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The Coming Crack-Up
In Pharma Regulation
Probably most Americans didn't know there was a soccer team called the New England Revolution, or that its star player is Joe-Max Moore, or that Mr. Moore is in fat legal trouble now for an even bigger Revolution he's been playing at.
He and his dad, Carl Moore, created a company called Rx Depot that now has 88 franchises and last week found itself dead-center of the battle over imported prescription drugs. The company gathers up prescriptions and forwards them to Canadian pharmacies, helping customers take advantage of cheaper medicines available north of the border because of Canadian price controls.
Now a federal judge, at the prodding of the Justice Department and the Food and Drug Administration, has declared the Moore company in violation of laws saying that only drug manufacturers may take their products across the national boundary.
All this occurs even as members of Congress, as part of the stalemated Medicare prescription drug legislation, vow to answer the howling demand of seniors for cheaper drugs by legalizing the importation of Canadian drugs.
What in the world is going on? Opponents of the bill say letting Americans take advantage of Canadian price controls would leave nobody paying full price for new drugs, depriving drug companies of revenue to support their huge research establishments.
The FDA hates the importation idea, saying it would open the floodgates to counterfeit or unapproved products, to the detriment of American health. Congressional types say the bill is a must-have because seniors want cheap drugs and damn the torpedoes, Canada is where you get cheap drugs.
Who's right? Nobody, exactly. Legalizing importation from Canada, a rinky-dink country of 30 million, won't undermine U.S. pricing. Let's recall we're talking about people who buy medicines in retail quantities at retail prices. That's not a majority of Americans, most of whom benefit indirectly from bulk prices enjoyed by their insurers.
Mr. Jenkins edits "Political Diary," the editorial page's daily e-mail newsletter with commentary, analysis and gossip on election-year politics. With John Fund. Subscribe at OpinionJournal.com.
If it were only a matter of drugs legally for sale in Canada, drug companies could simply ration supplies to Canada or supply Canada from non-FDA approved factories, so the drugs still wouldn't be legal in the U.S.
Likewise, the FDA isn't right about the law producing a flood of deadly fakes -- because the flood is coming anyway. Small packages fly hither and yon in the bellies of airplanes with no realistic chance of regulators knowing what's in them. And most drug shoppers have already figured out how to point and click to the drugs they want anyway.
Here's how the system works today: Consumers, doctors and pharmacists are supposed to know they're getting the real, untainted McCoy no matter how many middlemen's hands they pass through because the FDA lets only tested, approved and properly labeled drugs into the market in the first place. In effect, the agency interposes its own "brand." That's supposed to be your guarantee of quality.
Of course, the system falls apart if the FDA can't keep unapproved drugs from circulating -- and we're hard-pressed to see how the federal government might tamp this genie back into its child-proof bottle short of banning FedEx from crossing borders.
Let's not kid ourselves that this is all about price either: Americans are treating drugs as a consumption choice and aren't crazy about having to pay tolls to the medical profession to get the products they want. Still, price is a big factor explaining why the FDA-centric system is coming apart at the seams.
First, recognize that the problem begins because drug companies share their secrets with the world in return for a patent, though by the time the FDA approves a drug for sale its patent may be half used up. Thus new drugs have to be priced that much higher to recoup their costs before generics take away all the profit. Generics aren't the boon to consumers that promoters claim: All they do is pile up a drug's development costs on early users so later users can escape paying for any drug research at all.
Next, other governments impose their own price controls on new drugs, excusing non-U.S. customers from having to pay a fair share of R&D costs too. U.S. prices are even higher as a result.
Now we have a new problem: Sky-high prices become a temptation to overseas knock-off artists and organized crime, as well as to drug consumers who patronize them.
No amount of wishful thinking will cause investors to develop new drugs if they can't recoup their investment. One honest liberal has surfaced in this debate, Dean Baker, an economist at the Center for Economic and Policy Research: He proposes having the government assume the job of drug research, spending as much as $28 billion of tax money annually on the task.
Were Sen. Ted Kennedy or Rep. Tom Allen so candid, we might have a good debate about medicine's future. But that's not likely, so drug companies will have to find their own solution to the illegal knock-off problem, probably by building closer ties to the end user. They'll have to become their own Amazon.coms, putting the right drug directly into the paws of the right customer.
A problem still remains for Washington to solve: how to stop other nations from freeloading off our drug research. Any hint that drug manufacturers might hold back drugs from governments that won't pay a fair price is simply met nowadays with a shrug and threats to revoke the drug's local patent and authorize a cheap generic from a local manufacturer.
In a perfect world, the FDA's mission would be radically scaled back. We'd rely on brand equity and the tort system to assure drug quality, and companies would be entitled to keep their trade secrets so governments wouldn't find them so easy to blackmail. What would happen then? A lot more money would flow into drug research and Joe-Max could get back to kicking a ball around.
