Why are drugs cheaper in Canada (and elsewhere)?

Right now you’re probably sitting there thinking, “Whoa’, that’s totally different that everything I’ve heard” or “it’s cheaper for me, so it’s cheaper”. Let me explain why I am right.

The difference is social systems (namely socialism) and trade policy. Those are the two biggest factors.

Imagine you are a drug manufacturer. What is your largest cost? Is it manufacturing? Not a chance. Your biggest cost is by far development of newer and more cutting edge drugs. The actual manufacturing could be pennies on the dollar in comparison. Quite often the actual manufacturing is farmed out to local manufacturers in the host country. They aren’t really selling the drugs across the border, but rather the know-how to a contractor…in say Canada or Europe.

Because of our system we have taken a lead in developing new drugs. The vast majority of medicine and medical practices are developed here in the US. Why? Because can afford (and do spend money on) the R&D costs.

Now let’s say you develop some really good cancer treatment drug (a fictional example) and it cost you billions in development. Because of the dominant view that drugs are developed for the good of mankind, the drug companies sell drugs in places like Canada where they literally cap what they can be sold for.

What ends up happening is the foreign markets actually in many ways drive up the costs of our prices at home, in other ways they kind of drive down prices. More of the former than latter. Let me explain that seeming contradiction.

First off, one MUST recoup costs of development. Those billions are spent on your cancer drug no matter what.

In a purely ‘Canadian’ system it would take 100 years to recoup the R&D costs of your new drug, if ever. It’s because of price controls.

If the US adopted the socialist price control system it would completely bankrupt the entire industry in less than 10 years thus making everyone worse off. It would happen also if we allow the importation of drugs. 2+2=4.

The R&D costs MUST be recouped one way or another, and the quicker that happens, the faster we get more and better drugs. We are looking at turn-over. One won’t reinvest money they don’t have or have not yet gotten back. Who will pour money into a money losing venture?

Here is how Canada (and others) drive up our drug costs: because of their system they force US consumers to foot the bill of R&D costs. Those costs are simply spread over less consumers. We have a smaller market (compared the entire world) that is the one actually paying for the R&D. Our cancer drug costs are simply not allowed to be priced in globally. They quite literally force us to pay for our own R&D and recoup the costs all by our lonesome (that THEY are benefiting from). Our companies are not allowed to price drugs internationally so that the R&D costs are spread out among more of the people that actually consume the product. We are not allowed to treat foreigners as actual market participants.

In short, the US consumer is subsidizing everyone else’s “right” to have drugs. If the global drug market was not segmented, on average the US consumer would pay 60% less and everyone else would pay 25% more.

How they drive down costs is that what little they do contribute financially does help the drug companies. It’s still though an unfair system. The international markets want something for nothing. If we cut them off from the pot we are SOBs. If we make them pay for what they get we are SOBs. It’s a lose-lose situation.

If the US companies refuse to supply their markets everyone does what China threatened to do: Go buy a few bottles in the US, reverse engineer and manufacture the drugs on their own. Then the drug companies get NOTHING and all patents are disregarded. In other words the drug companies are trapped in the system.

The US is the only place in the world where the costs of drug development can be recouped. That’s the simple truth of it. If that market goes, the whole industry dies. That is why the drug companies are so opposed to drug importation. It would in essence Canada-fy our drug market and seriously stifle the development of drugs.

Instead of complaining about the drug companies maybe we should complain about the socialism overseas. Truth is, if you are American, you are paying for some old Canadian lady’s drug bill. That’s what it amounts to.

A lot of research is financed by public grants. Also a large part of price is caused by the expensive legal requirments. It is strange that the same people who feel sorry for the companies which could suffer losses if prices are not controlled, do not feel sorry for people who invested years of their life and tens of thousands of their in education money to see their jobs sent abroad. Free market should work both ways.

They do. You are implying that you want drug price controls which would not be a free market.

