Several states and many members of Congress want to bypass U.S. drug distribution channels to purchase prescription drugs from Canada, the U.K., and other countries in an attempt to avoid paying the higher prices found in the U.S. market. Legislation allowing this to take place passed the U.S. House of Representatives last year, though it looks doubtful that a similar measure is going to make its way through the Senate this year.
As interesting as the political jockeying may be, I view this issue as a distraction for investors, because try as hard as they may, politicians in the U.S. cannot kill the goose that lays the golden egg when the goose has the ability to fight back. As fellow Fools Brian Gorman and Bill Mann wrote in articles earlier this year, the drug industry is not going to take the threat of drug reimportation lying down.
Earlier this week, Pfizer (NYSE:PFE) announced that it was restricting supply to U.K. wholesalers to stop re-importation to the U.S. While there will be enough drugs supplied to meet U.K. demand, there will be effectively zero supply left over for shipment into the U.S. This follows moves Pfizer made earlier this year to cut off shipments to Internet pharmacies that resell drugs to U.S. consumers. Other pharmaceutical companies such as GlaxoSmithKline (NYSE:GSK) and Wyeth (NYSE:WYE) have similar policies. Outside of our pandering politicians, these actions should surprise no one.
With supply restrictions in place, Canada and the U.K. are at a higher risk of drug shortages if pharmacies in those countries continue to sell drugs to U.S. citizens. If a foreign pharmacy can get a higher price by selling to U.S. consumers instead of domestic consumers, it will surely be tempted to garner the higher profits from doing so. That would result in an inadequate supply to meet domestic demand. If I were living in a foreign country, this potential for drug shortages would be something I would be worried about. I would not be surprised if other countries head off this possibility by forbidding sales into the U.S.
To read more by Charly on the biotech industry, check out his recent articles:
- The Case for Drug Stocks
- Surviving Biotech's Downturns
- What's a Drug Worth?
- Biotech's Full Monte
- Unraveling Biotech Potential
Fool contributor Charly Travers doesn't own shares of any company mentioned in this article.
