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Curtailing Medicines from Canada
by Bernard Simon, the New York Times
November 11, 2003  

Canadian pharmacists in Winnipeg, Manitoba, handling a package of prescription drugs for a group of elderly customers who had traveled nine hours by bus from Minnesota for cheaper medicine
 
TORONTO - Brand-name drug makers have stepped up their drive to curtail exports of cheap medicines from Canada to the United States , raising prices in Canada for the first time in several years and imposing new restrictions on sales to Canadian pharmacies.

Using loopholes in Canadian government price controls, several companies have raised drug prices 4 to 8 percent since the summer. Pfizer Canada recently notified customers of price increases on "the majority" of its drugs, the first such increases in a decade. GlaxoSmithKline, Eli Lilly and Bayer have also lifted prices on many of their prescription drugs, including Zantac, Prozac and Cipro.

On another front, AstraZeneca has imposed stricter sales conditions on Canadian drugstores, requiring written assurance that its products would not be made available for export.

Jean Jones, former head of the Consumers Association of Canada's health committee, said that, especially among the elderly, "drug costs are a major topic of conversation, and there is apprehension that the American interest in buying drugs here may have an impact.'' She added, "If there's a loophole, the pharmaceutical companies will find it.''

Drugs in Canada typically cost 30 percent to 50 percent less than in the United States as a result of government-imposed price controls, a gap that the recent increases will go only a small way in closing.

The drug industry agreed to the controls in the early 1990's in exchange for the government ending a system of compulsory licensing, which allowed generic versions of drugs to be produced before the normal expiry of patents.

The price gap has encouraged a growing number of Americans to buy their drugs from Internet and mail-order drugstores north of the border. An estimated 140 online drugstores operate in Canada , 62 of them registered in the province of Manitoba . Executives in the online industry estimate that their companies supply about one million Americans with drugs. Pfizer's chief executive, Henry A. McKinnell, told analysts recently that he estimated the cross-border trade at $40 million to $60 million a year at its peak, before August when Pfizer began controlling supplies to Internet pharmacies.

Many American states and municipalities are also calling for the ban on drug imports to be eased. But the drug makers, concerned about the potential erosion of their biggest and most profitable market, are resisting, saying that easing the ban would expose Americans to medications that do not meet Food and Drug Administration standards.

The effectiveness of efforts by the brand-name companies to choke off supplies to the online pharmacies is hard to judge. IMS Health, a market research group in Montreal , estimated that the growth in wholesale shipments of prescription drugs to Canadian pharmacies slowed to 5 percent in the third quarter, compared with the previous three months, from a growth rate of 30 percent in the first three months of this year compared with the fourth quarter of last year.

Still, Billy Shawn, owner of The Canadian Drug Store, one of the biggest online operators, said that his sales reached a record last week, up 15 percent from late October. But he added that doing business had become more difficult.

"The guys who really need to get supply, get it," Mr. Shawn said. The difference, he said, was that the clampdown by the pharmaceutical groups "has changed the amount of effort it takes to purchase supplies every day."

"What used to take 15 minutes now takes two or three hours," he said.

AstraZeneca said in a letter to pharmacies last month outlining its new sales restrictions that "the demand for our products is still beyond our forecast for Canadian consumption. The implementation of additional measures is now required to ensure continuous supply of product to meet Canadian needs."

Arthur Konviser, a senior vice president at Shoppers Drug Mart, one of Canada's biggest drugstore chains, said there was little doubt that the recent price increases were an attempt by drug makers to narrow the gap between Canada and the United States. Referring to the online pharmacies, Mr. Konviser said, "There is little doubt that they are messing up the system. Canadians are paying a price for this."

Traditional pharmacies have thrown their support behind the drug manufacturers as they view the online drugstores as competitors for supply and pharmacists.

Sylvie Dupont, secretary of the Patented Medicine Prices Review Board in Ottawa , which regulates drug prices for all of Canada , said that drug companies were not legally obliged to obtain the board's approval before raising prices. Instead, manufacturers have to notify the board every six months of price increases during that period. The board has the power to roll back excessive increases, roughly defined as above the overall inflation rate. It has taken such action about 20 times over the last decade. The next notifications are due in January.

Inflation in Canada is running at about 2 percent a year, a level below the recent increases in drug prices. A Pfizer Canada spokesman, Don Sancton, defended the increases, noting that the consumer price index has climbed more than 20 percent since Pfizer last raised prices in 1993.

One drug industry executive in the United States said that the gap in American and Canadian medicine prices might discourage manufacturers from releasing some new drugs in Canada .

"From now on, if the Canadians don't give us a price close to our United States price, I'm not selling it there," he said. "I would rather not have people in Congress see us launch a new product in the United States with a price a lot higher than our Canadian price.''

Krista Apse, a spokeswoman for the federal health department in Ottawa , said there was no evidence that Internet pharmacies were posing an unacceptable health risk or that there was a shortage of drugs in Canada .

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