Canada: The Myths That Threaten The Pipeline Supply Of Pharmaceuticals To Our Market

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By Jeff Doan

Myth #1 – Low Canadian Prices

There are many unreliable sources to have bolstered the basic premise that Canadian drugs are priced significantly lower than the same in the United States.

US Politicians have certainly contributed. Early in her Senate campaign, Hillary Clinton attacked US drug makers on their pricing policies in Canada versus the United States. She presented numerous examples of huge price discrepancies. One of her examples was Nolvadex® (tamoxifen).

She pointed out a price of US$390 for Americans, compared to a Canadian price of $US50. What Hillary neglected to mention was this comparison used the US list price of Nolvadex® the brand versus the Canadian generic price of tamoxifen. Patents rarely expire at the same time in both countries, so it is likely that a generic will hit one market before the other.

You don’t need to compare brand prices to generic prices to create an “apples versus oranges” situation however. A straight list price to list price comparison can be misleading as well. In the US, “list price” is the highest price you will pay for a medication. Agencies such as the U.S. Department of Veterans Affairs often negotiate 30 to 40% off list. Other large buyers like Medicare, HMOs, group purchasing organizations, etc, all demand certain levels of discounting in exchange for listing. In Canada, very little discounting occurs, so list price is the most common price paid. Comparing “average selling prices” would certainly be a better indicator of price differential.

Canadian pricing is highly dependent on a product’s classification within the pricing regulations. The PMPRB categorizes drugs according to how much of a “break through” they are deemed to be. Me-too drugs in pre-existing therapeutic categories will usually be considered Category 3 and as such, will be priced according to similar doses within the same category of products in Canada.

Breakthrough drugs can be priced according to international pricing standards set (Category 2). This will often provide the opportunity to price a product very close to the US price.

There is little doubt that when it comes to drug pricing, the US often commands the highest price for global brands. However, as the 7th biggest pharmaceutical market in the world, Canada’s pricing is at least on par with that of major European countries and often comparable to the United States.

This chart shows the Average Foreign to Canadian Price Ratios for New Medicines (NCEs), 2000 to September 2006.

Myth #2 – Parallel Re-importation

It was estimated in 2003 that $1 billion in drugs flow across the Canada-US border through internet pharmacies and cross border shopping. Much has changed since 2003.

This situation was aggressively addressed by the Canadian Pharmaceutical Industry and the Canadian Federal Government
First, a list of Canadian outlets engaged in cross border sales was compiled by IMS.

What followed was a systematic cut-off of supply by Big Pharma, leaving these internet pharmacies with nothing to ship south.

The Federal Government also addressed the issue establishing a drug supply network to monitor the situation, amending the Food & Drugs Act to ban bulk exports of prescription drugs and strengthening existing regulations to require a doctor-patient relationship for any cross-border prescription drug sale.

The result has been an 80% decline in internet sales from Canada to the US between 2004 and 2007.

In the wake of these massive changes, Canadian internet pharmacy sites continue to appear, but many sites such as SaveRxCanada.com and CanadaDrugs.com are fully Canadian (if at all). In the fine print they list countries like India, Italy, South Africa, etc. as there actual dispensing locations. They perpetuate the myths while depending on the average US citizen’s confidence in the safety of Canadian drugs and the perception of better value.

There are other market dynamics that have further eroded cross border sales. With a much stronger dollar in Canada, the exchange rate alone does not create as much of an incentive to buy Canadian drugs with US dollars.

Security concerns arising from “911” have changed cross border traffic rules.

Americans who may have previously visited Canada to purchase drugs will soon need a passport to make the trip. A recent tourism commission report suggested that two out of three Americans attempting to drive to Canada do not own a passport.

Sometime soon all of these travelers will be turned back.

Contrary to popular belief, launching a branded pharmaceutical product in Canada does not lead to the erosion of US sales nor does it result in a poor return on investment.

Many recent reports have demonstrated that Canadian pricing is on par with that of major European countries. Clearly, the controversy lies with parallel trade activity. However, as a result of timely intervention and strategic supply cut-offs, parallel trade has become largely insignificant ($ 150 million across all therapeutic classes in 2007). Other factors such as increased border security and the strong Canadian Dollar will ensure this trade remains insignificant.

Furthermore, while most socialized medicine systems in the various EU states have steadily depressed the pricing of branded drug products, Canada has demonstrated the ability to maintain a stable pricing model. Ultimately, this stability will play a key role in the success of product launches and consistent top-line growth.

Canada continues to be one of the top pharmaceutical markets in the world.

Jeff Doan is the head of Business Development for Nycomed Canada, a mid-size Canadian pharmaceutical company focused on gastroenterology, respiratory and pain management. Doan has spent the last 13 years of his career in pharmaceuticals, where he has enjoyed positions in sales, sales management, CRM, marketing and now business development.