I hope they legalize cross-border sales. The Canadian discount is in effect an American subsidy. Erasing the border won't lower US prices, it will raise Canadian prices to US levels.
The problem with that is, Canada can vote to not honor the drug companies` 10 year patent on the formula for the drugs. Then they break down the formula, create generic drugs using the name brand compound, and kill the major pharamceutical company`s profit. Any country can do it, though, so far, all still honor 10 year patents. We in effect already subsidize the world healthcare system, we pay for all the R&D costs as well as the cost of materials and advertising.
The short run impact of grey market imports of Canadian drugs is lower prices.
The long run impact is that drug companies will no longer develop new drugs, because they will be unable to recover their development costs.
The reason drugs are less expensive in Canada, is the fact that they have capped the price they will pay for pharmaceuticals. American drug companies have already developed and tested the drugs, which constitutes a huge fixed cost - in other words, the costs that do not vary based on how many pills they sell. Now all they face is the variable cost of production, which generally drops the more they sell.
Consider the following example: Supposed you spent ten million dollars developing a drug, including research, testing on animals, testing on people, approval from the FDA, and all the other costs. Now you have an asset - a drug patent. You are also ten million dollars in the hole - that's how much you have to make before you show a profit. Would you:
-Sell one million pills a year in the U.S. only. These one million pills cost $1.25 to produce, but you can sell them in the U.S. for $2.00 each. You will have two million dollars in gross revenue. The pills cost $1.25 million to produce, and you have a margin contribution (that portion of revenue that can be applied to recovering the investment and servicing the debt) of $750,000.
or, would you:
-Sell one million pills in the U.S. and an additional hundred thousand pills in Canada. Because you are making more pills, your production can be more efficient, so they cost $1.20 each. However, you can only sell the pills in Canada for $1.50 each. Gross revenues in this scenario are $2,150,000. Production costs are $1,320,000 so the margin contribution is $830,000 - 11% more applied directly to the debt you incurred developing the product.
That pretty closely approximates the current situation. Now, suppose all your U.S. customers bought drugs in Canada - What would that do to your margin? Instead of $830,000, you would have $330,000 left over after you paid for the costs of producing the drugs. You still have to service the debt on the $10 million you borrowed (or got from shareholders - basically the same thing, for the purpose of this example) How long do you think capital would continue to flow to the pharmaceutical industry in that kind of world?
We have the best medicine in the world in this country, and the rest of the world benefits. If we were to attack the pharmaceutical industry in the name of lower costs today, we would find that there were no new drugs tomorrow.
Ditto, No one seems to get that. Canada is not going to subsidize drugs for the United States.
Yep. The Canadian gov't negotiates the price and has the companies over a barrel. They don't mind, the Canadian market is tiny and they'll recoup the loss in the US market. In fact, if it happens, Canadian prices will shoot up and the aggregate price will sneak down a bit, from the US perspective.
Precisely.
It's funny how, as simple as the law of supply and demand is, it always takes the Left by surprise.