The reason? For one, the latter has managed to garner a sizeable amount of the former’s market share. Driven by cheaper prices, this trend is continuing and Canadian pharmacies are adding customers like never before. US pharmaceutical companies have gone on the offensive, criticizing their Canadian counterparts for indulging in unfair trade practices.
The origin of this conflict goes back to the early 90s when the American industry lobbied hard to make cross-border trading with Canada and Mexico duty free. The result of this was the North American Free trade Agreement or NAFTA. Thanks to NAFTA, trade between the three North American countries (the US, Canada and Mexico) began growing. NAFTA permitted free movement of goods across the borders without the imposition of usual cross-border tariffs.
The American industry benefited enormously from this because they could now outsource their manufacturing to these countries and sell the finished products back again to them. Thus the manufacturing costs went down and profits began coming in. American pharmacies, whose main rival those days was Europe, also benefited from this, as most of their R&D facilities were in Canada and the work was done at much lower rates.
The joy of American pharmaceutical companies was short lived as many Canadian companies started selling drugs at discounted prices to US customers. This was done as Canadian companies realized that the cheaper R&D and manufacturing costs can be used to offer cheaper drugs to customers. Further, the price of drugs in Canada is strictly regulated by the government. On an average, a buyer based in US can save anything from $50-$200 a month by purchasing drugs from across the border. Displaying a spirit of competitive capitalism, the Canadian companies began selling drugs directly to US customers in Border States and by other means, like Internet and phone, to buyers in other areas.
In the US, it is illegal to import prescription drugs from Canada. However, import of drugs for up to 3 months of personal use is permitted.
The interesting fact is that most of the brand-name prescription drugs sold in Canada and the US are all products of the same manufacturing plants. Canada imports many raw materials and finished products from the US. Thus, most Americans may actually be re-importing American drugs.
With increasing profits, Canadian pharmaceutical companies started looking at other means of marketing including sale via the internet and mail order delivery. The American model of differential pricing at the retail level and for bulk customers like insurance companies means that the real price of a drug sold may not be known. Thus, the main segment of customers who have approached Canadian pharmacies are either the uninsured or those states whose negotiation power has been curtailed thanks to various regulations. Thus, indirectly at least, these purchasers are actually paying for the subsidies doled out to the insured. This is why they end up paying more for the drugs in their own country.
In the long run however the increase in purchase from Canada may actually push the retail prices in Canada North wards. A phenomenon, which, is already happening thus, sooner or later Canadian drugs may also become expensive on par with their US counterparts. But for now at least, the Canadian pharmacies seem to be on the right track.