Canada’s plan to lower drug costs? Let Americans pay for research

Biopharmaceutical innovation enhances and extends life.

In recent years, targeted therapies have revolutionized cancer treatment. Combination antiretroviral therapy has made HIV/AIDS survivable. Thanks to the HPV vaccine, most cervical cancers may one day disappear. These advances are medical wonders and they barely scratch the surface of what medical researchers have been able to do, or on the verge of achieving next.

But drug affordability remains a concern — especially for patients in the United States.

The benefits from breakthrough drugs are available to all, but since so many countries — including Canada — command unfairly low prices, Americans finance most drug development. As this practice continues, patients everywhere pay the price with delayed availability.

New treatments aren’t easy to develop. On average, a new medicine costs more than $2 billion to bring to market — and can take a decade or longer win approval and make it to the market.

Once a new medicine becomes available, Canada is among many countries that then imposes a price cap on it limiting what payers can pay and driving down competition for the Canadian market.

But competitive markets allow investors to recoup their investments and — potentially — turn a profit. Indeed, the U.S. market provides investors with an incentive to fund research and development in the first place. That shouldn’t result in freeriding by Canadians.

In other words, American consumers finance the bulk of the world’s drug development — essentially subsidizing patients everywhere. And while one can have a reasoned debate about what constitutes “fair” it doesn’t change the basic fact — revenues fund groundbreaking research. It buys the best people, technology, and literally underwrites the ability to fail — and to try again. This is at the very heart of innovation, iterate until you get it right.

A staggering fact from a U.S. Commerce Department report found that in developed countries outside the United States, medications were 18 to 67 per cent cheaper. Yet patients in many countries, including Canadians, also see less access to the latest medications.

While, working to lower drug costs is good, price controls harm patients by reducing research and development. Canada is a big contributor to that problem. And its undervaluation of U.S. innovation is about to get much worse. Health Canada is in the process of updating its regulations governing patented medicines. One key change will lower the maximum allowable price in Canada, requiring pharmaceutical innovators to discount their wares further. This will have a potentially devastating impact on many Canadian patients.

A recent study by Canada’s Fraser Institute noted the damaging impact this change would have, warning that it would “clearly disincentivize innovative drug launches in Canada.”

A decision now rests with the Canadian government as to whether to pursue short-sighted policies for quick political gain, or to think about the future of Canadian patients. There is still time to reverse course, and by doing so Canada could actually boost health outcomes — and even drive down its overall medical bills.

Research from the U.S. Department of Commerce found that moving to a market-based system would boost research and development spending, resulting in new medicines and more competition.

The real key to cost control is competition among new medications for the same or similar conditions — in other words, more innovation not less. Within a year of the introduction of the first major breakthrough hepatitis C treatment, for example, multiple competitors also entered the market. The availability of alternatives kept the price of the new entrants down and led to rebates on the original of as much as 65 per cent of the initial list price.

New treatments pay big health dividends in the medium and longterm. For patients with congestive heart failure, for example, studies show that every dollar spent on medicines generates $3 to $10 in savings on hospitalizations.

New hepatitis C cures, meanwhile, have the potential to reduce future U.S. health care spending by $115 billion. And a new medicine that delays the onset of Alzheimer’s disease by five years would avoid $367 billion annually in long-term care and other health care costs by 2050.

In other words, if wealthy countries like Canada shoulder more of the burden for biopharmaceutical innovation, patients everywhere would see more new treatments, more competition, and ultimately enjoy lower prices. That’s a prescription for a future we should all embrace.