Glaxo Tries New Tack on Cheap Canadian Drugs

The Wall Street Journal | January 22, 2003 | Joel Baglole

[Genaro]

Prescription drug maker GlaxoSmithKline PLC asked Canadian pharmacies and wholesalers yesterday to "self-certify" that they're not exporting its drugs outside Canada. Pharmacies and wholesalers that fail to comply will have their Glaxo supplies cut off.

In a Jan.3 letter, the British drug maker had warned Canadian pharmacies and wholesalers that it would cut off their supplies as of yesterday if they continued to sell Glaxo products outside Canada, primarily to the U.S. "GSK's products are approved by Health Canada for sale in Canada only," Glaxo had said, adding that Canadian pharmacies could be violating the company's patent rights and risk lawsuits if they continue shipping prescription drugs outside Canada.

The new notice gives pharmacies more time before supplies are cut off, as well as requiring the self-certification. Patty Seif, a Glaxo spokeswoman, said self-certification would probably take the form of a letter written to Glaxo by Canadian pharmacies and wholesalers. She wouldn't say how many companies would be asked to self-certify or when the deadline for certification would occur. "We're implementing this today," she said, adding: "We will continue to ensure a sufficient (drug) supply for Canadians."

U.S. residents can save as much as 70% by buying medication in Canada and having it shipped, thanks to the low value of the Canadian collar and government price caps on drugs. Demand for such savings has fueled a proliferation of Canadian Internet pharmacies catering to Americans as far away as Texas. Canada has an estimated 80 Internet pharmacies, with annual sales of about 500 million Canadian dollars.

A debate over the merits of purchasing medicine online from Canada has been growing. While some U.S. politicians refer constituents to Canada for cheaper drugs, and Canadian provincial governments promote the Internet pharmacies as job-creation vehicles, drug makers worry the industry is eroding profits, and doctors are concerned people may receive the wrong drugs in the mail.

News of the self-certification request was met with anger by Canadian pharmacists and politicians.

"Even if Glaxo cuts off the Canadian supply, Americians will find cheaper drugs in Australia or Ireland," said MaryAnn Mihychuk, Industry minister for the western province of Manitoba, where a number of Canada's Internet pharmacies are based. "I doubt Glaxo can shut down the entire Internet," she added.

Kris Thorkelson, chief executive of CanadaDrugs.com, a Winnipeg-based Internet pharmacy that fills an average of 1000 prescriptions a day for Americans said self-certification is "unrealistic." Mr. Thorkelson, also president of the Manitoba Internation Pharmacists Association, said his association is considering its legal options against Glaxo.

Mr. Thorkelson said the association had raised $1 million (Canadian) in the past few weeks for a possible legal challenge.

Some drug wholesalers have endeavored to appease Glaxo. McKesson Corp., of San Francisco, the largest drug wholesaler in Canada, has announced it will provide only two bottles of each Glaxo drug-which include Zyban, a smoking-cessation aid, and Paxil, an antidepressant-to Canadian pharmacies that sell prescription drugs outside Canada.

[Genaro]

Good for Glaxo. This is what happens to a socialist, price controlled system. This complex problem cannot be solved on the backs of the pharmaceutical industry alone. Americans are glad to "save" 70% on drugs, I'm sure but they are breaking the law and our Justice Department chooses to ignore it because it's a hot potato. Funny how the Internet pharmacies think Glaxo's motives are pecuniary while theirs are not.

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[hexpoppy]

theres something I'm not getting---Are drug companys selling thier drugs cheaper to Canadian pharmicies than in the US? The currency exchange rate doesn't explain the difference----after all Canada has to buy drugs in US at higher rate ---right?

[Genaro]

Yes, Glaxo and others are selling their drugs at reduced, price-controlled rates to Canada. Of course this is because Canada is benefiting by the R&D costs that American profits generate.

[Koblenz]

Drug companies are selling drugs cheaper in Canada due to that country's price controls, plus other considerations (comparative purchasing power, etc) that usually go into pricing decisions.

Here's your basic situation. Drugs don't cost that much to make, once you've figured out how to do it. Kind of like printing the 500,000th copy of Red Storm Rising isn't too difficult either. What's difficult is coming up with the formula in the first place. So US and other drug companies spend all kinds of money on R&D to figure out which drugs are effective, then go through all kinds of FDA approvals before their drugs are ready. Why do they do this? Well, because they believe that they'll get their money back by charging a lot per prescription.

