TCS Daily

This Is Your Senate on Drugs

By Elizabeth M. Whelan - July 21, 2004 12:00 AM

The Senate is currently considering a piece of legislation, already approved by the House, to legalize the importation to the U.S. of pharmaceuticals from dozens of countries around the world. Like some pharmaceutical bill from hell, it would undermine the foundations of modern pharmaceuticals -- the safety and efficacy that have made the U.S. drug industry the envy of the world and the source of the majority of the world's new pharmaceuticals for decades. The bill, introduced by Senator Byron Dorgan (D-ND), would essentially eradicate the meticulous FDA drug approval process that has given us the most reliable pharmaceutical supply on the planet.

The purported goal of this legislation is to remove legal barriers faced by private American importers so that they can acquire less expensive drugs outside our borders -- enabling us all to save a few bucks on prescription purchases. That sounds like a laudable goal. Indeed, all of us would like to pay less for everything we buy -- and feel that we should be able to shop around and get the lowest price we can, whether it is on cars, clothes, food, or drugs.

Pharmaceuticals importation, however, is more complicated than that -- much more complicated. To understand the issue, I first asked: why are pharmaceuticals cheaper in Canada and many other countries than they are in the United States?

When I learned that the big drug companies were selling drugs over the border to customers who were paying 50% of what we are paying here in the States, I was annoyed -- at the industry. By means of analogy, I argued, if I made very fine hats and sold each hat here in the U.S. for $100 and then went up to Canada to sell my hats and was told "We will pay only $50 per hat -- take it or leave it," I would have some choice words for my would-be clients, and I would not sell them my hats. And that would be that.

The fact that the big pharmaceutical companies were kowtowing to the price controls in Canada and elsewhere made me conclude that a) they brought this problem on themselves and should have held firm to the market price and b) Americans were in effect subsidizing Canadian purchases.

But then I learned that the regular market forces are not in play here.

Pharmaceuticals are not hats. Under the power of the Uruguay Round world trade agreement passed in 1994 by over a hundred nations including the U.S., any U.S. pharmaceutical company that refuses to comply with another country's pharmaceutical price controls by selling drugs at greatly reduced prices risks losing its patent protection. In other words, in this clause in a trade agreement -- a clause that applies only to pharmaceuticals -- a foreign country can get away with saying "You want $100, but take $50 or we will violate your patent and make knock-off versions of your drug, which we will then sell and profit from, cutting you out completely." There is probably some complicated legal term for such a clause, but the term that comes to my mind is "blackmail."

So under conditions of duress unlike anything in a true free market, the pharmaceutical companies slash prices for those countries that have price controls -- which means most countries in the developed world. Part of this "deal," of course, is supposed to be that the purchasing country -- for example, Canada -- will not turn around and re-sell the drugs to Americans. Drug importation is illegal, for now, but it is almost never enforced.

In recent years Americans have purchased hundreds of millions of dollars worth of drugs from foreign dealers, either from land-based pharmacies or over the Internet. Understandably, the U.S. pharmaceutical companies are not happy about this -- and they are taking whatever measures they can to limit the supply of pharmaceuticals they sell to a country like Canada so that there is enough for Canadians to use but not enough to re-sell back to America. As U.S. manufacturers begin to limit drug supplies sold to Canada, there will be a void there -- huge demand from the U.S., but a dwindling supply of drugs for Canada to sell back to us.

While in the past few years it could be argued that imported drugs from Canada posed little or no known health risks (since the drugs were just doing a round-trip from the United States), times and circumstances are changing. As the Canadian markets have less product from the U.S., they will turn to other countries for supplies -- Mexico, Bangladesh, Slovenia, and others. The probability that these drugs will be adulterated or just plain bogus is enormous, and both Canadian and U.S. officials acknowledge that there is no system in place for determining the safety and efficacy of these imported items. We know that pharmaceuticals are relatively easy to counterfeit, and bogus drugs are big business around the world. A recent recall of 100,000 bottles of counterfeit Lipitor tablets by a U.S. distributor signals that fake and possibly dangerous drugs are in our future -- and the future is now.

Here is where the pending legislation makes it worse. The Dorgan bill basically legalizes importation and sale of almost any drugs from numerous countries around the world -- not just Canada. This is disastrous legislation for at least two reasons.

First, it in essence repeals all or most of the Federal Food, Drug, and Cosmetic Act, which ensures safety and efficacy standards for drugs approved for use in the United States. The bill jeopardizes the safety of our nation's medicine supply. The 25 or so "approved" countries can sell to the American market any drugs that are "the same" as FDA-approved American drugs. But what does" the same" mean? Manufacturing processes, quality control, dosage, labeling, and more are different from country to country. How would you know if 20 mg of an Italian drug is identical to 20 mg of a French or American drug? How would you know if the pharmaceutical was adulterated by the manufacturer -- or by some intermediary along the shipping route? Under the current law, the burden to show a drug to be safe and effective lies with the manufacturer. Under the Dorgan bill, a foreign drug is presumed to comply with the law if it has the same active ingredient, route of administration, dosage, and strength -- but who determines that it does? Certainly the FDA is not equipped to test and clear hundreds of thousands of drug shipments from around the world into U.S. ports and airports.

Second, the pending bill seeks to require U.S. pharmaceutical companies to supply foreign countries with unlimited supplies of drugs -- once again, at reduced prices in keeping each country's price controls. Obviously, with constantly replenished supplies beyond the needs of the importing country, the excess will be sold to the one place where they fetch the highest price, the nation without price controls: the United States. It does not take a Ph.D. in economics to realize that an industry forced to sell its products at minimal or no profit will have less revenue to re-invest in creating new products, in this case blockbuster drugs of the future that would prolong lives and promote health. The bottom line here is that the Dorgan bill would import price controls to the United States, with all their negative effects.

Pharmaceutical companies in the United States produce the large majority of the world's new drug discoveries each year. A growing number of foreign drug manufacturers are relocating here to enjoy U.S. patent protections. Patent protections -- and profits -- provide incentives for innovation. (How many new drugs do you know of being launched from Canada and other countries with price controls? Virtually none.)

Advocates of the Dorgan bill and others clamoring for imports of cheap drugs are myopic and reckless. Their efforts, if successful, will choke off the flow of innovative pharmaceuticals -- and, in the interim -- will leave Americans at risk of illness and perhaps death as ineffective, diluted, toxic, bogus pharmaceuticals find their way into our pharmacies.

Instead of killing the geese laying the pharmaceutical eggs, we should be giving companies every possible incentive to come up with new drugs, while at the same time making regulatory revisions (for example, accelerating the approval time for drugs and reforming the litigation system to prevent frivolous lawsuits against drug companies). In the long run, that would make drugs more affordable while giving companies the resources needed for more research and development.

The U.S. government can change the situation beyond our borders as well -- by using trade agreement pressure to scale back foreign price controls so that other nations pay their fair share for research and innovation.

The author is President, American Council on Science and Health (see and


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