs for consumption than the United States. Most new drugs are first released in the United States, before being picked up by Canada. However, about half do not make it north, and the United States permits a wider array of drugs than are legally available in Canada.

 

Canada

United States

NASs* approved for release: January 2011 – June 2018

119 drugs  (1)

213 drugs  (1)

Median launch lag**

11 months (1)

0 months (1)

Drugs launched between August 2000 and March 2018 but not in any other country 

2–6 percent (1)

71 percent (2)

Pharmaceutical R&D investment (2018)

2.79% of the GDP (3)

1.55% of the GDP (3)

Exports: Packaged medicaments (2017)

$5.39 billion  (4)

$29.5 billion  (4)

Drug-exporting companies

1 company (Valeant) (5)

11 companies  (5)

Market value (revenues in 2018)

$22 billion  (6)

$475.8 billion  (6)

  1. EY’s Report: Innovative Medicines Canada (January 2019) 
  2. FDA’s Report: New Drug Therapy Approval Report  (January 2019)
  3. OECD Data: Gross domestic spending on R&D (2000 – 2018)
  4. World’s Top Exports: Drug and Medicine Exports per Country (2018) 
  5. MIT’s World Atlas: Canadian Exports & US Exports (2017)
  6. IQVIA: Top 10 Pharmaceutical Markets Worldwide (2018)

*NASs: New Chemical or Active Substances

*Launch lag: the number of months between the first global launch date of an NAS and the launch date within a country.

Previous Coverage

Why Canadian Drugs Can’t Cure Deadly Shortages in the United States,” Frontier Centre, by Fergus Hodgson

Paz Gómez

Paz Gómez is an Econ Americas analyst and a widely published economic commentator. Based in Quito, she leads the firm's office in Ecuador. She holds an MS in digital currency and blockchain from the University of Nicosia, Cyprus, and a BA in international relations and political science from San Francisco University of Quito. She is a cofounder and the academic coordinator of Libre Razón, a classical-liberal think tank in Quito, Ecuador. Follow her on Twitter and LinkedIn.

All stories by:Paz Gómez

Paz Gómez

Paz Gómez is an Econ Americas analyst and a widely published economic commentator. Based in Quito, she leads the firm's office in Ecuador. She holds an MS in digital currency and blockchain from the University of Nicosia, Cyprus, and a BA in international relations and political science from San Francisco University of Quito. She is a cofounder and the academic coordinator of Libre Razón, a classical-liberal think tank in Quito, Ecuador. Follow her on Twitter and LinkedIn.

All stories by:Paz Gómez

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