Real profits, fake drugs.
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The Wall Street Journal recently ran a detailed (and disturbing) story on how fake Avastin from Turkey wound up being injected into cancer patients in U.S. doctor's offices.

It all started in Canada, when a Canadian pharmacist and businessman realized he could make enormous profits selling price-controlled Canadian drugs to Americans by circumventing the U.S. supply chain.

Let's be frank: branded drug prices are more expensive in the U.S. because, unlike most of its wealthy competitors, the U.S. doesn't impose price controls on pharmaceuticals. This allows innovation to flourish in the U.S. and also means that U.S. patients typically get faster access to new medicines.


Encouraging drug innovation has benefits both for patients and the economy. The breakdown occurs not in drug prices, but in the insurance system. Uninsured Americans, and (until 2003) some seniors in Medicare lacked insurance or drug coverage, potentially exposing them to high drug costs in the event of a serious illness. But the solution here is to improve the insurance system, not impose price controls on new medicines.

Still, the gap between U.S. and international prices allows some companies - in this case, Canada Drugs, run by Kris Thorkelson - to open internet portals that sell to Americans looking for a quick discount.

This is a violation of U.S. law, but the FDA only enforces the ban on large scale importation of drugs - not on individuals, who may purchase small quantities of drugs online, or dash across the border into Mexico or Canada. In those cases: caveat emptor, let the buyer beware.

Of course, because Canada isn't big enough to supply the U.S. market, Canadian middlemen have to look further and further abroad to find cheaper drugs, along the way creating a complicated web of middlemen to transport and repackage drugs for American consumers.

This is a recipe for fake or counterfeit drugs infiltrating the U.S. drug supply. And this is exactly what happened in the case of the fake Avastin.

One distressing line in the Journal article was the following:

The incident was alarming because the fakes were billed as lifesaving drugs often prescribed to patients with hard-to-fight cancer. Previous counterfeiting incidents have involved fake pills such as those for cholesterol and erectile dysfunction.

This makes it sounds like counterfeiting drugs other than cancer medicines is a victimless crime. Clearly, this isn't true. Poorly controlled cholesterol can lead to heart attacks. Deaths from heart attacks due to fake statins are equally real, even if they may be harder to detect.

One other issue goes unmentioned. The U.S. should do a much better job of protecting the intellectual property rights of domestic pharmaceutical companies selling their products abroad. Inflicting price controls on pharmaceuticals is no less anticompetitive than if it was done on American made cars or computers.

Companies should charge different prices to different buyers, based on wealth. This allows manufacturers to sell drugs at lower prices in poorer countries, and higher prices in wealthier countries. But when wealthy European countries impose price controls on medicines they blunt incentives for innovation, reducing the number of medicines that will be available in the future for wealthy and poor nations alike.

And insofar as wealthy nations "reference price" new products to the prices of drugs sold in poorer countries, they create powerful incentives for companies to delay launching new products in those countries - the exact opposite of what we should be trying to acheive.

Former FDA Commissioner Mark McClellan put it best in 2003, when he said that:

If we do not find better ways to share the burden of developing new drugs and biologics, all of us will suffer. The benefits of these treatments are global, and so if we think only of the short-term interest of our own country, we all lose the opportunity for a healthier world. The heart of the problem is that we are not all paying our fair share of the costs of bringing new treatments to the world. And the problem is getting worse. . . . The United States is now covering most of these costs of developing a new drug to the point where it can be used by the population of the world.

The U.S. should use international trade negotiations to defend intellectual property rights, and demand that our wealthy trading partners pay their fair share of the costs of developing new medicines.

American patients and insurers shouldn't be asked to bear that burden alone, when the benefits are global.

1 Comment


Very true.

I was particularly troubled by this comment from one physician:

"We're businessmen, trying to make a living practicing medicine," the doctor said.

Ugh! The U.S. system is very safe, but only if buyers stay within it. Don’t buy from non-authorized distributors and don’t buy imported product. Why is that so hard to understand?


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