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Office of Planning
November 2003
Advocates of legalizing imports of drugs from Canada and other countries have typically cited studies showing that brand-name drugs are much cheaper abroad than in the U.S. These studies ignore how competition in the U.S. market lowers generic drug prices so they are lower than drug prices abroad. In the U.S., generic drugs, which comprise roughly half of all prescriptions, are cheaper than both Canadian branded drugs and Canadian generic drugs. Low generic prices are fully compatible with strong incentives for R&D because generics are introduced in the U.S. only after patents expire.
For six of seven important generic drugs (alprazolam, clonazepam, enalapril, fluoxetine, lisinopril, metformin, and metoprolol), the U.S. generic was priced less than the brand name versions in Canada. Five of the seven U.S. generic drugs are cheaper than Canadian genericsi. Of the remaining two generic drugs, while one (metformin) had a U.S. price 239 percent of the Canadian price, the other (enalapril) was unavailable in Canada generically. The price of the brand name version of enalapril in Canada was more than 5 times the price of the generic equivalent in the U.S.
These seven drugs are the biggest selling chronic-use drugs for which first US generic entry occurred in the last ten years. In particular, they are all the generic entities first entering the US market in the last ten years that are sold in solid dosage form, not over-the-counter, and are not anti-infectives. The prices represent the 2002 prices in U.S. dollars per milligram of active ingredient, calculated as average price of all milligrams sold in the respective countries. Prices in Canada were converted to prices in U.S. dollars using a 2002 exchange rate. The prices are retailer’s acquisition costs and thus should predict retail prices to the extent that retail markups are the same in both countries.
The Canadian branded and generic prices relative to U.S. generic prices for these seven drugs appear in the figure below. Only one (metformin) sold for less in Canada either generically or as a brand name. Furthermore, metformin did not become available generically in the US until January 2002, so U.S. generic prices have likely not fallen to the level they will eventually reach.
Data source: IMS Health, IMS National Sales Perspectives™
iFor these analyses, the definition of a “generic” product differs from the IMS definition used in their MIDAS database. We defined three products types for each of the seven generic entities studied as follows:
1) Innovator product – any product marketed by the innovator of the generic entity. Xanax, for example, is the innovator product for alprazolam.
2) Branded Generic product – any product marketed by a multinational drug company (or it’s subsidiary) other than the innovator product and sold under a trade name other than the products generic approved name. Clonapam, for example, marketed by ICN in Canada was considered a Branded Generic for these analyses.
3) Generic product – any product containing the generic entity, but not conforming to one of the two definitions above. For example, APO-Alpraz, Ratio-alprazolam and Nu-Alpraz were all considered generic products in Canada even though they sold under a name other than “alprazolam.”
Thus, these analyses tend to contain relatively few “branded generic” products and relative many “generic” products compared to any analyses using the IMS MIDAS classifications.