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Where drug prices head south

Canada province backs pharmacies catering to US

NIVERVILLE, Manitoba -- With his diamond-encrusted pinkie ring and tailored suits, Andrew Strempler strikes an incongruous presence in Niverville, a farming community of 2,100 without even a traffic light on the Canadian prairie.

His new wealth represents Niverville's chance to jump into the hottest game going in Manitoba Province: The cross-border prescription drug trade.

At 29, Strempler is president of MediPlan Health Consulting Inc., one of the largest Internet pharmacies in Canada catering to US consumers. Hungry for jobs, Niverville spent $1 million Canadian (about $767,000 US) to build a warehouse and dispensary where Strempler and his three partners could operate their second pharmacy.

On opening day earlier this month, dozens of townspeople and prospective employees showed up for a ribbon-cutting and cake, toasting the 20-something entrepreneurs who brought Niverville the promise of 100 to 350 new jobs.

"We like the small-town feel," Strempler said in the sparkling lobby, which looks out through mirrored windows to a landscape of snow-dusted pasture and wheat fields. "We get a lot of political and economic support."

Niverville's growing pharmacy business shows that US consumers' appetite for cheaper prescription drugs from Canada is not the only driving force behind a cross-border trade that could grow from $700 million in 2002 to $1 billion, according to industry estimates. (Figures are in US dollars.)

Canadian government policy poses few barriers to these sales, especially in Manitoba, where the provincial government actively encourages them. Lax regulations, cheap real estate, and the dream of overnight wealth have given the province 62 Internet pharmacies, up from 20 in early 2002, and an estimated 2,000 to 3,000 new jobs.

In the United States, the Food and Drug Administration and the pharmaceutical industry say Canadians like Strempler and his fresh-faced young partners are breaking the law. More important, they say, Canada's Web pharmacies pose a threat to the health of US consumers by opening a pathway for counterfeit drugs.

FDA Commissioner Mark McClellan raised the issue during a trip to Ottawa Tuesday, calling for greater Canadian regulation and higher Canadian prices to combat the industry. But while agreeing to share investigative information, Canadian officials rebuffed McClellan, saying they have no evidence that Canadian laws are being broken.

Provincial trade officials and politicians in Winnipeg are confident the drug supply pipeline is safe. And they are promoting the development of Internet pharmacies as a source of jobs, particularly in rural towns whose largest features are grain elevators towering above railroad sidings.

On Niverville's windswept main street, the prospect of jobs outweighed vague warnings from the FDA, said Mayor Gordon Daman. The town put up a gleaming white 18,000-square-foot drug facility next to one of the few local employers, a cement plant, and it subsidized Internet access.

"We live in a global economy that doesn't respect political borders," he said. "This has allowed us to level the playing field, putting in broadband to compete with New York, Boston, Montreal, Vancouver, Toronto."

Although the trade could be fleeting -- its continued survival depends on regulatory gaps and cross-border price differences -- Manitoba's policy is to ride the wave as long as it lasts.

"Our traditional dependence on agriculture has got to change," said Mary Ann Mihychuk, Manitoba's minister of Intergovernmental Affairs and Trade. Industry estimates say the province could reap $136 million in new taxes.

Big drug companies, such as Pfizer Inc. and GlaxoSmithKline, have started cutting back on wholesale shipments to Canada. Internet pharmacy operators refused to say how they are getting around the supply cuts. However, shipments from other countries may be filling the gap.

Prescription imports from western countries -- Ireland, Great Britain, Germany, and France, in particular -- have grown rapidly compared with last year, according to figures on the Canadian trade ministry website. From Ireland alone, imports climbed 55 percent, to a wholesale value of $448.7 million.

The shift indicates Canadian pharmacists have found an alternative source, said Diane Duston, an analyst at Prudential Financial. She added that countries with a higher incidence of drug counterfeiting, such as China and Pakistan, are shipping small quantities of drugs to Canada.

"This is the big fear if you're talking about safety," she said. "Products coming from Canada would be coming from someplace else."

During a tour with Governor Tim Pawlenty of Minnesota last week at CanadaDrugs.com, which shares a building with the Manitoba Pork Council in Winnipeg, company officials said they ship only in containers that are sealed by the manufacturer. There is none of the warehouse repackaging common in the United States and the pharmacies are setting up their own accreditation system.

Pawlenty said he will move "full steam ahead" to establish a purchasing program for state employees and retirees, perhaps like the one established by the City of Springfield, Mass. The interest of Minnesota and other states has encouraged the drug merchants.

"The biggest issue we have here is trust," said Kris Thorkelson, the chief executive and chairman of CanadaDrugs.com. "If Minnesota approves of us, it would improve our credibility."

Safety is not the only issue. Some regulators and pharmacists in Manitoba fear the Internet trade will hurt conventional pharmacies, which are far more tightly regulated than their US counterparts. Skilled pharmacists may be lured away and the drug supply may be curtailed, they said.

"This system is built on cheap drugs and regulatory loopholes," said Ronald F. Guse, registrar for the Manitoba Pharmaceutical Association, the provincial regulatory arm. "Right now, the regulatory framework isn't there."

Manitoba's rules for prescription writing have led to abuses, said provincial officials. The provincial College of Surgeons and Physicians has issued rules that require doctors to examine patients personally before writing prescriptions. However, the same rules allow doctors from outside the province to write prescriptions, including Canadian doctors residing in the United States, who are far from close oversight.

At CanadaDrugs.com, Thorkelson said he has four doctors on contract, but he would not identify them. The business handles 1,300 prescriptions a day, seven days a week.

Guse said cross-border shippers engage in legal games to skirt the rules. Two years ago, he said, when Manitoba pharmacies were warned they could not initiate shipments of drugs in violation of foreign laws, pharmacies had their US customers sign powers of attorney to legitimize the shipments.

John Myers, general counsel for the Canadian International Pharmacy Association, said that legal maneuver was necessary to meet an FDA policy that permits Americans to import a 90-day, personal supply of drugs.

"We can't export to an American," he said. "It's the American who has to import."

Myers also disputed the idea that the industry needs more regulation, pointing out that Manitoba is the only province that has established an Internet pharmacy license, with an application fee of about $9,500.

For now, businesses like MediPlan Health are thriving. Founded in 2001 by two couples in their 20s, MediPlan is one of the "Super Six" Internet pharmacies in Canada.

Strempler and his wife, Catherine, and their partners, Mark Rzepka and his wife, Chantelle, have profited handsomely, becoming minor celebrities in Manitoba. A Winnipeg newspaper recently featured the Rzepkas' new home, a 6,800-square-foot structure with its own dance floor and home theater, valued at $1.67 million.

Andrew Strempler and Mark Rzepka met at pharmacy college. Afterward, Stempler opened a conventional pharmacy and started selling batches of Nicorette nicotine gum on e-Bay. The gum sales pointed the way to Internet drug sales, and in 2001, he, his pharmacy school friend, and their wives launched their Internet pharmacy. They already employ 250 people at their first facility, in Minnedosa, a small town west of Winnipeg.

Mark Rzepka shrugs off questions about financial risks. So long as drug prices remain higher in the United States, he sees a secure future for Mediplan, which has 140,000 customers. Rzepka portrayed the business as a moral crusade.

"We feel we are in the right," he said, "and that we will overcome the political and business agendas of `big pharma.' "

Christopher Rowland can be reached at crowland@globe.com.

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