Web pharmacies thrive in Canada Drug industry faces battle over e-sales

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MINNEDOSA, Manitoba – For drug makers and regulators as far away as London and Washington, trouble comes in a big dose from Minnedosa.

This farming town 140 miles west of Winnipeg is home to Mediplan Health, the largest of a multiplying number of Internet-based Canadian pharmacies that sell prescription medicines almost exclusively to Americans – at up to 80 percent less than they cost in the states. It caters to elderly customers with little or no insurance coverage for drugs.

“People wouldn’t buy from us if they didn’t have to,” said Mediplan founder and president Andrew Strempler, 28, as he checked prescription labels in the company’s shipping center, a converted tractor repair shop across a snow-blanketed road from an ethanol plant.

Known online as RxNorth.com, Mediplan has carved out a rich niche by exploiting Canada’s controls on prescription costs, taking advantage of the strong U.S. dollar, testing the legal limits of cross-border commerce and chipping at the profits of drug manufacturers.

Two years ago, Strempler and Mediplan vice president Mark Rzepka, 27, could barely pay their own salaries as proprietors of a walk-in pharmacy that served Minnedosa’s 2,400 residents. By then, Strempler had started selling Nicorette gum to Americans on eBay.

“Pretty soon that made more money than the pharmacy,” he said, speaking above the rustle of prescription bags being stuffed. “It blew my mind.”

Now, their cyber drugstore for Americans is the leading employer here, with a work force of 268. Projected sales for 2003 are $60 million.

“It really took off,” said Rzepka, sitting in his cubbyhole office at Mediplan’s Main Street headquarters, a few miles from the shipping center. He watched order takers tap their computer keyboards in a bullpen of desks, processing the day’s 2,500 prescriptions.

“The number of uninsured Americans is bigger than the population of Canada,” Rzepka said. “Our marketplace is astronomical.”

But success on the frozen plains of Manitoba has brought heat from the drug producers and regulators – and Mediplan’s jobs and revenues, as well as the savings enjoyed by its clientele, could hang in the balance.

The same is true for all the Canadian e-pharmacies that target white-haired consumers in the United States. At last estimate, there were 80 online enterprises scattered across the country, with a total employment of roughly 2,500 and combined annual sales approaching $500 million. Other Canadian pharmacies sell about $180 million worth of medications a year to Americans who drive across the border with their prescriptions in hand.

Friday, Canadian and U.S. authorities met with pharmaceutical industry representatives in Ottawa to debate whether tighter restrictions should be imposed on the Web pharmacies. U.S. Food and Drug Administration officials were to tell the gathering that it is illegal for the pharmacies to ship drugs to Americans.

“We’re going to urge the Canadians to be vigilant in stopping this practice,” said FDA Associate Commissioner William Hubbard. He said the agency would argue that online prescription purchases are unsafe because customers can’t be sure they aren’t getting tainted or counterfeit drugs, although there have been no reports of that happening with a Canadian Web pharmacy.

Online customers find order forms on a pharmacy’s Web site. They must mail in or fax a doctor’s prescription, along with their medical history and a list of other drugs they take.

Canada’s laws require the pharmacies to have a Canadian physician approve the prescription. The pharmacies retain a stable of doctors who sign off on the prescriptions for a fee. E-pharmacists call the requirement a nuisance.

Even with a doctor’s signature, mail-order drugs bought from a foreign country are generally prohibited by the FDA. However, the U.S. government has not cracked down on Canadian transactions because, in part, they involve small quantities of non-narcotic medications intended for the buyer’s own use. Among the best-selling drugs are those for high blood pressure, elevated cholesterol and arthritis; Americans can save $70 to $200 per 100-tablet prescription. The pharmacies stock about 1,000 medications.

Hubbard said enforcement has to come on the Canadian side of the border. Once the medicines are dropped in the mail, he said, it is difficult for U.S. authorities to track and confiscate them.

Canada’s provincial and territorial governments regulate the online pharmacies, and some are more tolerant of them than others are. Manitoba has allowed them to thrive. Fifty or so operate in and around Winnipeg.

The e-pharmacies’ owners seem confident they can meet any safety measures that regulators mandate, noting that Canadian and U.S. standards for prescription dispensing are similar. But they are less sanguine about accommodating manufacturers.

Last month, London-based GlaxoSmithKline, maker of the antidepressant Paxil and the blood-sugar drug Avandia, halted shipments to Canada’s online pharmacies, citing safety concerns and the FDA’s rules. Web pharmacists, who say Glaxo’s true motivation is protecting its U.S. profits, fear more manufacturers might join the embargo.

The pharmacists have filed a lawsuit against Glaxo, their No. 2 supplier, accusing the company of unfair business practices. The suit asks the Canadian courts to order Glaxo to resume shipments. Glaxo spokeswoman Nancy Pekarek would not comment on the litigation.

She said Glaxo is withholding supplies because of the “potential risks for Americans who are buying across the border. The FDA can’t regulate these things.”

Senior-citizen groups have denounced Glaxo and are organizing a boycott of its nonprescription products, such as Tums and Contac. “We would like to see [more] Internet sales from Canada,” said Bruce Lee Livingston, executive director of the Senior Action Network in San Francisco. “Seniors in the United States need whatever options they can find to get cheaper prescription drugs.”

Like other online pharmacies, Mediplan gets about 10 percent of its drugs from Glaxo, and it is running low on inventory.

“I’m concerned,” said Ron Kozak, 49, a pharmacist who quit a longtime job at Minnedosa’s hospital last year to join Mediplan, where he fills orders and answers customers’ questions over the phone. “This has to be dealt with.”

Kozak and his co-workers say Mediplan is safe: Drugs are shipped out in the bottles they arrive in from the manufacturer, the seals unbroken. Three pharmacists check each prescription.

“There are no safety risks,” said Strempler.

Canadian prices are lower primarily because the government caps them as part of its national health care program. A weaker Canadian currency sweetens the bargain for Americans. U.S. retail prices are determined mostly by manufacturers, leaving pharmacists little room for discounting.

“We’re saving patients’ lives because we’re providing drugs they can afford,” said Jan Magnusson, 26, a Mediplan pharmacist since December 2001. Her last position was at a Winnipeg hospital. “I wish [the drug makers] would come and sit beside me and listen to the positive feedback we get.”

The 9,000-member Canadian Pharmacists Association says the online companies also have compounded the country’s pharmacist shortage, which became pronounced as “big-box” stores like Wal-Mart got into the drug dispensing business. Many Web companies offer higher-than-average salaries – Mediplan pays about $72,000 a year – to attract pharmacists.

“The job transfers [to Internet startups] have left some areas worse off,” said Jeff Poston, executive director of the association.

Web pharmacist Andrew Yan disagrees. He left a Safeway pharmacy to work for Winnipeg’s Canadameds.com, one of Mediplan’s chief competitors. “Just because we’re in Manitoba doesn’t mean we shouldn’t care about people outside Manitoba,” he said.