Bloomberg with Lisa Kramer 13 August 2019
U.S. President Donald Trump’s plan to import cheap Canadian drugs overlooks a crucial fact: it can’t happen without the cooperation of major drugmakers, the very industry he’s trying to undercut.
Even as alarm grows in Canada over the prospect of Americans draining their supply of medicines, there’s little reason to believe the U.S. proposal would worsen the country’s drug shortages. But the fear plays into the hands of the powerful drug companies seeking to protect their U.S. profit margins.
“Instead of attacking the Trump administration for this proposal, it’s easier to make sure that this proposal does not come into existence in Canada,” said Marc-André Gagnon at Carleton University in Ottawa, who focuses on the political economy of the pharmaceutical sector. “But what we do have is a fear-mongering campaign as if it will be a catastrophe for Canadian supply.”
Canada’s supply chain is beholden to the drugmakers. Pharmaceutical companies sell most of their drugs through wholesalers and distributors who in turn supply the front-line hospitals and pharmacies under agreements that the products are intended for the domestic market only. Both groups stand to lose from diverting drugs south.
“We’re not in the business of exporting,” said Daniel Chiasson, president of the Canadian Association for Pharmacy Distribution Management representing distributors like Gamma Wholesale Drugs Ltd. and McKesson Corp.‘s Canadian unit. “There is no merit to doing so — in fact, there is a disincentive.”
Selling outside of Canada wouldn’t serve the wholesalers’ customers and could put them at risk of being cut off by the manufacturers, he said. Exporting in bulk requires a license from Health Canada — something that typically only happens during humanitarian aid efforts, he said.
“The ones that may do so, do it at a significant risk,“ Chiasson said.
Pharmacies are supplied with the agreement they won’t intentionally sell to non-Canadians, said Sandra Hanna, vice president of the Neighborhood Pharmacy Association of Canada, whose members include Loblaw Cos.’ Shoppers Drug Mart and Rexall Drug Stores.
If a pharmacy were to export in bulk, “they would endanger their relationship with those manufacturers and suppliers,” Hanna said.
It’s not an idle threat: in the early 2000s, amid a boom in online and mail-order Canadian pharmacies, GlaxoSmithKline Plc and Pfizer Inc. threatened to cut off supplies to those caught shipping drugs south of the border. Manufacturers began limiting supply to wholesalers and pharmacies to only the exact amount needed for the domestic population, according to Dani Peters, a senior adviser at the Canadian branch of the Alliance for Safe Online Pharmacies, whose members are pharmacies, distributors and wholesalers.
“Canada cannot supply medicines and vaccines to a market ten times larger than its own population without jeopardizing Canadian supplies and causing shortages,” said Sarah Dion-Marquis, a spokeswoman for Innovative Medicines Canada, the pharmaceutical lobby representing some of the world’s biggest drugmakers including Pfizer, Sanofi, and Merck & Co.
Legally, patented and generic medicines can be exported from Canada, according to Health Canada. But the government “will not hesitate to take the steps needed to safeguard Canadians’ access to prescription drugs,” Health Canada said in an email.
It’s premature to speculate on the impact of the U.S. plan, which is still being drafted, Riley Althouse, a spokeswoman for the U.S. Department of Health and Human Services, said in an email.
Paul Grootendorst who researches the economics of the pharmaceutical industry at the University of Toronto, said the controversy is a non-issue. “It’s not like there’s a consumer-direct factory where a reseller can simply back up a semi-truck and load up full of drugs. It doesn’t work that way. The one place to get the drugs is the manufacturers — they control the supply and they can take measures to cut it off if they believe it’s being redirected.”
There’s a certain deja vu to the uproar. In 2003, after the U.S. passed legislation enabling regulations that would allow the import of Canadian prescription drugs — the legal framework underpinning Trump’s proposal — there were warnings of impending Canadian shortages. Around that time, Pfizer, Eli Lilly & Co., GlaxoSmithKline and AstraZeneca Plc were among those that began limiting supplies to Canada in an effort to slow the importation trend.
Underpinning the concern is the lack of transparency into what’s driving existing shortages in Canada. Of the roughly 7,000 prescription drugs available in Canada, there are shortfalls of more than 1,800 and “there is almost no transparency around the true causes,” Kelly Grindrod, an associate professor at the University of Waterloo’s School of Pharmacy, said in a newspaper commentary this week.
Pharmacists are told there’s a “disruption of manufacturing” or a “delay in shipping,” but there are no explanations of why there are disruptions or delays, she wrote.
With only 37 million people, Canada is a small market for the drugmakers and a finicky one requiring bilingual labels in French and English, and special sizes and colors just for Canada. Faced with uncertainty about U.S. importation, the drug companies may decide to just hold back supplies, said Peters at the Alliance for Safe Online Pharmacies.
“We’re not an important market enough and it might just be too risky so they might cut back,” she said.