How Parallel Trade Affects Drug Policies and Prices in Canada and the United States

Abstract

U.S. consumers and Canadian pharmacies have rushed to take advantage of the opportunity presented by price differences in patented pharmaceuticals. This rapidly growing parallel trade has brought the Canadian and U.S. systems for determining pharmaceutical pricing under increased scrutiny, and the pressure for change seems to be building. This paper examines why parallel trade in pharmaceuticals has grown and considers some of the policy options confronting both countries.To do this we begin by identifying similarities and differences in the Canadian and U.S. regulatory frameworks governing trade in pharmaceuticals. While the differences are considerable, we show that they are not the only reason for the emergence of the price disparity that has fuelled the growth in parallel trade. In particular, we argue that the price discrimination strategies of pharmaceutical manufacturers and exchange rate fluctuations have played an underappreciated role. Following this, we examine the claims that this trade represents a threat to American and Canadian interests, and find that there are good reasons for policy makers on both sides of the border to be concerned. Unchecked, this rising trade presents a threat to R&D funding and continued Canadian consumer access to pharmaceutical products.