Magazine Article | September 1, 2009

"Reimportation Is A Very Bad Idea"

Source: Life Science Leader

My compliments on Life Science Leader. After receiving and reviewing the June 2009 issue, I found it to be an informative and thought-provoking publication with well-written articles and food for thought. I was, however, somewhat frustrated and disappointed by the article written by Alan Horowitz on drug reimportation. While thought- provoking, his analysis was incomplete and totally missed a fundamental aspect of the debate. Specifically, while patient safety is of paramount importance, drug reimportation is as much a debate over the political legitimacy and economic ramifications of price controls as it is a debate concerning anything else.

The current system works basically along the following lines: (1) funded by investors, an innovator company in the United States invests countless millions of dollars toward development of a safer and more effective medicine for a specific disease (and most such efforts are unsuccessful, either because the drug is not safe, not effective, or simply not commercially viable — a risk-intensive investment profile); (2) if, however, the company is successful, and the drug is ultimately approved in Canada (or many other countries), a government committee/agency then arbitrarily establishes the price at which the drug can be sold. Frequently, pricing is set at a rate far less than what is reasonable to generate an attractive risk-adjusted rate of return given the overall failure rate of drug development; (3) if a company doesn’t like the government-mandated price, and it refuses to sell the drug in Canada, the Canadian government can arbitrarily void the intellectual property rights of the innovator, in the process opening a floodgate of competition — particularly if a system of reimportation is in effect.

For what other industry would American consumers and politicians willingly accept arbitrarily established, foreign government mandated price controls on American-made and exported products? Would we enthusiastically accept it for automobiles, computers, plasma televisions, steel, or cell phones sold in Canada or anywhere else? Furthermore, would we allow reimportation of product price controls back into the American market? Mr. Horowitz (and many others) either fail to recognize (or have completely ignored the fact) that drug prices are lower in Canada and many other countries only because they are artificially lowered through price controls, a practice that is enforced using the “gun” of a threatened forfeiture of intellectual property. Under drug reimportation, an innovator might actually market a drug in Canada under economic duress and would then be hopeless to watch as the drug is reimported at a mandated discount back into the United States, eroding profitability and creating a strong disincentive for investors. This is also bad for Canadian citizens, as it could result in transient or even chronic shortages of important new medicines. In a very real sense, American investors, patients, and taxpayers are already subsidizing healthcare innovation for the rest of the world — reimportation makes it even worse.

Who does reimportation hurt? Aside from the safety issues posed by potential drug counterfeiting, product dilution, or manipulation, in the near term, reimportation hurts mainly smaller companies. You can’t implement and institutionalize a strong economic disincentive (i.e. foreign government-mandated price controls that reduce or limit profitability for companies here) and then expect investors to ignore the potential impact as they seek to achieve an attractive return on their investment dollars. If the disincentive does not exist for alternative investments, that’s where capital will flow. Furthermore, reduced capital availability hurts smaller companies far more than bigger ones. However, in the long run, the impact on patients and the quality of the healthcare system is even worse. There is no question that as investment capital becomes more scarce for biotechnology companies, innovation will decrease. Institutional investment capital is more critical to the efforts of emerging companies, who have provided the greatest source of innovation and new medicines in recent years. Decreased investment means reduced innovation and development of safer and more effective new medicines and ultimately fewer choices for clinicians and patients in need. It also means reduced economic impact and fewer jobs and companies over time.

Reimportation is a very bad idea, for many reasons. Any policy debate regarding the issue should include a thorough analysis of the potential impact such economic policy might have on investment capital, innovation, and the fundamental goals and objectives of our national trade and economic policy. Innovation is the key to promoting better and ultimately less expensive healthcare. Ill-considered political and economic policy can impede, if not stifle, innovation — we don’t need, and shouldn’t accept, short-term political expediency that produces an unacceptable long-term cost to our healthcare system.

Gil Van Bokkelen
Chairman & CEO - Athersys, Inc.