Quite a lot of the research that the drug companies use was done using public universities and grants so to say we do not subsidize them is not entirely accurate.

That is not entirely accurate either. Most publicly funded research is not drug development specific and provides information for open use. Research done at public facilities for the specific use of a drug company is generally funded by that company the same as if they were to use a private lab. Examine the balance sheet of a company like Merck and it will show this. The drug companies are publicly traded, if you really believe they are charging excessive prices, buy their stock and get on the gravy train. You will soon learn that although they are basically sound stocks,they do not produce exceptional return on investment and carry risk about the same as equivelant stocks in other market segments. If they were raking it in, it would show up. Enron and Worldcom demonstrated that in the US system you can make it look like you have revenue that you don't really have, but doing the reverse, hiding money that you do have is a lot harder and I don't really believe that it can be done.

I also ran a google search And most of the results that I looked at seam to show that drug companies spend 50-100% more on advertising than R&D.

That is a slightly deceptive comparison. A lot of drug research is done by small companies which work on just a handful of projects betting that one will pay off. When the small company hits on a winner, they then basically sell themselves to a major company and the major company markets the drug. The small company did the actual R&D. The major company ends up paying for the R&D done by the small company on all of its projects, winners and losers. However, on the major companies books, the expense is for acquisition, not R&D, even though effectively it is an R&D driven investment.

If you watch the drug sector of the small cap market, you will see non-descript companies whose stock goes up 500, 600, or even 1000% practically overnight. They've hit a winner and will be bought out soon. The small company does not have the resources to market the drug.

...But those companies that take your tax dollars to develop those medications have to make a profit before the patent runs out and they stick it to you every time.

You had it right before you veered off at the end. The companies must make a profit. A major drug company exists because of the Billions of dollars that investors have invested in the companies stock. If the company cannot provide an adequate return on that investment, the investors pull their money and the company no longer exists. It is a pretty simple equation. It is how the capitalist system works. As far as sticking it to you, if it is your dollar invested, what would you consider a reasonable return for the risk you are taking? After you figure out that number, identify which drug companies are returning a higher rate then that. Those are the ones that are either sticking it to you or offering you a wonderful investment opportunity...it's your call.

My wife got a subscription for an antibiotic that cost $100 , we got one for our dog and got the EXACT same one from the vet for $15.

This is not unusual. Several factors are involved.

First, the medication for your pet does not carry a potential multimillion dollar liability for the company that made it, the doctor who perscribed it or the drugist who sold it.

Second, the pet medication is not subject to the same documentation and process controls that the "people" drug is subject to. That pushes costs up. The two may not even be produced in the same factory.

Third is a crazy aspect of the US drug system (or should I say pharmacology to not confuse it with other types of drugs?) Many of the drugs used today are used in what is referred to as an off label usage. The drug is originally developed, tested and qualified with the FDA for a particular usage. After qualification it is later found that the same drug is effective for other uses. These uses are not part of the original FDA process so they are not considered as "on label". However, the drug company is legally responsible for keeping track of these uses, keeping physicians who perscribe the drug informed of off label usages, and tracking the results of off label usage.

The off label usages at times pay off big. The drug gets used more for an off label usage than the usage it originally qualified for. But there are just as many off label usages that are not very high volume. The drug company cannot just decide to avoid the cost and ignore that usage because they can be sued if they are marketing to a physician and the physician has a patient who could have benefitted from the off label usage but the physician had not been made aware of the off label use. The pill for your pet does not carry anywhere near as stringent a requirement. Off label usage is only pursued when it is profitable.

You are all forgetting one lesson from your basic economics class.

It is always amusing to me that most people accept that the laws of Math, Physics or Chemistry are strict and can't really be broken, but the laws of Economics can be changed to whatever we want them to be.

They are called the "Laws" of Economics for a reason.

While I don't know specifically a whole lot about the drug industry, I have a stake in international trade. Enough to know you gotta be high on something...

