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The trade in discounted prescription drugs between Canada and the US has elicited considerable controversy on both sides of the border. Yet recent figures show that sales of drugs via Canadian pharmacies have not been as great as some had predicted. However, as Datamonitor's David Deon explains, pharmaceutical companies could go further by driving the expansion of online prescribing in the US.

Minnesota and Wisconsin have generated about $545,000 in sales in the first five months of their state-sponsored websites offering Canadian drugs, according to figures made public last week. These are the first public accounting figures showing how much residents are using the websites, which were created by the governors of the two states. Yet the level of sales recorded represents a fraction of the cross-border business done by private and non-profit websites.

The statistics suggest the state-sponsored programs are not having a major economic effect, which had been a major concern of state pharmacists. Minnesota pharmacists are concerned that Canadian sales will take business away from them and make it harder to advise customers who get some of their drugs elsewhere. Officials of the Minnesota Pharmacists Association have stated that they were pleased with the relatively low usage of the state's drug websites.

The US Food and Drug Administration has openly criticized the Minnesota program, issuing two earlier letters to Minnesota officials that declared the program illegal and accused the state of abetting law-breakers. The agency is concerned with the safety of unregulated drugs purchased from Canadian pharmacies. Minnesota and Wisconsin are the only states that have inspected Canadian pharmacies, signed performance agreements with some and listed prices for hundreds of drugs on the state websites. The FDA warns that the states may not be doing all they should to ensure good practices by the Canadian pharmacies. In contrast, proponents of the program believe that it offers significant help to patients struggling with high drug costs.

Such controversy has only heightened interest in the online scheme in the US. On July 27, a group of Californians visited Winnipeg on a fact finding mission to local pharmacies. Local authorities in California are reportedly investigating the possibility of passing legislation that would allow the import of cheap drugs for patients who were uninsured or significantly underinsured. However, the Californian delegation also met with criticism that Canadians would be disadvantaged by the advent of a prescription drugs trade to the US on a large scale.

Total sales to US consumers from Canadian pharmacies are estimated to exceed $1bn this year. In all, US consumers spent about $160bn on prescriptions last year, and about $3bn in Minnesota, according to the Associated Press. The impact of parallel importing between the US and Canada on the pharmaceutical industry will grow as the online pharmacy market expands and constitutes a larger portion of overall drug sales. The financial impact of parallel importing through online pharmacies has been relatively minimal to date.

The big pharmaceutical firms have become increasingly concerned at the rise of such a parallel import trade between Canada and the US. In a bid to protect their revenues, both GSK and Pfizer have taken steps to restrict supply of their drugs to those Canadian pharmacies that supply across the border at a discount. Wider patient concerns about the quality of products and regulatory standards of pharmacies outside the US may mean that growth in this niche area remains modest for the time being.

If the big pharma players want to counter the discounters more proactively, however, they should help to facilitate the growth of an extensive network of online pharmacies for the US market alone. Online pharmacies themselves bring with them a number of advantages, notably the availability of a convenient method to fill prescriptions to improve drug fulfillment rates. Moreover, online pharmacies can bolster patient compliance rates by facilitating the refill process. Both of these factors should help protect companies' revenues.

The use of online pharmacies is likely to grow as consumers become more aware of the benefits of using such pharmacies. Moreover, by bypassing elements of the supply chain, online pharmacies often offer lower prices than standard pharmacies, providing a significant incentive for US consumers. After all, price is the major factor driving growth of the Canadian discount trade.

Source: Datamonitor

Related research: Datamonitor, "MarketWatch: Technology Annual Subscription"

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