Why are drugs cheaper in Canada (and elsewhere)?

My Brain

[maui_hawaii]

Here is my assessment:

They are not. Not in reality.

Right now you’re probably sitting there thinking, “Whoa’, that’s totally different that everything I’ve heard” or “it’s cheaper for me, so it’s cheaper”. Let me explain why I am right.

The difference is social systems (namely socialism) and trade policy. Those are the two biggest factors.

Imagine you are a drug manufacturer. What is your largest cost? Is it manufacturing? Not a chance. Your biggest cost is by far development of newer and more cutting edge drugs. The actual manufacturing could be pennies on the dollar in comparison. Quite often the actual manufacturing is farmed out to local manufacturers in the host country. They aren’t really selling the drugs across the border, but rather the know-how to a contractor…in say Canada or Europe.

Because of our system we have taken a lead in developing new drugs. The vast majority of medicine and medical practices are developed here in the US. Why? Because can afford (and do spend money on) the R&D costs.

Now let’s say you develop some really good cancer treatment drug (a fictional example) and it cost you billions in development. Because of the dominant view that drugs are developed for the good of mankind, the drug companies sell drugs in places like Canada where they literally cap what they can be sold for.

What ends up happening is the foreign markets actually in many ways drive up the costs of our prices at home, in other ways they kind of drive down prices. More of the former than latter. Let me explain that seeming contradiction.

First off, one MUST recoup costs of development. Those billions are spent on your cancer drug no matter what.

In a purely ‘Canadian’ system it would take 100 years to recoup the R&D costs of your new drug, if ever. It’s because of price controls.

If the US adopted the socialist price control system it would completely bankrupt the entire industry in less than 10 years thus making everyone worse off. It would happen also if we allow the importation of drugs. 2+2=4.

The R&D costs MUST be recouped one way or another, and the quicker that happens, the faster we get more and better drugs. We are looking at turn-over. One won’t reinvest money they don’t have or have not yet gotten back. Who will pour money into a money losing venture?

Here is how Canada (and others) drive up our drug costs: because of their system they force US consumers to foot the bill of R&D costs. Those costs are simply spread over less consumers. We have a smaller market (compared the entire world) that is the one actually paying for the R&D. Our cancer drug costs are simply not allowed to be priced in globally. They quite literally force us to pay for our own R&D and recoup the costs all by our lonesome (that THEY are benefiting from). Our companies are not allowed to price drugs internationally so that the R&D costs are spread out among more of the people that actually consume the product. We are not allowed to treat foreigners as actual market participants.

In short, the US consumer is subsidizing everyone else’s “right” to have drugs. If the global drug market was not segmented, on average the US consumer would pay 60% less and everyone else would pay 25% more.

How they drive down costs is that what little they do contribute financially does help the drug companies. It’s still though an unfair system. The international markets want something for nothing. If we cut them off from the pot we are SOBs. If we make them pay for what they get we are SOBs. It’s a lose-lose situation.

If the US companies refuse to supply their markets everyone does what China threatened to do: Go buy a few bottles in the US, reverse engineer and manufacture the drugs on their own. Then the drug companies get NOTHING and all patents are disregarded. In other words the drug companies are trapped in the system.

The US is the only place in the world where the costs of drug development can be recouped. That’s the simple truth of it. If that market goes, the whole industry dies. That is why the drug companies are so opposed to drug importation. It would in essence Canada-fy our drug market and seriously stifle the development of drugs.

We don’t want that.

Instead of complaining about the drug companies maybe we should complain about the socialism overseas. Truth is, if you are American, you are paying for some old Canadian lady’s drug bill. That’s what it amounts to.

[maui_hawaii]

but you forgot that hidden element called "Corporate Welfare".

Can you give examples of this? I mean real ones.

[DMCA]

Check to see how much the major research hospitals receive for the Government for research and how much the NIH spends on research. I am not saying that the majority of the research is publicy funded, however I am saying that sometimes drug companies get research for cents on the dollar or cheaper.

