CVS Fuels the Drug Debate

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CVS (NYSE: CVS) CEO Thomas Ryan is not likely to win a popularity contest among pharmaceutical manufacturers after publicly advocating reimportation of prescription drugs from Canada and other countries.

Indeed, Ryan's comments before Congress represent part of a pile-on of sorts on the major drug makers, including Pfizer (NYSE: PFE), Merck (NYSE: MRK), and Eli Lilly (NYSE: LLY), among others. On Tuesday, Health and Human Services Secretary Tommy Thompson professed his belief that legal reimportation will become a reality, while shortly after Ryan's statements on Wednesday, a Walgreen's (NYSE: WAG) spokesperson likewise voiced support for the policy.

Clearly, the levee on reimportation looks about to break. Nonetheless, it's questionable as to whether allowing buying from across the border will actually have any substantial impact. Pharmaceutical giants are not likely to voluntarily boost exports to Canada to accommodate such a program, as fellow Fool Bill Mann has pointed out.

Opening up importation from Europe, though, might be a different story. Europe, unlike Canada, has a large pharmaceutical industry. As in a Canada scenario, U.S. companies could stifle reimportation by tightly controlling shipments to the continent. But European companies, such as GlaxoSmithKline (NYSE: GSK) and Aventis (NYSE: AVE), might be tempted to allow some of their "price-controlled" drugs intended for Europe to flow to the U.S. Doing so could allow these companies to gain market share for products that compete with treatments made by U.S. firms. A flood of cheap pills is not likely, since European outfits depend on profit margins they achieve in the U.S., but even some importation could spur a price war for selected pharmaceuticals.

However the drug price debate works out, it seems clear that the current system is on the edge of extinction. U.S. pharmaceutical companies may have no choice but to evolve.

Merck is a Motley Fool Income Investor recommendation. To see which companies will pay you to own them, take a free, 30-day trial.

Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.