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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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October 17, 2004

Preach It, Brother

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Posted by Derek

Saturday's New York Times had an astonishingly sensible article about the drug reimportation issue. (You can go ahead and insert the phrase ". . .especially for the New York Times") Some highlights:

"It may make political sense to point to Canada as a solution to high prescription drug prices in the United States. But many economists and health care experts say that importing drugs from countries that control their prices would do little to solve the problem of expensive drugs in the United States, where companies are free to set their own prices. Even the nonpartisan Congressional Budget Office estimated that allowing Canadian drug imports would have a "negligible" impact on drug spending. To begin with, there are not enough Canadians, or drugs in Canada, to make much of a dent in the United States. There are 16 million American patients on Lipitor, for instance - more than half the entire Canadian population."

Quite so, and as the article goes on to point out, we in the drug industry have no incentive to ship Canadian pharmacies ten times as much stock as they need for their own country. It's not going to be pretty, but cutting things off at the supply end is what's going to happen - unless, of course, Congress manages to make that particular business decision illegal, as they're threatened to do. Here's some more:

". . .the measures proposed so far would do little to change the fundamental economics of the drug industry as it exists today. Prescription drugs cost a lot to invent, but once invented cost little to manufacture. That is why patents are granted to drug companies - to prevent other companies from copying their inventions long enough for the inventors to set prices high enough to recover their investment and make a profit. But price controls short-circuit this system."

That's absolutely correct in every detail, and such is the state of journalism today that I could not believe my eyes when I read it. I starting waving the paper around, clutching my chest and calling out to my wife: "It's the big one! I can feel it!" She's used to me. And one last quote:

"But the United States market is hard to compare with any other. It represented more than half of the global drug industry's sales of $410 billion last year and was the country in which drug companies make the bulk of their profits. Whatever one thinks of the pricing disparity, efforts to force down American prices to Canadian or European levels could radically change the economics of the pharmaceutical industry - which effectively depends on United States profits for all of its activities, including a substantial portion of its spending on research and development.

American consumers are "subsidizing everyone's R&D,'' said Mr. Love, the consumer advocate. "We're paying way more than everyone else. Others should pay more.''

This article is bylined Eduardo Porter, and I wish to publicly salute the man. I'll think of this every time I'm about to get the vapors about reimportation and remind myself that good sense can break out.

Comments (8) + TrackBacks (0) | Category: Drug Prices | Press Coverage


1. Pedro on October 18, 2004 9:03 AM writes...

I can't see companies cutting off supply to Canada - the Canadian Government just wouldn't let that happen. The end result would be to get Canada to finance its own export restrictions.

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2. Derek Lowe on October 18, 2004 10:56 AM writes...

Oh, we wouldn't be cutting supplies off to Canada - we'd just be shipping them an amount commensurate with the size of their market, rather than with the size of ours.

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3. SRC on October 18, 2004 12:18 PM writes...

An outbreak of reason!

Judgment Day must be nigh ...

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4. jeet on October 18, 2004 4:02 PM writes...

unfortunately pointing out that reimportation, Medicare group purchasing or price controls have serious flaws does nothing to reduce the massive amounts of voter pressure over high drug costs.

it does give political leaders some breathing room though. reason, on the other hand, doesn't get you votes.

the pharma industry is doing nothing to address the fundamental problem driving drug reform. in my opinion that is a very large increase in out of pocket costs. yes new drugs do great things and cost a lot of money to get to market (and entail a great degree of risk), but when you get a $5,000 bill for your co-pay for AbfabMab someone is going to hear your pain.

especially if the Canadians get it at a different price.

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5. John Thacker on October 18, 2004 4:12 PM writes...

Yet, jeet, a decrease in out of pocket costs doesn't solve anything either. A decrease in out of pocket costs leads to more demand for drugs. In any case, at the end of the day, if the insurance company pays for it, you still pay for it somehow. Maybe the costs are split over everybody's premiums so you're sharing the burden, maybe your company pays for it-- and reduces your take-home pay to make up for it, maybe the government pays for it-- and raises your taxes and others' taxes.

However, lots of people seem happier with hidden costs. Sometimes I feel like people would be happier if no new drugs were invented, if there was no hope of progress. Then at least the ones we would have would be cheaper.

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6. J on October 18, 2004 4:59 PM writes...

Doesn't anybody remember back in the Clinton days, when health care reform was at least up for discussion, and the media and republicans and conservative dems and...all said "Oh sure look at Canada! You want us to be like them?!" And US health care reform fell in flames. Now all those same people who said Canadian health care was a poor model want to go to Canada and cherrypick the cheap drugs that result from their planned healthcare system...And when they said "no no no to govt healthcare , we'd have to wait in lines for service": has anyone else seen the photos of seniors waiting in huge lines for flu shots?
We don't need to be able to buy cheap drugs from Canada. We need to have a serious open political discussion of reforming our health care delivery system.

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7. John Thacker on October 19, 2004 1:21 AM writes...

Umm, J, no, actualy the people who opposed the health care reform are mostly the same people who oppose getting the cheap drugs, so I don't remember that.

Flu shots are government health care, especially when given to seniors. The government buys almost all flu shots, and they pay for seniors' medicine. Yes, I have seen the lines for flu shots-- they are a reason to not have government health care. If all drugs were bought by the government at a fixed very low price like flu shots, we would have the same problems as flu vaccines.

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8. jeet on October 19, 2004 4:29 PM writes...

I guess what I was trying to point out is that drugs are only a portion of the health care costs around most procedures, however the out of pocket system is very different.

Let's say previous to the launch of a new drug, 20% of a particular group of patients had to get surgery, but after the lauch only 5% of the same group needed the surgery.

Before the launch the 20% would need to pay their co-pays and deductables for the procedure. After the launch 60-80% of the patient population pays the co-pay for the drug plus 5% also pays the co-pays and deductables for the procedure.

First the number of people with increased out of pocket costs has gone up, even if the drug is a net benefit to the health care system (due to the 15% reduction in costly sugery).

Second, in most insurance plans (and Medicare), the co-pays for surgery (as a percent of the total cost) is much less than the co-pay for drugs.

I just wanted to point out the source of the political pressure that is driving the call for imported drugs and the differential costing system used in healthcare for drugs vs. procedures.

I think that if the industry does nothing to address the pocketbook issue, they will be on the wrong end of reform. Even if that isn't in the best interest of the public in the long run.

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