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Trump is going to allow some (but not all) prescription drugs to be imported from Canada. I am wondering if this is going to work out in the long run as intended.
Currently the main players in all drugs, Canadian or American are:
- The patent owner of the drug. Most of those are US Big Pharma companies at this point.
- The manufacturer. This may be the patent owner but most US drugs are manufactured in India.
- The pharmacy or whole-seller
In the US, drugs are expensive because the patent owner licenses that patent to the manufacturer at a very expensive rate. That same license to a Canadian manufacturer is much cheaper.
So if Americans will be buying their drugs from the Canadian manufacturer, the patent owner is going to make less money and will respond by charging more for the license to the Canadian manufacturer. Both Canadians and Americans will then pay more. This is going to anger Canadian citizens and Canada will respond by not allowing the export of Canadian drugs to the US. So we are back where we started.
The other situation that can occur is that the Canadian whole-seller just decides to charge a much higher price to an American drug importer than it would do a Canadian pharmacy. That whole-seller is not subject to US laws so can do whatever it wants. I would charge just about the same as a US whole-seller would charge, which means US citizens will not be paying much less for imported Canadian drugs.
In any event, it seems to me that the dynamics of the market will change pricing of Canadian drugs and end up washing away the advantage we will get.
Why would the patent owner sell drugs (or a license to make those drugs) for much less money to one country than to another country? If this owner is a publicly owned business, isn't it the right, even the responsibility of the company officials to maximize profits for shareholders of that company?
Second, what is to prevent arbitrage of the drugs by buying at the Canadian price and selling them to US retailers at the US price? If it's all the same drug and manufactured to the same or equivalent standards, what difference does it make?
Obviously there is a LOT I don't know about international trade in general and drug prices in particular.
Essentially, the Canadian concerns are buying US drugs for roughly manufacturing costs, administrative costs and profit. What they are not paying for is R&D costs.
So if you go this route you cannot reasonably complain about slowed new drug discoveries.
Legal drugs have always been available from Canada (and other countries). Any adult can import a 3-month supply for personal use.
The law being passed by Trump is for importing drugs by pharmacies and whole-sellers, which would then be resold in the US. So this is not about personal use.
Why would the patent owner sell drugs (or a license to make those drugs) for much less money to one country than to another country? If this owner is a publicly owned business, isn't it the right, even the responsibility of the company officials to maximize profits for shareholders of that company?
I don't know the reasoning behind licensing at different costs for foreign countries but obviously it is since it is the patent holder that is making money and since drugs cost less in foreign countries but the manufacturing costs are about the same in both cases, the difference has to be in licensing fees.
Quote:
Originally Posted by Chas863
Second, what is to prevent arbitrage of the drugs by buying at the Canadian price and selling them to US retailers at the US price? If it's all the same drug and manufactured to the same or equivalent standards, what difference does it make?
US law prevents it. This is what Trump is proposing to change.
But my point is that he is assuming the cost of the drug will stay the same once Canada is allowed to export drugs to the US. I doubt that it will since the US has shown we are willing to pay a fortune for meds.
It probably will not come to pass. Frankly, it does not even seem plausible.
"...Under the proposal, importers would need the cooperation of the Canadian government and the drug industry, both of which oppose it. Importers would have to take many expensive and complicated steps to prove to the FDA that importation wouldn’t harm Americans, and to weave through complex regulations and the intricacies of the U.S. health delivery system..."
Essentially, the Canadian concerns are buying US drugs for roughly manufacturing costs, administrative costs and profit. What they are not paying for is R&D costs.
Sure, there are of course costs for R&D, but they likely account for a fraction of the huge discrepancy between US and Canadian drug costs for the consumer. To readily accept that as the reason Americans are being ripped off is exactly what the pharmaceutical companies want you to do.
I believe one of the main reasons for the staggering costs of medication in the US is advertising.
Why would the patent owner sell drugs (or a license to make those drugs) for much less money to one country than to another country? If this owner is a publicly owned business, isn't it the right, even the responsibility of the company officials to maximize profits for shareholders of that company?
Second, what is to prevent arbitrage of the drugs by buying at the Canadian price and selling them to US retailers at the US price? If it's all the same drug and manufactured to the same or equivalent standards, what difference does it make?
Obviously there is a LOT I don't know about international trade in general and drug prices in particular.
Some countries have laws that prevent drug companies from soaking their citizens with exorbitant drug prices. America isn't one of them. If you want to do business there, you comply with the law.
America has patent laws that allow drug makers here to prevent the manufacture of generic medications, long after they are available in other countries. In the United States, drug makers get an exclusive patent for seven years. If they come up with a new indication for the drug, it can be extended almost indefinitely. Often the patents are for drugs that were developed in other countries, but American drug companies have bought the rights because they know that they san soak Americans for billions, even for drugs that they didn't develop. This is one reason that prescription drugs are advertised on television.
Example: My wife takes sumatriptan for migraine headaches. We took a trip to Cancun in 2006. At the time, only the brand name drug (Imitrex) was available in the U. S., and ten pills were about $350 without insurance. We found some in the gift shop at the Cancun airport from a generic manufacturer that I recognized (I work in the medical field), same medication, same quantity, over the counter, $20. Given that this was an airport gift shop, that probably isn't the best price that we could have found. (My note: This particular drug is an example of one developed elsewhere, but a US company bought the production rights for this country and made a killing without any R&D. Imitrex was developed in the UK.)
Another example: Medication for nail fungus, three month treatment regimen. After the second month, our insurance company took it off the formulary, and we were told that it would cost $400 if we wanted the last month of therapy. No generic was available in the U. S. I contacted a Canadian pharmacy, generic available, $35 for a one month supply paying out of pocket.
Sure, there are of course costs for R&D, but they likely account for a fraction of the huge discrepancy between US and Canadian drug costs for the consumer. To readily accept that as the reason Americans are being ripped off is exactly what the pharmaceutical companies want you to do.
I believe one of the main reasons for the staggering costs of medication in the US is advertising.
I'm an economist I have a pretty good fix on these things.
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