TCS Daily

Border Crossing

By Roger Bate - August 11, 2003 12:00 AM

The U.S. House of Representatives voted last month to allow re-importation of cheap generic medicines from Europe and Canada into the U.S. Since then the U.S.-based pharmaceutical industry has been frantically trying to explain the consequences of this action to the American public in the hope that the Senate will not support the legislation. Indeed, 53 Senators have already signed a letter indicating they will not support re-importation.


The industry has two general arguments: the first is that by importing overseas drugs, we import overseas price control systems and the profitability of the U.S. industry will be undermined; hence, new drug development will be compromised.  The second argument is that imported drugs will be less safe than American drugs.


The first reason is certainly true. Many of the countries that will benefit from re-importation legislation used to be the most successful drug developing economies in the world. Germany, Britain and Switzerland did the majority of drug research 20 years ago. But because of price controls and excessive regulation they have fallen behind America, which today does over 60 percent of all pharmaceutical research. The Swiss pharmaceutical company Novartis announced in May 2002 that it was moving its research headquarters to the United States. This followed a similar move by French-German Aventis in 1999. Glaxo Smith-Kline (U.K.) decided to move its operational headquarters to the United States in 2000 and Pharmacia (Sweden) moved its headquarters from London to the U.S. in 1995. There is little doubt that prices and profitability are higher in America and undermining the profit potential will compromise new drug development.


The issue of safety is more speculative. It is hard to convince the American people that drugs produced by its northern neighbor are significantly inferior, especially since local Canadian production by companies like Apotex Inc. is generally of very high quality. But it is likely that businessmen will take advantage of the massive arbitrage opportunities of price differentials between U.S. and Canada and start Internet sales sites selling far more products than can be made locally.


I recently received a faxed supply list intended for physicians from a Mr. Jeffrey Uhl. The fax came from Mr. Uhl's Manitoba-based distribution company called Universal Drug Store (UDS), which proclaims a license from the Manitoba Pharmaceutical Association. On the faxed list were well-known drugs like Celebrex (for arthritis), Lipitor and Zocor (for cholesterol) with claimed discounts to U.S. prices respectively of 51 percent, 38 percent and 45 percent.  Someone requiring regular doses of these prescription drugs could save himself, and his insurer, hundred of dollars a year in purchasing from this company rather than from a drug store in U.S.  The offer claims that, "Prescriptions written by American physicians are accepted." Since the fax was being sent to a U.S. number I imagine that such prescriptions are not only accepted, but sought after.


Now, I have no reason to believe that UDS's drugs are of inferior quality. The problem is that I don't know, and it's quite possible that one of their competitors will be selling inferior quality drugs. Generic copies of drugs developed in America are produced all over the world, in places like Brazil, India, and China. The cost of production in these locations is extremely low and their factories are capable of basic and even quite complex chemical synthesis, however, they are also locations where drug counterfeiting is rife.


If World Health Organization figures are correct -- that 8 percent of the world drug market is made up of counterfeits -- then this market could be worth over $30 billion a year. Things are made worse by the fact that the jail sentences and fines for fake drug manufacturers are so low, far lower than for makers of illicit narcotics. Consequently organized crime has moved into this extremely lucrative area, and is sure to take advantage of arbitrage opportunities between America and Canada.


According to Harvey Bale of the International Federation of Pharmaceutical Manufacturers Associations in Geneva, "perhaps as many as 25 percent of pharmaceuticals in developing countries are fakes." When it comes to drugs to combat malaria the numbers are frightening. According to a survey undertaken by several independent medical experts, 38 percent of a key shop-bought anti-malarial compound in Southeast Asia was found to be fake.


Of course, controls in U.S. ensure that the percentages of fakes here are much lower, well below 1 percent. But they are higher in Europe, where re-importation is more common. However, with greater international trade of generic drugs and the increasing breaching of international patent laws (encouraged by the AIDS pandemic), the situation is set to get worse. Re-importation has been opposed by 10 of last 11 Food and Drug Administration Commissioners. All cited public safety concerns, including risks of mishandling, mislabeling, improper storage, ineffective product recalls, and expiration date violations. Some also expressed concern about the potential for opportunists to manufacture and sell counterfeit drugs.


The U.S. is the world's largest and most lucrative drug market. Re-importation of drugs from the EU and Canada will lower drug company profitability but it will also allow in some dangerous fake copies. This is probably too high a price to pay for short run gains in cheaper medicines.


Dr. Roger Bate is Director of the health advocacy group Africa Fighting Malaria.


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