O Canada! You Bunch of Thieves

Mabel Anne Milken of Heartland, Nebraska is a 71 year old Grandmother of six who worked her whole life in a factory that makes parents for orphans, served as a volunteer Nurse in popular wars, and spends her nights tatting extra-thick doilies for victims of a rare childhood sebaceous gland disorder.

But now she can no more sit and tat, since her job was outsourced to Bangalore and she must spend all her time trying to sell her grandchildren’s organs on the internet so that she can afford the expensive prescription medication that keeps her head from exploding. Worst of all, the medication she requires, Cephalintact, is actually secretly made from water and baking soda and sold in Canada in five pound bags for three cents Canadian. But the corporation that makes it, Evil Rilly, charges her and all other good people (i.e. Americans) $7,500 a month just in shipping and handling charges to receive the drug, which is so expensive that it’s cost cannot be even computed without permission from Alan Greenspan, lest it cause inflation.

OK, I made up that last part, but we have heard this exact story about three hundred times during the last few elections as the Democrats, the AARP and the media take to the streets to protest and exploit the manifest injustice that American drug companies are charging Americans more for drugs than they charge Canadians. What could be a more obvious case of greed and price fixing? Nothing. But the price fixing isn’t what you’ve been trained to believe. Let me explain by answering the obvious question that never seems to get answered in stories about poor Mabel Anne: Why do drugs cost less in Canada, which is just America Jr. anyway, than they do in America Sr.?

Answer: Because the Canadian government is using its total power to make law in Canada in order to force the drug companies to sell drugs below true cost in Canada, or be ruined financially. You see, drug prices are not artificially high in the US, they are artificially low in Canada. Drugs are unbelievably, unfathomably expensive to discover. Once discovered, however, they are usually pretty darn cheap to make. This means that much of the cost of a new prescription drug is actually the company trying to recover its research costs. The company can do this, despite other people now knowing which cheap chemical cures Exploding Head Syndrome, because the government grants the company a patent on the drug, which means only the company that discovered that the drug works can sell it for some short period of time after it is first discovered. The period usually works out to about seven years in practice and during this time the company must recover all its research costs and make enough of a profit to continue in business.

OK, now some math: if the drug cost seven hundred million dollars to discover, which is not that outlandish of a figure, and only 100,000 people have Exploding Head Syndrome (EHS) in the US, then the company will need to get at least one thousand dollars per EHS patient for seven years just to break even on the research costs. Now figure that they actually have to make the drug, distribute it, test it for purity, sell it to Doctors, and advertise it during football games and tatting tournaments, and you can see that this drug is going to cost Mabel Anne thousands of dollars per year, especially if it turns out that half the people with EHS can be treated with something silly like diet and exercise and therefore aren’t splitting the costs with Mabel Anne.

It is a dilemma, but a worthwhile one, because the alternative is to have no system to reward companies for making new drugs, in which case Cephalintact would never have been discovered and Mabel Anne’s head would have already exploded all over her doilies. In that case, then the families of Exploding Head Syndrome victims would undoubtedly be leading marches through Washington, DC demanding to know why the drug companies are not putting money into discovering a cure for EHS. But that is another subject.

So where does Canada fit into this tale again? You see, they have discovered a way around the dilemma. Since research costs are expensive, they will just quietly steal that money from the drug companies by forcing them to sell the drug in Canada at a price determined by the Canadian government bureaucracy. The process is complex, but briefly, the drug company determines the price at which they want to sell the drug, based on estimates of research costs, distribution costs, manufacturing costs, exchange rates and the vagaries of chance. Then a Bureaucrat ignores it all and 14 months later “suggests” that the drug should be sold for $26.31 per month. If the drug company refuses, then the Canadian Government ultimately can invalidate the company’s patent in Canada and allow a chemical plant in Bangalore to legally produce the drug at much lower cost, flood the Canadian market with it and thus, after a bit of entrepreneurial transborder shipment, ruin the whole North American market for the drug company. The company then takes a big loss and becomes a warehouse for GlaxoSmithKlineBeechumRilly.

This is why American drug companies have for years taken option B: take a loss in Canada and save the US market, which is 10 times bigger. So there is the reason Americans must pay more for drugs. The Canadians are not paying their fair share. But the problem is that in the last few years Canadian businesses have figured out that if stealing drugs for personal use is a handy cost-saving trick, then stealing them to sell back to the Americans at discount prices is an even better trick!

And millions of Americans can’t wait to get “cheap” Canadian drugs from the pharmacies fencing the goods just a few miles over the border. Like many people that would never steal a stereo themselves, they are more than willing to buy one that “fell off the truck, eh.”

Just one problem: if pharmaceutical companies are not allowed to make back their research investments, do you really think they are going to take a loss? Or are they going to stop doing so much expensive research? And then where will the cures of tomorrow come from? Canada?