Mr. Speaker, I would like to take this opportunity to outline some of the key factors to consider with respect to cross-border drug sales.
First, let me just touch on some of the comments the member just made. The peak of the cross-border drug sales occurred many years before the bill to which the member referred was tabled. If the previous government had been really serious about dealing with the issue, it would have dealt with it at that time.
The political climate in the United States is actually quite contrary to what the member is suggesting because there is very little likelihood that the bill will actually pass.
Let me go into some other aspects. I hope to usefully inform the hon. members as to the current status of the issue, and how and to what extent this affects the interests of Canadians.
Let me begin by saying that the sale of Canadian prescription drugs to Americans is by no means a new practice. For years a limited number of Americans in border states have crossed into Canada to obtain prescription drugs from Canadian physicians, so that they could fill their prescriptions at lower Canadian prices. This activity is referred to as cross-border foot traffic.
Until recently, the number of individuals purchasing drugs from Canada was limited by the physical distance to the U.S. patient's place of residence and our clinics and pharmacies, not to speak of the need to cross the border. This foot traffic has been relatively stable at about $500 million a year.
In contrast to foot traffic, cross-border Internet pharmacy transactions are a relatively new phenomenon ushered in with the advent of Internet commerce.
The introduction of the use of the Internet to facilitate prescription drug sales significantly lessened the importance of the border as a barrier to sales. Internet pharmacy transactions went through an initial rapid growth and then a dramatic recent decline.
The sales volumes were small in 2001, at about $70 million, but grew tremendously to $840 million per year in 2004, when the Liberals were in power, at a growth rate of over 1,100%. Combined with border foot traffic, total sales to the U.S. amounted to approximately $1.35 billion in 2004.
The majority of the Internet pharmacy industry has been concentrated in the western provinces, particularly in Manitoba. In 2004, Manitoba accounted for nearly $400 million in annual Internet pharmacy sales representing close to half of the industry's business.
Other provinces with a strong industry presence have included Ontario, British Columbia and Alberta. These four provinces have consistently combined to account for more than 95% of the Internet pharmacy activity.
As well, at its peak it has been estimated that the Internet pharmacy industry has been a source of employment for up to 4,500 people.
Internet pharmacy sales peaked in 2004 at a value of $840 million, but annual sales decreased by 25% from 2004 to 2005 and there was a further reduction of about 50% in 2006. Presumably there will be another huge reduction given the rapid appreciation of the Canadian dollar.
The drop in sales volume is due to many factors, including the introduction of a drug benefit for seniors under the U.S. medicare program. The decline in sales has been most pronounced in Manitoba, originally the largest volume Internet pharmacy province.
It is important to note that when the Internet drug sales to the U.S. were at their peak in 2004, there was no evidence of any impact on the Canadian supply.
It is not unreasonable to think that a three-quarter drop in sales would equate to a similar drop in the potential impact on the Canadian supply, but some members are suggesting that the risk to the Canadian supply is rising. This is very difficult to understand.
Cross-border drug sales, including both Internet and foot traffic sales, now amount to about $700 million per year. At the peak of the Internet sales, the total sales volume was $1.3 billion.
In the meantime, proposed U.S. legislation to legalize drug imports, bulk imports in particular, has the potential to impact on the volume of drug exports from Canada to the United States, but for reasons that I will explain in a moment, it is, I believe, highly unlikely that that situation will materialize.
In evaluating the risks for the Canadian supply, it is useful to have a good understanding of the underlying drivers of cross-border drug sales to the United States. The primary motivating factor is drug price differentials between the two countries.
For patented drugs, Canadian prices can range from 35% to 55% below those paid by Americans. This is in large part due to the fact that Canada has legislated the price of patented drugs. The federal Patented Medicines Prices Review Board was created in 1987 under the Brian Mulroney government through the Patent Act with the regulatory mandate of ensuring that patented drug prices in Canada are not excessive.
Combine our lower prices with those Americans who have only partial or no drug insurance and we have a market. There is also interest from smaller drug plans without significant negotiating power with drug manufacturers.
However, overall demand has been reduced dramatically in the last couple of years. This is primarily due to the introduction in the United States of Medicare Part D, which provides drug benefits for seniors and others, such as disabled Americans who previously were under-insured or uninsured.
State governments and many municipalities are also involved. Drug importation is effectively prohibited under U.S. federal law, with the exception of a 90 day personal import provision, but despite the legal considerations, the import option has received significant support from state and municipal governments. A number of states have considered, or in some cases, actually pursued some sort of state facilitated drug import program. That said, such activity seems to have also been moderated by the medicare drug benefit.
In the case of municipalities, the interest has been either on behalf of their own municipal employees or their residents at large. Many of these initiatives have been launched despite warnings from the U.S. Food and Drug Administration of possible contraventions of federal law.
Clearly, this level of interest in drug imports would not exist if Americans were not facing the twin problems of high drug prices and inadequate or non-existent drug coverage. However, I believe that any concern about impacts on the Canadian drug supply needs to be balanced with a calm and considered examination of the situation.
First, the Americans are looking at solving this issue domestically.
Second, a number of factors have combined to dramatically reduce the volume of Internet based cross-border drug sales, including Medicare Part D and the rising Canadian dollar.
Third, imports of prescription drugs via Internet pharmacies are officially not permitted in the United States and we have not seen the floodgates open as a result. In fact, there was a sharp decline in the last quarter of 2006 of 20% of cross-border shipments due to U.S. customs.
Fourth, despite recent changes in the makeup of the U.S. Congress, we are a long a way from a bill legalizing bulk imports being approved by the White House without such a bill including major impediments to actual imports in practice. In other words, the White House does not support the importation of drugs and therefore, the bill would have very little chance of passing.
The Canadian drug supply is safe. There is no danger in the short, medium or long term. This bill is not necessary and therefore, I do not support it.
