FDA: Lower drug costs could hurt R&D

WASHINGTON, Dec. 4 (UPI) -- Even government officials can't blame seniors from heading north across the border to buy their prescription drugs in Canada, but simply forcing U.S. pharmaceutical manufacturers to lower their prices isn't the solution to the problem, a senior Food and Drug Administration official said Thursday.

"There is no clear policy conclusion," said the FDA's chief economist Randall Lutter, even as he outlined the numerous problems in drug costs and Medicaid that prevail. It's a topic that is likely to be a key political issue as the nation braces for a presidential election next year, but at the same time, the economist said that it was easy enough to identify the many problems in the current system but far more difficult to reach a solution that would keep both medicinal costs low and to encourage drug companies to continue innovating new products.

Lutter did point out, however, that the problem was not too big until a number of states started to allow its citizens to bypass the federal law of prohibiting foreign drugs entering the United States by allowing their residents to buy medication from Canada.

For now, individuals caught importing Canadian drugs for their personal use will not be prosecuted by the federal government. As a result, with little or no prospect of being punished, more and more seniors are crossing the border or are ordering their medication on-line to save significant amounts of money.

So far, the drug importing trend has been more of a political and social issue domestically, and has not led to a trade spat between Canada and the United States. But it is clear that buying drugs north of the border saves retirees considerable amounts of money, for products that are readily available. According to the FDA which regulates drug safety in the United States, drugs from Canada cost on average 39 percent less than they do in the U.S. market. In fact, the agency's chief economist admitted that his own father, who lives in Florida, gets most of his drugs through a brother who lives in Canada and "saves considerably" on medication costs as a result.

Nevertheless, Lutter argued that importing drugs from abroad, or indeed forcing U.S. manufacturers to lower prices overall, could do more harm than good in the long run as lower profit margins would decrease incentives for pharmaceutical companies to produce new drugs that could further improve living standards for people.

Certainly, the United States has become the world leader in developing new drugs as nearly half of all drugs spending worldwide is by U.S. companies. But that wasn't always the case. In 1990, European companies spent 75 percent more than their U.S. counterparts, but that trend was reversed by 2000, when U.S. companies outspent the Europeans by 30 percent. Meanwhile, of the top 10 best-selling drugs currently on the market, eight are made by U.S. companies.

The FDA's Lutter argued that one key reason for the U.S. success in the field was that it did not have price controls, unlike Canada. He said out that while Canadians may be able to get drugs cheaper, Canada's drug pricing system was not necessarily conducive to companies spending more money into research and development of new products.

According to the Organization of Economic Cooperation and Development, which represents the world's 30 wealthiest nations, drug costs as a part of overall health spending in the United States reached 10 percent, while in Britain that figure was 15.9 percent, and Japan spent over 21 percent of its health budget on medicines.

"The value of finding cures ... provides huge savings. So the question is how to encourage continued financing of R&D," Lutter added. He pointed out that finding a cure for cancer could save the country as much as $43 trillion and a remedy for heart disease reaching $48 trillion. The economist also argued that for every dollar earned in vaccine revenue, $5 to $6 could be generated to develop a new drug, thus stressing the need to keep the industry as profitable as it can be for longer-term savings by the government.

Yet, part of the reason for U.S. dominance in the pharmaceutical market could be explained by the wave of mergers between U.S. and European drug makers over the past decade, and most companies becoming U.S-based, rather than continuing to being seen as a European manufacturer. For instance, Britain's Glaxo-Wellcome merged with SmithKline Beecham to become Glaxo SmithKline in 2000, while Pfizer joined forces with Warner Lambert to become Warner Lambert-Pfizer in 1999. The mergers were seen as necessary to become more competitive and pump more money into research, whilst at the same time be more able to resist pressure from government and the public to cut costs of prescription drugs.

He did, however, suggest that the case of the AIDS epidemic in Africa could be an exception for humanitarian reasons. As the continent struggles with the disease that is wiping out many parts of its regions, U.S. drug companies are begrudgingly becoming more open to the prospect of offering AIDS medication at a considerably lower cost than in industrialized countries. But he suggested that there was no incentive for companies to offer such similar deals for users in the United States, particularly for treating non-lethal conditions such as high cholesterol and high blood pressure.