About advertising. I found this chart BUT I DO NOT KNOW HOW ACCURATE IT IS. I am posting it for purposes of debate. I in no way vouch for its accuracy.


http://www.actupny.org/reports/drugcosts.html#chart_one

I also ran a google search
http://www.google.com/search?hl=en&ie=UTF-8&oe=UTF-8&c2coff=1&q=drug+companies+spending+advertising+research&spell=1
And most of the results that I looked at seam to show that drug companies spend 50-100% more on advertising than R&D.

[maui_hawaii]

If 1,000,000 people use the drug worldwide, but only 100,000 pay the development cost...for those 100,000 the cost will be approximately $10,000 per head.

[maui_hawaii]

Good post. Let me look at it.

[marktwain]

Your analysis is essentially correct, although, of course, it ignores that much of the enormous cost of bringing the drug to market is because of hugely inefficient regulation by the FDA, with hardly any cost to benefit concerns.

As for research subsidized by Universities, most of them have programs that patent drugs invented there and use them to enrich their own pockets. Consider Warfarin and the University of Wisconsin as an example.

[DMCA]

Where are you getting the 1 Billion figure from?

[eastforker]

My wife got a subscription for an antibiotic that cost $100 , we got one for our dog and got the EXACT same one from the vet for $15.

[motherof 3]

On a program about this they said that a new drug had not been developed in Canada for forty years. Do they just sit around and wait for us to do it?

[maui_hawaii]

I am using a nice round number to show process of my point, not actual numbers...

[eastforker]

My wife got a subscription for an antibiotic that cost $100 , we got one for our dog and got the EXACT same one from the vet for $15.

[doc30]

The author fails to mention that marketing costs for a new drug can easily be greater than the R&D costs. That's one reason why drug advertising is banned in Canada. THe other reason is that the Canadian government does not want a glut of patients going to their doctors to get a prescription as a response to the advertising. Business would be up for doctors and that would make the government have to pay more for healthcare. Free speech is another victim of socialism in Canada.

[Ron in Acreage]

You're right. Maui has a lot of babble. The Canadian government buys the drugs for $1 and in turn sells them to their citizens for 60 cents. Here in the US the drug companies sell us their drugs for $1 and we pay $1.

[maui_hawaii]

Its friggin expensive to develop drugs. They don't have the for profit motives we have, hence no one invests in it.

[<1/1,000,000th%]

Very good. But you left out the part about the patent expiring in 7 years. That's all the time the manufacturer gets to recover their costs and any profit. After that, anybody gets the right to manufacture the drug with NO R&D costs.

[maui_hawaii]

I am the author :o)

I am actually posting this to LEARN what others may know that I don't...

[lainde]

You are exactly right. There have been no other pipelines of major drugs except with US pharmaceutical companies. The last time they were threatened (by Hillarycare) they cut back on R&D and we had no new antibiotics for YEARS! Antibiotics called cephaloporins were big at that time and then for YEARS there was nothing major until the quinolones were developed (drugs like Cipro). I ask you, what major drugs come from Canada or any other socilaist country? But you are right, I don't understand why they should get cheap drugs and we subsidize R&D and the Canadian patients.

[maui_hawaii]

If you know something I don't please share. Thats the point of the discussion.

I may be babbling, but at least I am going for content, whether is mine or someone else's.

[DMCA]

In other words you made it up. That doesn't help you make your point, it makes it look like you are trying to hide something.

ELI LILLY AND COMPANY SEC 10-Q
http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000950137-03-005842&nad=

Scroll down to R&D / Ad. E&D is about 1/2 of Ad.

[MamaDearest]

I used to work for a company that was owned by a very well known pharmaceutical company. Millions were invested in this company that manufactured an additive used to increase paper brightness. One sales meeting was in St. Lucia (tax deductible no doubt). Add the cost for plants built all over the country. They had financial interest in a major cosmetics company. They divested their interest in the cosmetics and paper additive companies, which prevented association with the well-known pharmeceutical name. Nothing preventing key personnel from being on the board of directors of offshoot companies. No, I believe it is manufacture cheap and sell high because they are unchallenged and it is highly profitable at our expense.