Getting the Gray Out 

Canadian and U.S. regulators are looking to impose order on the sale of cheap online drugs

By JOEL BAGLOLE,  THE WALL STREET JOURNAL

 February 11, 2003

OTTAWA -- Canadian sales of prescription medication to Americans at discount prices are facing a crackdown this year as regulators and drug manufacturers try to curtail the thriving gray-market business.

The controversy flared into the open last month when Britain's GlaxoSmithKline PLC, the world's second-largest prescription-drug maker, announced it would halt sales of its products -- including Paxil, an antidepressant, and Zyban, a stop-smoking aid -- to Canadian pharmacies that export them to the U.S. Glaxo's move has several Canadian pharmacists and wholesalers considering legal action against the drug maker. Canada's Competition Bureau, a federal agency, is also investigating Glaxo to see whether the company is violating the country's competition and trade laws.

Attempting to head off further conflict, representatives of pharmacy and drug-industry trade groups and regulators from the two countries, including the U.S. Food and Drug Administration, will meet here on Feb. 21. The meeting's aim is to clarify rules governing the U.S. importation of prescription drugs from Canada, where government controls keep prices for many products much lower than in the U.S. Canadian regulators want to get a handle on the booming Internet-pharmacy business here and say the FDA's current position of looking the other way on this matter only complicates their regulatory task.

Looking the Other Way

Currently, it is illegal, with minor exceptions, to import prescription drugs into the U.S. from any foreign country, including Canada. However, according to a senior FDA official, the agency is exercising "enforcement discretion" when it comes to Canadian medication imports. In most instances, the FDA says, it is advising customs agents to allow prescription drugs from Canada intended for personal use, provided the supply doesn't exceed 90 days. This policy allows the FDA to reserve its "scant resources" to crack down on large commercial drug shipments and narcotics, the agency official says.

The FDA's position has allowed a number of Canadian Internet pharmacies with names such as RxNorth.com (www.rxnorth.com³) and CanadaMeds.com (www.canadameds.com⁴) to thrive by selling prescription medications to tens of thousands of Americans at cheap Canadian prices. Thanks to the Canadian regulations -- and the weak Canadian dollar -- Americans usually can save 50% to 70%, and sometimes more, filling their prescriptions in Canada. The medicine purchased online is shipped to Americans through the mail. In addition, thousands of Americans travel to Canada by bus or car to purchase drugs in person.

Exact numbers are hard to come by, but pharmacists, industry regulators and drug makers estimate there are now about 70 Internet pharmacies operating across Canada, some 40 of them based in the western province of Manitoba, where the provincial government actively supports the enterprises as job-creation vehicles.

Tommy Janus, a 28-year-old pharmacist who graduated from the University of Manitoba's pharmacy school last April, launched Internet pharmacy Aptecha.com in July with his brother Victor, a computer programmer. Located in the farming community of Stonewall, Manitoba, population 5,000, Aptecha now fills 150 prescriptions a day for Americans, many of whom are seniors on fixed incomes, Mr. Janus says. Each prescription, typically a three-month supply, costs an average of US$130. With a staff of 15, he is rapidly becoming one of the town's largest employers. And now he's advertising in seniors' newsletters in Florida.

To order prescription drugs from Canada, Americans go to a Canadian-based e-pharmacy Web site and download order forms. On the forms, customers must provide their medical history and a credit-card number and sign a waiver that absolves the company of liability should something go wrong. Customers must then mail or fax the completed forms to the online pharmacy, along with a prescription written by a U.S. doctor. The company has a Canadian doctor review the forms and prescription. If everything checks out, the Canadian doctor co-signs the prescription, and the company fills the order and mails it to the U.S.

According to industry estimates, Canadian e-pharmacies generate 650 million Canadian dollars (US$427 million) in annual revenue and employ about 2,000 people nationwide. That's a tiny fraction of the US$135.5 billion in North American drug sales -- U.S. and Canada combined -- generated in 2001, but the rapid growth of Canada's online drugstores is causing worries on both sides of the border.

In the U.S., drug makers and some politicians and doctors fear that importing medicines from Canada will hurt the U.S. pharmaceutical industry financially, introduce counterfeit drugs into the U.S. supply and harm patients if they receive the wrong medicine.

In Canada, critics worry that e-pharmacies don't provide patients with the same level of counseling as walk-in pharmacies, and that Canada's own drug supply could be eroded if a growing number of medicines are shipped to the U.S. Also, the e-pharmacies pay Canadian doctors C$10 for each U.S. prescription they review and co-sign. Critics say pharmacists are paying doctors to rubber-stamp prescriptions.

