*****SPAM***** [Politech] IPI's Tom Giovanetti defends view that drug reimportation is harmful

From: Declan McCullagh (declan@private)
Date: Tue Sep 21 2004 - 22:02:58 PDT

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-------- Original Message --------
Subject: 	Re: [Politech] Conservative group says Internet drug
reimportation = higher $$$
Date: 	Tue, 21 Sep 2004 12:20:29 -0500
From: 	Thomas A Giovanetti <tomg@private>
To: 	Declan McCullagh <declan@private>


If you're interested:

We are very sympathetic with free-trade/no gov't intervention arguments,
and we rarely disagree with friends like the Cato Institute. We're also
not  unsympathetic of the presumed benefits to consumers of prescription
drugs should large-scale reimportation become legal. However, in the
case of prescription drugs (and perhaps other intellectual property
products), things are different. Let me try to explain why.

The assumption behind the free-trade proponents of reimportation is that
drug companies are in a strong negotiating position with national
governments. You stated as much in your comments ("reimportation will
eventually make drug companies (on the margin) seek to avoid selling in
the Canadian market unless they can raise prices to
something closer to the U.S. market"). The problem is, drug companes are
NOT in a strong negotiating position, for two reasons: 1) humanitarian
impulses and pressures would not allow a drug company to refuse to sell
to country X unless they get the price they want; but even more
significant is 2) compulsory licensing. If a country doesn't like the
price it is getting from a drug company, the country can legally
threaten to compulsory license the drug, which means they can legally
take the patent away and begin manufacturing the drug themselves.

Compulsory licensing is a powerful tool in the hands of a country that
would very much like to jumpstart its domestic pharmaceutical industry
by taking a patent away from its owner, licensing one or more of its own
manufacturers to begin stamping out those pills, and then exporting them

So what you have is a bunch of countries who would like nothing more
than to have an excuse to file for compulsory licensing in order to hand
over valuable patents to their domestic manufacturers. This gives
countries every advantage in negotiations with drug companies, and
leaves the drug companies basically bent over the table everywhere
except in the U.S., where there remains something vaguely resembling a
true market in prescription drugs.

So the int'l prescription drug market is like a balloon that is being
squeezed from every direction except one, so it bulges in the direction
of the U.S. But if you start squeezing the balloon from that direction
as well, the balloon pops. The U.S. is the pressure relief valve, and if
you plug IT up, things blow up. Drug companies would then NOWHERE be
able to recoup the profits they need to continue the current level of
R&D investment, and the net result will be fewer new drugs available to
anyone, including those who need them most in developing nations.

That's why allowing large-scale reimportation of prescription drugs into
the U.S. is bad economic policy, to say nothing of increased threats to
health and welfare, which I have not addressed in this email.
Tom Giovanetti
Institute for Policy Innovation (IPI)

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