info Visit the New & Improved Industry Insider!
You’ll find more insightful and valuable content in a fresh, new layout.
Visit Now
United States / Analyst Insights
Drug Importation Programs: A Potential Solution to Rising Prices

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by Marisa Lifschutz Analyst
Nov 27 2018

In recent years, associations such as AARP have increased advocacy for lower drug prices, applying pressure on legislators to increase drug price transparency.  One proposal supported by AARP and other advocacy groups, includes allowing the safe importation of less expensive drugs from countries such as Canada or members of the European Union. Bills proposed at the state level have introduced legislation to create an agency which would buy popular prescription medicines in bulk from Canada and distribute to pharmacies within the state. States such as Vermont, Utah, Oklahoma, West Virginia, Colorado and Missouri have all introduced statewide bills over the past year proposing the bulk purchase of Canadian drug imports from wholesalers in an effort to combat soaring drug prices.

The framework for the proposed bills is a 2003 federal law that details the US Department of Health and Human Services (HHS) can approve drug importation plans if the agency is convinced the plans will save money with no public health concerns. As it currently stands, the 2003 model legislation has yet to be acted upon by the federal agency in that the HHS has not yet approved any drug importation program. However, with total medical expenditure anticipated to accelerate over the five years to 2023, rising an annualized 2.9% to reach $3.7 trillion, consumers and advocacy organizations alike have ramped up pressure on state governments to pass legislation enabling drug importation programs. 

drug reg 1

International trade

The Brand Name Pharmaceutical Manufacturing industry is one of the largest industries within the Manufacturing sector, generating an estimated $171.7 billion in total revenue in 2018. The industry is dominated by a handful of multinational pharmaceutical companies with research and manufacturing facilities located around the world, with the four largest enterprises accounting for more than 40.0% of total industry revenue. Similar pharmaceutical products are marketed in many different countries, and international trade is a major component of the industry’s performance. However, there are several inherent risks with purchasing pharmaceutical imports from global manufacturers. For example, differing standards for human and animal testing, counterfeit drugs and weak intellectual property protection make quality control difficult.

Overall, imports of overseas pharmaceuticals are expected to account for 39.4% of domestic demand, having risen from 38.4% of domestic demand in 2013. Imports are anticipated to have increased at an annualized rate of 5.1% over the five years to 2018, reaching $85.1 billion in total value. Ireland represents the largest import origin for overseas pharmaceuticals, with imports from Ireland expected to represent 29.9% of total imports in 2018. Following Ireland, are imports from Germany, representing 11.0% of industry imports, as well as Switzerland (10.7% of imports) and India (5.9% of imports). Meanwhile, brand name pharmaceutical imports from all other countries represent the remaining 42.5% of imports in 2018.

Comparatively, in 2018, exports of brand name pharmaceuticals are expected to account for 22.3% of total industry revenue, having risen in value at an annualized rate of 1.7% to reach $40.9 billion. While final export destinations are varied in scope, the European Union is the largest market overall for US pharmaceutical exports. Exports to Germany are anticipated to represent the largest export destination for the industry with 10.3% of total industry exports in 2018, followed closely by the Netherlands (8.8%), Belgium (8.1%) and Italy (6.8%). Meanwhile, brand name pharmaceutical exports to all other countries represent the bulk of industry exports at 66.0% of the total in 2018.

Drug pricing

According to a recent report by the AARP Public Policy Institute, brand-name prescription drug prices have doubled between 2008 and 2016 and are expected to have risen an additional 8.4% in 2017, far above that of annual inflation.  Furthermore, the balance of medical spending has shifted strongly from traditional treatments to specialty medications. As a result of rising price scrutiny and competition from generics, as well as intensifying market competition among brand name producers and rising research and development (R&D) expenses, many brand name drug manufacturers have shifted their strategic focus from traditional drug treatments to more lucrative therapy areas, such as rare diseases and oncology.

drug reg 2

This trend has additionally been supported by favorable tax policies promoting R&D in regards to orphan drugs, or drugs that treat diseases affecting less than 200,000 people in the United States. The US Food and Drug Administration (FDA) provides tax incentives to companies developing drugs to treat rare diseases or conditions when no therapy exists or if the proposed product would be superior to the current therapy. According to the FDA, one-third of all new medications approved over the past five years were orphan drugs, exemplifying this shift in medicine spending on the supply end of the equation. 

drug reg 3


The structure of drug pricing domestically is largely determined by international factors, as some economically advanced nations other than the United States control the prices of innovative pharmaceuticals at below-market levels. This structure has contributed to a political hot button issue by raising the prices of drugs purchased by US consumers while the international pharmaceuticals market is essentially subsidized. With the Democratic party recently assuming control over the House of Representatives following the November 2018 midterm elections, changes may be in store for pharmaceuticals manufacturers as the party outlined an ambitious agenda to combat the high costs of prescription drugs.

drug graphic

Edited by Emily Lidstone