Jack TenneyExtra Point

by Jack Tenney, Publisher

November 2003

So, when do I start?

To help get my head around the proposed reimportation of prescription drugs from Canada, I wondered how I would handle a job interview for position as a chief financial officer for a major pharmaceutical company. When asked how the company should deal with the increasing demand for lower prescription prices in the states vis-a-vis the provinces, here's what I would say.

"Well," I would begin to creep out on a limb, "I figure there is one Canadian for every 10 Americans. Uh, I know Canadians are Americans, too, but the Canadians I know seem to mean U.S. citizens when they talk about Americans. Anyway, since Canada has this national health plan, I assume they consume slightly more pills and stuff per capita, so let's say for every 100 pills we push in North America, 10 go to Canada.

"Since drugs are so much cheaper in Canada, I assume we try to recoup all our R&D from domestic sales and try to generate incremental profits from direct margins on export. Forgetting that maybe their nationalized health care model might be more efficient than our domestic model in purchasing and distribution, let's say we get 10 bucks for every domestic dose but only five from export. That generates $950 per 100.

"Two ways to go, okay.

"Straight away, we could raise the export price to $9.50 and drop the domestic price a half a rock to $9.50. While that might dampen export demand, what the heck, it's only 10 percent of the market. Plus, if these little poppers are really price sensitive, we could make up a 50 percent loss in export with less than a 6 percent bounce in domestic.

"Or, we cut off exports, increase our domestic price 5 percent and let U.S. distributors and pharmacies gray-market the goods back to Canada. Again, we could take a pretty good volume hit from Canadian users but still more than make it up on price and ... get a lot of feel-good feedback from domestic docs and pharmacists.

"So, when do I start?"