Previous Politech message: http://www.politechbot.com/2004/09/21/conservative-group-says/ -------- Original Message -------- Subject: Re: [Politech] Conservative group says Internet drug reimportation = higher $$$ Date: Tue, 21 Sep 2004 11:13:06 -0300 From: Stephen Downes <Stephen.Downes@nrc-cnrc.gc.ca> To: Declan McCullagh <declan@private> References: <41502756.7030500@private> Hiya, If they avoid selling in Canada, the drugs will simply be manufactured in Canada by generics - the drug companies have already tried this, and that's what happened. Drug costs in Canada are regulated, and are based on the actual cost of drug production, not whatever the market will bear. Drug companies make a fine profit in Canada and enjoy strong patent protection, the cost of which was price regulation. Deregulate the prices... lose the patent protection. -- Stephen -------- Original Message -------- Subject: RE: [Politech] Conservative group says Internet drug reimportation =higher $$$ Date: Tue, 21 Sep 2004 10:06:54 -0400 From: Leibowitz, Wendy <wleibowitz@private> To: Declan McCullagh <declan@private> I think this is just another scare tactic by the pharmaceutical companies to try to stop people from buying their products at a lower cost. Somehow, that's going to lead to drug shortages. Right. -------- Original Message -------- I think the problem is that if the drug companies refuse to sell to the Canadian market, then the Canadian government might feel justified in violating their patents and creating the drugs themselves. I know that sounds a little third-worldish, but hey, that's why I live here. So, if that's the case, then the drug companies are basically forced to follow Canada's rules or lose really big. -------- Original Message -------- Subject: RE: [Politech] Conservative group says Internet drug reimportation =higher $$$ Date: Tue, 21 Sep 2004 10:34:52 -0500 From: Paul Higgins <pahiggins@private> To: Declan McCullagh <declan@private> Declan: I can't claim to have any special expertise on this topic, but I'm guessing that part of your confusion has to do with length of run. In the short run you are almost certainly correct: if transborder arbitrage in prescription drugs is permitted to occur on a sufficiently large scale, then the prices in Canada and the United States would presumably equalize eventually (aside from a differential that would endure due to differences in tax laws, transport costs etc.). The IPI seems to be saying that the long-run arbitrage price would be too low to support the ongoing research necessary to keep the pipeline of new drug therapies filled, and that this would eventually raise health care costs to everyone. The IPI's argument seems absurd on its face (again, with the caveat that I can claim no particular expertise in pharmaceuticals economics). Why should we think that arbitrage would force U.S. prices down to the unsustainably low Canadian level? It seems more likely to me, in view of the relative sizes of the two markets, that prices in both nations would settle at an equilibrium level somewhere in-between -- probably closer to the current U.S. price level than the Canadian one, but that's only a guess. The point is that the drug manufacturers aren't idiots; they employ smart people who are perfectly capable of figuring out what prices they need to charge to cover their ongoing research costs. The really important questions, it seems to me, are political rather than economic: Canada has chosen to be a free-rider, enjoying the benefits of pharmacological research that other (mostly American) consumers pay for. As a result, Canadians citizens enjoy access to drugs at below-market prices. One cost Canadians bear as a result of this policy is that, as the IPI news release infers, Canada loses out on some of the research that might otherwise have occurred there, and thus also loses out on the valuable spin-offs that that would have generated. It's more or less the opposite for the U.S.: our citizens pay higher prices for drugs than Canadians do, but our economy is the more technologically advanced, in part because more of the pharma and biopharma research occurs here. So . . . is the U.S. government willing to risk angering the Canadians in order to toss the A.A.R.P. and rest of the consumer lobby a bone? If the pressure on the U.S. government mounts to the point where it has to permit reimportation, how far is the Canadian government willing to go in opposing the U.S. in order to protect its policy? One thing we can rest assured of, though: the pharmaceutical industry will protect its interests and remain profitable. Paul Higgins Madison, Wisconsin -------- Original Message -------- Subject: Re: [Politech] Conservative group says Internet drug reimportation = higher $$$ Date: Tue, 21 Sep 2004 10:50:53 -0400 From: Mike Pettit <mpettit@private> To: Declan McCullagh <declan@private> References: <41502756.7030500@private> (Declan, I've always wanted to communicate privately with you, and not have you post my observations. But I've watched this drug reimportation thing and know some senior citizens impacted by these nonsensical policies, so I grant you permission to post the following if you think it would be useful.) Declan, Your observations are right on the money. First, the big drug companies said reimportation was a huge public safety issue. Then a funny thing happened (while you were traveling last week): their safety argument was completely debunked by the Vice President of Marketing at Pfizer. Appearing at a press conference in Montgomery County, Maryland, last week to comment on the County's proposal to allow county employees to buy lower-cost prescription drugs from Canada, Peter Rost said, according to the Washington Post (Sept. 14, p. B1), that he was tired of hearing colleagues say the practice is a public