Pharma’s Cutting Edge

Last week Byron Dorgan, Senator for North Dakota and colleagues, including Olympia Snowe, Republican from Maine submitted legislation to the U.S. Senate that would amend the Food, Drug and Cosmetic Act to provide for drug importation by non-manufacturing companies and individuals into the United States from registered exporters in other countries.  For individuals, importation would be limited to drugs originating from Canada, whereas registered institutional importers would be able to import drugs from Canada, Europe, Japan, Australia and New Zealand.  A companion bill was introduced into the House by Representatives Rahm Emanuel (D-IL) and Jo Ann Emerson (R-MO). 

The AARP promptly supported the bills, which are variants of very similar legislation that was first introduced into Congress in 2003 and re-introduced in 2004 and again in 2005.  Is the fourth time a charm?  Well, with a newly Democratic Congress it might be, although poltical pundits, which I do not claim to be, seem to believe that there will not be enough votes to avoid an assured veto by President Bush should the legislation make it to a vote and be passed by both houses. 

I know that pharmaceutical companies and FDA have both argued against such legislation, ostensibly because they believe such export/import will leave U.S. consumers with a drug supply tainted with counterfeit medicines.  The bill’s sponsors believe that they have adequately addressed such concerns in their legislation. 

I think manufacturers and FDA have a legitimate point.  I don’t believe that current technology and oversite resources, even if boosted by money flowing into FDA from fees collected from importers, will suffice to keep the supply of drugs on store shelves at the status quo level of quality.  My opinion is subject to change in the near-term, particularly if some clever technologies are deployed to tackle the tough problem of tracking medicines.  RFID was once portrayed as a panacea, but it is showing itself to be something less. 

In prinicple, however, I support legislation providing for regulated trade of medications across international borders.  Generally speaking, I favor relatively unimpeded international trade of nearly all manufactured goods and see no compelling reason to prevent cross-border trade of pharmaceuticals once a drug-supply equivalent to the U.S. status quo can be reasonably assured.

The $64,000 question pharma would like to have answered is:  What will happen to U.S. drug prices if this or similar legislation becomes the law of the land?  The Congressional Budget Office was asked in 2003 to make an estimate of cost savings to taxpayers, and they chose European parallel imports as the basis for making the estimate.  Of course, they had to lay all sorts of assumptions on top of the European analog to make it work as a basis, but it’s as good a basis as any, which is to say it’s not very good. 

The real problem with interpreting CBO’s estimated drug expenditure reductions of 0.5% for Years 1 and 2 post-implementation and 1% for the Years 3 through 9 is that their report doesn’t actually show how they arrived at their figures for expenditure savings.  Doh! 

Nevertheless, it’s clear that any savings to consumers will be modest.  Personally, I think consumers in the U.S. won’t save a dime, because other governments have no interest in creating a supply shortage in their homelands that could drive domestic drug prices upwards.  They’ll do what they must, including banning drug exports to the U.S. to avoid it.  The most popular drugs (i.e the most expensive drugs) will be banned from export first.  Limited export supply will drive up the prices exporters charge for all non-banned drugs.  Importers wil have no choice but to pass along these higher prices, owing to their already razor-thin margins, leaving wholesalers with a not-so-cheap supply, etc. 

Eventually, the bulk of the export-import business goes away, as everyone realizes that it’s not such a hot business to be in, leaving a handful of very efficient exporters and importers who survive but make almost no impact on consumer drug spending.  That is…I guess that’s what would happen.

So if I were advising PhRMA, I’d say fear not this legislation.  The marketplace efficiencies will reveal that higher drug prices in the U.S. are not primarily due to restricted importation.  But I’d also say, you’re not crazy for worrying about the quality of the U.S. drug supply.  Sure, coming out against the bill for whatever reason makes the industry look like a gang of lying, hypocritical profit-mongers, but hey, you should be used to that by now.  Fact is, importation as proposed could harm the U.S. drug supply.  Work behind the scenes to get that part of the bill fixed, then, as a wise doctor once said, stop worrying and learn to love the bomb. 

January 20th, 2007 | Category: Drug Safety, FDA, Legislation, Product Quality, Public Perceptions, Sales and Marketing | Subscribe to comments | Leave a comment | Trackback URL