Unanswered Questions

"There are a number of ethical and financial questions relating to the Internet pharmacies that have yet to be addressed," says Dana Hanson, president of the Ottawa-based Canadian Medical Association, which represents 54,000 doctors across Canada.

At the same time, several U.S. politicians, including Rep. Dennis Kucinich, an Ohio Democrat, refer their constituents to Canada for cheaper medicine. Sen. Mark Dayton, a Minnesota Democrat, donates his entire Senate salary of $145,000 to the Minnesota Seniors Federation to subsidize monthly bus trips to Winnipeg, Manitoba, so elderly constituents can buy drugs there at cheaper prices.

"Seniors in my district are splitting pills to make their prescriptions last and going without meals to cover refill costs," Rep. Kucinich says. "My constituents appreciate the drug discounts Canada offers."

Pharmaceutical Research and Manufacturers of America, a trade group of the 90 largest U.S. pharmaceutical and biotechnology companies, estimates that 30% of Americans over age 65 -- or roughly 13 million people -- don't have insurance coverage of any kind for prescription drugs. Jeff Trewhitt, a spokesman for the association, says it's "terrible" that some Americans have to go to Canada to get their medication. "People shouldn't have to go to another country to get it," he says. The growth of Canadian Internet pharmacies highlights the need for Congress to act on drug coverage under a reformed Medicare program, Mr. Trewhitt adds.

A bill allowing for the importation of prescription drugs from Canada passed the U.S. Senate last year, but was killed in the House. Bernie Sanders, an independent Congressman from Vermont, says he'll introduce new legislation in the House this month to make it legal for Americans to buy prescription medicines from Canadian pharmacies. Meanwhile, some private insurers in the U.S. are now reimbursing people who buy prescription medication from Canada.

Complicating matters north of the border, pharmacies in Canada are regulated by the 10 individual provinces and three territories, with no federal oversight. While the College of Physicians and Surgeons, a self-regulatory and licensing board, has banned doctors from co-signing prescriptions for U.S. patients in some provinces, such as Ontario and Nova Scotia, most provincial medical regulators allow the practice.

Economic Stimulus

And many provincial politicians encourage the online pharmacies as a way to create jobs and stimulate the economy in downtrodden rural areas.

"If drug companies and regulators cut off the Canadian supply, Americans will simply go elsewhere to find cheaper prescription drugs," says MaryAnn Mihychuk, Manitoba's industry minister. "Nobody is going to shut down the Internet. All they will do is shut down a safe, reliable and affordable distribution center here in Canada."

Nevertheless, growing pressure from drug companies and medical groups north of the border prompted Canada's National Association of Pharmacy Regulatory Authorities, or Napra, to call for this month's planned meeting.

Napra, a forum for pharmacy regulators in Canada's provinces and northern territories, will seek clarification from the FDA on the legality of Americans' importing prescription medicine from Canada. They will also seek to clarify who is responsible for enforcing the law, say officials close to the situation. Drug-company representatives are expected to urge the FDA to crack down on Canadian drug shipments by confiscating them at the border and returning them to the Internet pharmacies that shipped them. FDA officials wouldn't comment on the meeting.

But, as GlaxoSmithKline is finding, an outright crackdown on the drug shipments might be difficult because it would prevent many Americans from getting the medications they paid for and depend on.

As Dr. Hanson, president of the Canadian Medical Association, says, "We are dealing with people's health, and in some cases their lives. A compromise might be required."

The shape of any potential compromise remains unclear. But some type of action is needed to get the pharmaceutical industry out of the "gray area" it's now operating in, says Napra Executive Director Barbara Wells.

Meanwhile, Napra is trying to bring some accountability to the booming e-pharmacy industry by adopting the Verified Internet Pharmacy Practice Site system. Already used in the U.S., the system applies universal standards to online pharmacies and provides a seal of approval to Web sites that comply. This will help Americans and other consumers gauge whether a particular Internet pharmacy site is legitimate and safe.

Border Check

A comparison of prices on 10 big-selling drugs at U.S. and Canadian Web sites. (all prices are in U.S. dollars)

Note: Destination Rx (www.destinationrx.com⁶) is a U.S. drug-price comparison site; figures are "average prices" for the listed drugs from the site's vendors. Aptecha.com (www.aptecha.com⁷) is a representative Canadian Internet pharmacy.