The Drug Industry vs. John McCain

The Drug Industry Vs. John McCain

Matthew Herper, 07.13.04, 6:30 PM ET

Senator John McCain's Straight Talk Express may be heading straight for the drug industry's door.

McCain (R-Ariz.) is among those U.S. senators sponsoring a bill that could give pharmaceutical executives a need for their own heartburn and anxiety treatments. The bill is one of several efforts to make it legal to import cheap, brand-name medications from Canada. Unlike other such efforts, this bill may be able to get around many of the industry's defenses. "The thing I'm worried about is the McCain bill," says Richard Evans, a pharmaceutical analyst at Sanford C. Bernstein. "It knows all the tricks and outlaws them one by one.... This one's pretty clever."

Wednesday morning, the bill could get another boost as the AARP--the organization formerly known as the American Association of Retired Persons--has scheduled a press conference to support it. McCain is expected to be on hand, along with Senators Byron Dorgan (D-N.D.) and Olympia Snowe (R-Maine). None of the senators responded to calls requesting comment.

For years, Evans has tracked efforts to legalize bringing cheap drugs over the Canadian border. His view is that drug giants such as Pfizer (nyse: PFE - news - people ), Merck (nyse: MRK - news - people ) and GlaxoSmithKline (nyse: GSK - news - people ) will be able to get around any such efforts--including this latest one. "Ultimately," he says, "pharma wins the endgame."

But the new bill will make the battle a harder one for the industry. In Canada, the prices drug companies can charge for branded medicines are limited by government price controls.* Allowing U.S.-based people or companies to buy these products would in effect import these price controls. (Generic drugs can actually be more expensive in Canada.)

Critics point out that it would be impossible to supply the huge American market from Canada. "The problem is, it's not going to make a big difference," says Carolyn Buck-Luce, a consultant at Ernst & Young. There simply aren't enough drugs in Canada, she argues, to significantly bring down prices in the United States: "You can't force the manufacturers to sell ten times the number of drugs in Canada that they currently sell."

What the bill does do is make it harder for pharmaceuticals companies to get around a built-in loophole. To legally import drugs from Canada into the U.S., the medicines must be manufactured in a way that is approved by the U.S. Food and Drug Administration. In theory, companies could just manufacture drugs for foreign markets at plants that are not FDA-approved, thus rendering these drugs ineligible for reimportation to the U.S. market. In Evans' reading, however, the new bill would force drug companies to get all such medicines approved by the FDA.

The Bernstein analyst thinks that if this bill were made law, it might face a constitutional challenge because the powers it grants are too broad. But it seems clear that the reimportation issue is coming to a head in this election year. The chief executives of biotech firms Amgen (nasdaq: AMGN - news - people ) and Genentech (nyse: DNA - news - people ) have been dragged into the fight--both have called the price disparity between the U.S. and Canada unsustainable. And having a popular Republican such as McCain lining up with prominent Democrats like Ted Kennedy of Massachusetts and South Dakota's Tom Daschle on this issue only makes things harder for the drug companies.

*A previous version of this story misstated the nature of Canadian price controls.

Forbes.com