FDA intervenes as half-price drugs across the border give the industry a headache

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FDA intervenes as half-price drugs across the border give the industry a

headache

 

By Stephen Foley

25 March 2003

 

It is July 1999, and a coachful of senior citizens from the northern US state of

Vermont are on a day trip with a difference. They are headed over the border

into Canada, clutching freshly written prescriptions and bound for the nearest

pharmacy inside the country. It is the first high-profile mission of its kind,

organised by left-leaning politicians to highlight the fact that drug prices

north of the border can be up to half the price that a US citizen with no

insurance cover may have to pay.

 

Four years on, these trips are now almost as regular as Greyhound buses and,

together with the advent of mail order internet pharmacies, they have spiralled

into something worse than a public relations headache for global pharmaceuticals

giants. Some senior industry figures have even begun talking about the

traditional Big Pharma business model becoming unworkable if pressure to cut US

prices to Canadian levels becomes irresistible.

 

That is why there was relief in the industry at news over the weekend that the

Food & Drug Administration is clamping down on US pharmacies attempting to

source drugs outside the country and undercut the competition – which is illegal

in a way that personal trips abroad are not. Big Pharma's friends hope the

regulator, with the support of the Federal administration, is turning the tide

against the importers, just as the drug companies themselves appear to have

gotten a grip, too. Few, though, really think this will be the end of the

downward pressure on drug prices in the world's most lucrative pharmaceuticals

market.

 

The FDA has told an Arkansas pharmacy that its Canadian importing business is

against the law and warned the company, Rx Depot, that it would face big fines

if it does not stop. It comes after the regulator has told state health

authorities that they must not support importation, and FDA officials have even

hinted that it may take legal action against those helping US citizens to buy

drugs from abroad.

 

Rx's business is a " threat to public health " , the FDA says. Its letter to Rx

expressed the extent to which Canadian imports have grown in recent years:

" Foreign medications purchased by US consumers from unregulated drug outlets

pose a growing potential danger.... Because the medications are not subject to

FDA safety oversight, they could be outdated, contaminated, counterfeit or

contain too much or too little of the active ingredient. "

 

The political campaign to reduce US drug prices via Canadian imports has been

stymied since 2000 by a classical piece of legislative manoeuvring. That year, a

Reimportation bill was passed which allowed drugs to be shipped across the

border – but only if the federal Health and Human Services Secretary was

convinced it would not pose a threat to US citizens' health. Unsurprisingly,

with the legal guns of Big Pharma trained on them, successive politicians have

declined to make a call that defied the advice of the FDA.

 

The drug companies have enthusiastically followed this argument that imported

drugs, especially those sold via the internet, are difficult to track, and would

make an emergency product recall, for example, impossible. In GlaxoSmithKline's

case, it additionally argues that imports are a threat to the health of Canadian

citizens, too.

 

Nancy Pasternak of GSK said: " We have a responsibility through GSK Canada to

ensure that patients there have the medicines they need. When they are being

siphoned off across the border, that becomes difficult. "

 

GSK has taken an aggressive stance in the past few months, threatening to stop

supplying Canadian wholesalers whose products leach back into the US. In January

it sent a " reminder " to its distributors, stressing that the drugs have been

approved by Canadian regulatory authorities for sale in Canada to Canadian

citizens only. The threat to ditch suppliers has not, as yet, been carried out,

since GSK is instead rationing wholesalers to a level of supply they agree will

satisfy the Canadian market and no more.

 

Nonetheless, the letters sparked a furore and GSK is now the subject of an

attempted consumer boycott. Senior citizens groups and other campaigners have

told people to spurn GSK's over-the-counter products such as Aquafresh and

Sensodyne toothpastes, and Nytol sleep aid. The campaign is nicknamed " Tums

Down " after the indigestion sweets it also hopes to put off-limits.

 

Other drug companies have not stuck their heads above the parapet in the same

way as GSK, but they are making similar efforts. Merck and Pfizer have made

quieter threats to their wholesalers, and AstraZeneca said yesterday that it

" works closely with distributors to manage cross-border trade " .

 

The scale of Canadian imports is difficult to divine, precisely because it is

unregulated, but it has increasingly concerned senior figures in the industry.

It has opened up another front in the battle over drug prices in the US, as Big

Pharma comes under increased political and legal pressure over what its

opponents term excessive profits.

 

Jean-Pierre Garnier, the chief executive of GSK, is known to believe that the

driving down of US drug prices to Canadian levels would be the single biggest

threat to the future of the industry. More than half of sales, by value, come

from the US. If combined with an erosion of drug patent protection in the Third

World and a sustained failure to improve research and development productivity,

Mr Garnier fears the current Big Pharma business model could become fatally

undermined.

 

Few expect that the pricing gap between Canada and the US is going to be

narrowed by increases in the former country. Professor Patricia Danzon, at the

University of Pennsylvania, explains why the differential exists.

 

" In some cases it is because medicines have come off patent in Canada before

they have in the US, but there is also a significant difference in the prices of

on-patent drugs. In the last decade, the Canadian dollar has declined against

the US dollar by some 18 per cent, so even if the relevant policies had stayed

the same, there would be some disparity. As it is, Canada has two mechanisms for

controlling prices, a Federal board which reviews the pricing of new drugs and

the provinces own formularies which are quite aggressive in dealing with

wholesalers. Finally, average per capita income in the US is higher than in

Canada, " she said.

 

The FDA's actions in the past week have given heart to the global pharmaceutical

industry that it can continue to contain the threat from cross-border drugs. But

analysts believe the political and legal pressures on US prices that have

combined to depress drug company share prices are continuing to grow. The threat

from cheap copycat drugs, called generics, is of most concern.

 

Stuart Adkins of Lehman Brothers says: " If the threat is not from Canada, it

will be from generic versions of drugs and alternative brands. So far, most

formularies have seemed reluctant to restrict choice to the cheapest products,

and patient choice has remained a watchword. But political noise always gets

louder during times of particular economic hardship. "

 

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