Updated November 12, 2003
In Pharma Regulation
Probably most Americans didn't know there was a soccer team called the New England Revolution, or that its star player is Joe-Max Moore, or that Mr. Moore is in fat legal trouble now for an even bigger Revolution he's been playing at.
He and his dad, Carl Moore, created a company called Rx Depot that now has 88 franchises and last week found itself dead-center of the battle over imported prescription drugs. The company gathers up prescriptions and forwards them to Canadian pharmacies, helping customers take advantage of cheaper medicines available north of the border because of Canadian price controls.
Now a federal judge, at the prodding of the Justice Department and the Food and Drug Administration, has declared the Moore company in violation of laws saying that only drug manufacturers may take their products across the national boundary.
All this occurs even as members of Congress, as part of the stalemated Medicare prescription drug legislation, vow to answer the howling demand of seniors for cheaper drugs by legalizing the importation of Canadian drugs.
What in the world is going on? Opponents of the bill say letting Americans take advantage of Canadian price controls would leave nobody paying full price for new drugs, depriving drug companies of revenue to support their huge research establishments.
The FDA hates the importation idea, saying it would open the floodgates to counterfeit or unapproved products, to the detriment of American health. Congressional types say the bill is a must-have because seniors want cheap drugs and damn the torpedoes, Canada is where you get cheap drugs.
Who's right? Nobody, exactly. Legalizing importation from Canada, a rinky-dink country of 30 million, won't undermine U.S. pricing. Let's recall we're talking about people who buy medicines in retail quantities at retail prices. That's not a majority of Americans, most of whom benefit indirectly from bulk prices enjoyed by their insurers.
Mr. Jenkins edits "Political Diary," the editorial page's daily e-mail newsletter with commentary, analysis and gossip on election-year politics. With John Fund. Subscribe at OpinionJournal.com.
If it were only a matter of drugs legally for sale in Canada, drug companies could simply ration supplies to Canada or supply Canada from non-FDA approved factories, so the drugs still wouldn't be legal in the U.S.
Likewise, the FDA isn't right about the law producing a flood of deadly fakes -- because the flood is coming anyway. Small packages fly hither and yon in the bellies of airplanes with no realistic chance of regulators knowing what's in them. And most drug shoppers have already figured out how to point and click to the drugs they want anyway.
Here's how the system works today: Consumers, doctors and pharmacists are supposed to know they're getting the real, untainted McCoy no matter how many middlemen's hands they pass through because the FDA lets only tested, approved and properly labeled drugs into the market in the first place. In effect, the agency interposes its own "brand." That's supposed to be your guarantee of quality.
Of course, the system falls apart if the FDA can't keep unapproved drugs from circulating -- and we're hard-pressed to see how the federal government might tamp this genie back into its child-proof bottle short of banning FedEx from crossing borders.
Let's not kid ourselves that this is all about price either: Americans are treating drugs as a consumption choice and aren't crazy about having to pay tolls to the medical profession to get the products they want. Still, price is a big factor explaining why the FDA-centric system is coming apart at the seams.
First, recognize that the problem begins because drug companies share their secrets with the world in return for a patent, though by the time the FDA approves a drug for sale its patent may be half used up. Thus new drugs have to be priced that much higher to recoup their costs before generics take away all the profit. Generics aren't the boon to consumers that promoters claim: All they do is pile up a drug's development costs on early users so later users can escape paying for any drug research at all.
Next, other governments impose their own price controls on new drugs, excusing non-U.S. customers from having to pay a fair share of R&D costs too. U.S. prices are even higher as a result.
Now we have a new problem: Sky-high prices become a temptation to overseas knock-off artists and organized crime, as well as to drug consumers who patronize them.
No amount of wishful thinking will cause investors to develop new drugs if they can't recoup their investment. One honest liberal has surfaced in this debate, Dean Baker, an economist at the Center for Economic and Policy Research: He proposes having the government assume the job of drug research, spending as much as $28 billion of tax money annually on the task.
Were Sen. Ted Kennedy or Rep. Tom Allen so candid, we might have a good debate about medicine's future. But that's not likely, so drug companies will have to find their own solution to the illegal knock-off problem, probably by building closer ties to the end user. They'll have to become their own Amazon.coms, putting the right drug directly into the paws of the right customer.
A problem still remains for Washington to solve: how to stop other nations from freeloading off our drug research. Any hint that drug manufacturers might hold back drugs from governments that won't pay a fair price is simply met nowadays with a shrug and threats to revoke the drug's local patent and authorize a cheap generic from a local manufacturer.
In a perfect world, the FDA's mission would be radically scaled back. We'd rely on brand equity and the tort system to assure drug quality, and companies would be entitled to keep their trade secrets so governments wouldn't find them so easy to blackmail. What would happen then? A lot more money would flow into drug research and Joe-Max could get back to kicking a ball around.
Updated November 12, 2003