health risk. "This has proven to be safe in Europe," said Rost, who cautioned that he was not speaking on behalf of Pfizer. "The real concern about safety is about people who do not take drugs because they cannot afford it. The safety issue is a made up story." So now that they realize they've lost on the safety issue, they've resorted to this ridiculous argument about R&D and how reimportation is going to lead to higher prices in the long term. If you have any older relatives or know any senior citizens who can't afford the drugs they need, you know this is serious business. The drug companies ought to be embarrassed. If there is no safety issue, they ought to let the economics play out and see what happens. The Internet allows more efficient distribution. Some smart people have seen and are taking advantage of opportunities for some to deliver drugs to real consumers who need them at prices that are sometimes 50% less (or more, according to my aunt). If the Pfizer VP for marketing agrees that the real safety issue is the poor people who can't get their hands on drugs, then I believe we are entitled to be skeptical about the integrity of some of these other (undoubtedly drug company financed) arguments. Mike Pettit Hi Declan, The argument given is that U.S. drug companies make a minimal profit in foreign countries where the government has artificially enforced a market price, and some of this minimal profit goes into R&D, which benefits consumers worldwide. Additionally, U.S. drug companies decline to export some drugs to countries when those countries' governments set the market price too low, so we know that they must make some profit. If U.S. consumers are allowed to reimport those drugs at the artificially lower prices set in those foreign countries, then the U.S. drug companies will make the rational economic decision to protect its U.S. market, and they will stop selling more drugs in those foreign countries. (especially Canada and Mexico) This means that U.S. consumers will pay for all future R&D, rather than just the significant majority of it, raising the drug prices in the U.S. in the long term. Obviously, someone has to pay for drug R&D. On the other hand, given the high cost of prescription drug benefits for consumers, industry, and the government higher drug prices may continue to push more U.S. jobs to foreign countries. It already has a significant impact on the automobile industry. Regards, Name Withheld PS: Drug companies also enforce "export quotas" to pharmacies (at least in Canada) so that the amount of drugs exported to there is only sufficient to meet local demand. -------- Original Message -------- Subject: Re: [Politech] Conservative group says Internet drug reimportation = higher $$$ Date: 21 Sep 2004 21:12:02 -0400 From: John R Levine <johnl@private> To: Declan McCullagh <declan@private> References: <41502756.7030500@private> > [I don't quite follow this argument. Well, of course. That's because you're trying to follow it from the beginning to the end, rather than taking the correct course which is to start with the conclusion, that reimportation is bad, and then work backwards to try to justify it. I think the least bogus version of the argument is that high US drug prices support all that research that makes wonderful drugs possible. But when I see that big drug comapanies regularly report multi-billion dollar profits every year, even after spending all that money developing new drugs, and, say, Pfizer has a 15% profit margin and 11% return on equity, Bayer has a 28% profit margin and 42% ROE, again, after paying for all their R&D, I can't feel very sorry for them. > According to a new study by the Institute for Policy Innovation (IPI), > reimporting drugs is not a guarantee for cheaper prices, and in the > long-run, may result in more expensive drugs and medicine shortages. See, since he's an expert, he can be sure that merely because you pay less for reimported drugs you aren't actually paying less for them. Or something like that. Regards, John Levine, johnl@private, Primary Perpetrator of "The Internet for Dummies", Information Superhighwayman wanna-be, http://iecc.com/johnl, Mayor "I dropped the toothpaste", said Tom, crestfallenly. -------- Original Message -------- Subject: RE: [Politech] Conservative group says Internet drug reimportation = higher $$$ Date: Tue, 21 Sep 2004 10:05:54 -0400 From: Adam Goldberg <adam_g@private> To: 'Declan McCullagh' <declan@private> Declan, I think you're right re arbitrage, but the problem isn't that Canada is unsustainably low, rather that the US is unsustainably (in a functional free market) high. The US patent protections, coupled with the statutory PROHIBITION against Medicaid negotiating for volume pricing and our quite inefficient (from a costs point of view) health care system yields high prices (by design). On the other hand, Canada has strong intellectual property laws, but a more societal benefit theme to its health care policy - yielding lower drug prices (that is, prices that are more reflective of realistic development, production and marketing costs). I heard an interview on NPR yesterday with a Canadian exporter - who actually now operates out of the Bahamas with European suppliers. He refused to name his suppliers for fear of the drug companies cutting them off the way they did to his Canadian suppliers. That is, the drug companies are refusing to sell drugs to wholesalers who sell to retailers who sell to the US. If that isn't indicative of a significant market failure (on our part), I don't know what is. Adam Goldberg adam_g@private _______________________________________________ Politech mailing list Archived at http://www.politechbot.com/ Moderated by Declan McCullagh (http://www.mccullagh.org/)
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