Canada, meanwhile, imposes price controls. So suppose a company spends $100 million developing a drug and getting it approved. It knows that it can sell 1 million prescriptions per year in the US for the next 5 years, at which point its patent runs out. So barring interest rate effects, it has to earn $20 from each prescription in the US. So let's suppose that the chemicals in each prescription cost $5. Therefore, let's suppose it sells the prescription in the USA for $30. It makes $25 from each prescription.

Then there's Canada. The govt. up there says the company can sell the drug for only US$15 each. Does the company do it? Well, it still only costs $5 per prescription, so it still makes money. As long as these prescriptions don't start getting filled by US folks, that's fine for the company. They don't like the price controls, but they don't have much choice.

Of course, the company is going to do everything in its power to stop these prescriptions from coming into the US. Now, if the US imposes price controls, no new drugs get developed. Of course, it might not be just price controls. It might be that the drug companies presume that Canadians won't spend that much for drugs, so they price them less. They still make money. They just want to prevent these prescriptions from flowing south. Just like airlines have two price structures: one for tourists and one for business travelers...

[#1CTYankee]

Just buy them form the indian reservations.
I get literature form various groups.

[robertpaulsen]

Now, wouldn't you imagine that the agreement reached with Canada would prohibit them from selling to US customers? Isn't it up to the Canadian government (signatory to the agreement) to enforce the terms? They are the ones in violation.

[Servant of the Nine]

"Even if Glaxo cuts off the Canadian supply, Americians will find cheaper drugs in Australia or Ireland," said MaryAnn Mihychuk, Industry minister for the western province of Manitoba

How increadably stupid. If Glaxo cuts off suplies, where will Canadians get their meds?

So9

[Blood of Tyrants]

I'm not sure about this. First, Glaxo has always had the option to not sell in Canada. But since they have not chosen that option, I assume that they are making enough money in Canada to keep doing business. Why should Americans be the ones who shoulder the burden (again)? If they can make a decent profit in Canada, why isn't that profit good enough here?

[Genaro]

I believe it is called maximizing profits as all good, capitalists aspire to.

[Blood of Tyrants]

Is it also a good capitalist plan that bribes politicians into extending their patent so they can continue to have a monoploy on a product well after costs have been recouped and a fat profit made?

[Karsus]

No. Glaxo does not have to sell into Canada. They find it profitable to sell into Canada at reduced prices.

[Snowyman]

Americans pay the highest prices in the world and use 42% of the prescription drugs. Contrary to what is commonly thought R&D for a drug averages around $60 million, without considering the tax benefits, government grants, and grants/public money that goes to University R&D. The real huge cost is advertising and drugs aren't advertised in Canada , nor are they promoted to doctors with the same intensity.(freebies). Patents for some drugs are longer in Canada , giving more price protection over a longer period of time.

Drugs are priced on an average price of that particular drug in other countries, including the US .And Mexico is cheaper, Real cheap is Korea. But the companies don't want you to know that.

[Blood of Tyrants]

The real huge cost is advertising

Yep. How many times have you seen a drug advertised that makes incredible claims that it will "give you your life back" or some such nonsense but fails to tell you what the he## the drug is for?

I wonder how many old ladies have gone to the doctor demanding the latest wonder drug because of the mfrs vague promises only to find out that the drug is for treating prostate enlargement.

[Snowyman]

How many times have you seen a drug advertised that makes incredible claims

I haven't. Prescription drugs aren't advertized here but I'll bet those old ladies knew it was for prostrate all the time and were asking for a friend of a friend(wink,wink,) lol,,

[beachn4fun]

I think I must agree with you on that. But, I heard recently that a person can buy their precription directly from the company at a reduced price, I guess similar to Canada. I am not sure how to go about this. I guess one has to go to the website of whatever company to find out about how it works. They interviewed a lady on television a few days ago who said that is how she gets hers. And, she wanted more people to be aware of it.

[Voltage]

How increadably stupid. If Glaxo cuts off suplies, where will Canadians get their meds?

That's no problem, all three of their medical researchers will dust off their chemistry sets and get to work!