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Study says drug imports may not hurt profits

Boston University researchers say they have found a big hole in the pharmaceutical industry's argument that cheap prescription imports from Canada would hurt profits that fuel critical research for new drugs.

The BU analysis, to be released today, says that drug companies may break even or actually make profits on Canadian imports because the lower-priced imports would spur new prescriptions. If true, that could leave research budgets intact.

Key to the equation is the balance between new drug sales and sales that are simply shifted to Canadian sources from US pharmacies. If more than 44.5 percent of the Canadian imports represent new prescriptions, then drug companies come out ahead, said Alan Sager, a professor at the Boston University School of Public Health and co-author of the study.

"When you lower prices, people buy more drugs," he said. "Drug makers tremble and say publicly that importing drugs from Canada cripples their profits, but our analysis shows that if a reasonable share of the drugs that Americans import from Canada are new prescriptions, then drug makers' profits remain stable or could even increase."

It is a safe assumption that new orders will account for a large portion of sales, Sager said, because Canada offers such deep discounts. Many elderly people with no prescription insurance coverage could not afford drugs in the United States, but they can buy them for the first time from Canadian Internet pharmacies, he said.

The drug industry stands by its assertions that America's pharmaceutical innovation pipeline would dry up if imports of cheaper medicine were allowed. Sager's "premise has nothing to do with the reality of price controls," said Jeff Trewhitt,a spokesman for Pharmaceutical Research and Manufacturers of America, the industry's main lobbying arm.

"One of the major reasons that Canada barely registers on the radar screen of innovation and research and development spending is because of artificially low prices on many of its medicines," he added.

Christopher Ward, an Ontario, Canada healthcare consultant who has worked for PhRMA and US drug companies, said the Canadian pharmaceutical industry spends less of its revenue on research, just 10 percent compared to 18 percent in the United States. PhRMA has said US drug companies spent $32 billion on research and development in 2002.

Americans have fueled a strong Internet pharmacy business in Canada, boosting the trade to an estimated $1.1 billion in 2003, up from $700 million in 2002, according to industry estimates. They are taking advantage of discounts of between 20 to 80 percent for brand-name drugs -- made possible because of Canadian price controls on drugs.

The Food and Drug Administration says drug importation is illegal and unsafe, but has yet to launch a serious crackdown. That's why state governments have been able to set up websites to help citizens buy drugs from Canada. But the political winds may be shifting on the issue. While the US Senate defeated a House plan last year to legalize drug importation, powerful members of Congress this year are seriously considering it.

A half-dozen drug manufacturers, including Pfizer Inc., the nation's largest, have responded to the growing importation phenomenon by limiting wholesale supply to Internet pharmacies they believe are engaging in cross-border sales.

GlaxoSmithKline, the first company to place wholesale restrictions on Canada, declined to comment on the economic conclusions of the study. But it said Sager's analysis appeared to ignore safety issues.

"From our view, the cross-border trade in pharmaceuticals is bad public policy for reasons other than industry economic interest," said GlaxoSmithKline spokeswoman Nancy Pekarek. "The FDA has repeatedly shown that there is a risk from inappropriately handled medicines."

Most recently, Eli Lilly & Co. sent letters to Internet pharmacies saying it would review certain wholesale orders of its drugs before authorizing shipment. Lilly declined to comment on the BU study because it has not seen a copy of it, but said the company remains concerned about drug imports.

Importation, said spokesman Edward Sagebiel "will cut into our ability to innovate for new drugs. That's risky and collapses the market-based model that we have in the United States."

But former Springfield Mayor Michael Albano, who made national headlines last year with a program to import Canadian drugs for city employees and retirees, said that, after sparring with drug companies and studying their operations, he was not surprised at all by the BU analysis.

"The profit margin is less in Canada, but it's still a healthy profit margin," Albano said. "Of course they're making money. They're not a charity."

Christopher Rowland can be reached at crowland@globe.com.

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