I took your comment as refering to two phenomenon occuring within the US because the lead in referenced the public grant aspect. My reply was therefore targeted at activity within the US. It was not intended to address international trade practices.

My pharmacist cousin tells me drugs are cheaper up here in Canada because of the patent laws.

The USA has stronger patent laws and the patents last longer.

In Canada (and other countries as well) patents expire sooner
so it is possible to make the cheap generic drugs many years earlier.

Drugs for which the patent still is in effect in Canada
are no cheaper here than they are in the USA.

It has nothing to do with patent laws. Nothing. They use the same name brands we do and why most people will not settle for generics in the U.S.. Alot of doctors TELL their elderly patients to get the prescription filled in Canada. Of course they are "careful" in who they tell this too since it bypasses drug companies here which make a TON of money off their monopoly.

The drug companies here try to sell the inflated prices to fuel R&D. LOL! If you saw the REVENUE and the PROFIT on these drugs you'd be PISSED. I HAVE seen them. A few years back I worked at EVERY major drug company on NJ as a database consultant. I used their LIVE data all the time. I helped them put together reports from various databases. A drug costing $5.00 or less to make can easily sell for hundreds of dollars - easily. In some situations it is worse. This is called exploiting people.

Canada subsidizes the price of the drugs for the sheeple. So it it less than in the U.S.. This is why people flock there or order it through the internet. It is the SAME brand name drug as the U.S.. It's factory sealed and not expired - just as you get it here. Lately their trying to scare you into NOT buying there for an imagined fear of it being an expired or not the drug you think you are ordering. This is scare mongering.

"Quite a lot of the research that the drug companies use was done using public universities and grants so to say we do not subsidize them is not entirely accurate."

Trust me, consumers kick in their fair share. Consumers get the brunt of it. It is the universities that get some slack when not under a grant arrangement. You are also right that Universities also subsidize them. Also drug companies also subsidize medical school. They basically train potential medical people to start using their drugs in medical school. So when they graduate it's as natural as breathing to prescribe their drugs. One hand washes the other. They are addicted to one another.

It has always struck me that the WTO rules could be successfully invoked against Canada and any others similarly threatening to nationalize the licensed drug production...in exchange for what I call 'Governmentally-Coerced Dumping' of a valuable commodity.

The fact that these WTO rules are NOT being enforced against Canada makes it amply clear that the WTO, as it functions today, is profoundly inimical to the U.S. economic well-being. But the CATO-ites love it.

As someone else said in Human Events this week: "Turns out, they are the champions of the biggest government of all--internationalism. They hold an almost religious belief in a world without nation-hood."

The failure of our government to respond to these brazen, 'in-your-face' extortionist shake-downs of our companies by foreign governments is hand-in-hand with our government's paralysis to defend against predatory foreign industrial subsidies and dumping intended to destroy our own productive capacity. They pick and choose how they will attack us. And, with CATO-ite traitors preventing the U.S. government from doing its constitutional duty, we just supinely get jacked.

While it's true that US pharma companies need to recoup their costs, that doesn't address why Canada's prices are lower on some drugs. One of the reasons is this: US companies sell drugs at wholesale prices to US distributors (who then sell to pharmacies) and to Canada. In our country, the wholesalers and/or pharmacies mark the drugs up at whatever level they do, creating the cost to the customer

In Canada, there is a government subsidy for the drugs. So even though the price to Canada may be the same as to sellers in this country, Canada uses price ceilings for the consumer, and kicks in the difference, thus making the sell price to the consumer less than it is here. NOT bec. the drug is actually any less expensive, but bec. it is subsidized by the govt of Canada. And Canada subsidizes only certain drugs on their approved list. Many are not brand names but generic drugs. So while we hear about drugs being cheaper to buy there -- which is often true -- there are many drugs that a person cannot even get there.

Life is not perfect. :-)

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