Pharma R&D rebounds in 2015 after hitting all-time low in 2014: PMPRB data

Mark Henderson
September 8, 2016

A 9.7% uptick in Canadian pharmaceutical R&D in 2015 raised the sector's R&D-to-sales ratio 0.1% to 4.4%. That's nowhere near the eight-year run of more than 10% between 1993 and 2000 but an encouraging sign that the long, slow decline of recent years may be at an end.

The results — contained in the latest annual report from the Patented Medicines Prices Review Board (PMPRB) — were greeted with cautious optimism by industry lobby group Innovative Medicines Canada (IMC). But it reiterated its contention that the quasi-judicial body's definition of R&D is outdated and fails to capture a significant portion of the industry's R&D outlays (R$, January 26/16).

R&D spending by all patentees rose to $869.1 million in 2015, up from less than $800 million in both 2013 and 2014 but short of the 2012 total of $936.1 million.

The all-time spending high was 2007 when the pharma sector accounted for $1.3 billion in R&D expenditures. But even in that year, the 10% threshold agreed to by the industry in 1987 was not achieved.

In fact, the sector's declining R&D-to-sales ratio is a factor of both relatively stagnant R&D spending and growing drug sales, which have increased every year except one since PMPRB began compiling data in 1988. The result has been a ratio below 10% for the past 15 years.

Patentees who are also IMC (formerly Rx&D) members spent $767.4 million in 2015, up 7.8% from the previous year. While pleased that the PMPRB data reflect what it terms "an ongoing upward trend in industry R&D", an IMC press release repeats IMC's oft-invoked assertion that the agency does not capture the full spectrum of innovative activity.

"It remains a challenge that our industry is held to a nearly 30-year-old definition of R&D spending that does not accurately capture the significant investments our members make in Canada," states the IMC. "The industry continues to be negatively impacted by a challenging access, regulatory and intellectual property environment."

IMC members have also collectively missed the 10% threshold for the past 13 years but IMC contends a KPMG report it commissioned found that between 30% and 50% of industry R&D investments are excluded by PMPRB's criteria.

In a global context, the Canadian pharma sector's R&D-to-sales ratio ranked at the bottom of seven comparator nations using 2013 data — France (17.9%), Germany (22.5%), Italy (5.8%), Sweden (21.9%), Switzerland (122.4%), UK (28.8%) and US (22.7%).

Within Canada, Ontario and Quebec remain the dominant locations for conducting pharma R&D, accounting for 52.3% and 28.7% respectively of the 2015 national total. Western Canada accounts for 15.4% while Atlantic Canada is home to 2.5%.

At $390 million, patentees are the single largest performer of current R&D expenditures ($790.1 million) , followed by other companies ($170.3 million), universities and hospitals ($134.6 million) and others ($95.2 million).

In terms of source of funds, companies bankrolled $791.7 million of total R&D spending, followed by federal and provincial governments ($8.3 million) and others ($69.1 million).

Applied R&D remains the single largest type of R&D conducted by firms at 57.7% of the 2015 total, followed by "other qualifying" (29.3%) and basic (12.9%) Basic research has increased for the past two years after hitting an all-time low of 8.7% in 2013.

R$

R&D Expenditures —
Type of Research

(%)
Year Applied   Basic   Other   
201557.7   12.9   29.3   
2014 60.9   10.7   28.4   
2013 63.5   8.7   27.8   
2012 57.9   12.6   29.4   
2011 55.0   17.3   27.8   
2010 54.6   21.1   24.3   
2009 56.2   19.4   24.3   
2008 57.3   15.9   26.9   
2007 54.4   20.3   25.6   
2006 59.5   20.0   20.5   
2005 62.4   18.2   19.5   
2004 58.3   19.7   21.7   
2003 55.8   15.8   29.0   
2002 55.8   17.4   26.6   
2001 59.9   16.1   24.0   
2000 61.3   17.8   20.9   
1999 63.3   18.4   18.3   
1998 61.1   19.6   19.4   
1997 62.0   20.7   17.3   
1996 62.9   21.7   15.4   
1995 61.8   22.1   16.1   
1994 62.7   21.9   15.4   
1993 60.3   25.3   14.4   
1992 57.1   26.4   16.5   
1991 57.3   26.5   16.2   
1990 58.0   27.2   14.8   
1989 62.7   23.4   13.9   
1988 67.2   19.1   13.7   

Total R&D Expenditures & R&D-to-Sales Ratios

(1988 – 2015)
 Total R&D R&D-to-Sales Ratio
YearCompanies
Reporting 
Spending 
($ millions)
%    
Change
% All   
Patentees
% Rx&D 
Patentees
201577   869.1   9.7   4.4   4.9   
201475   792.2   -0.8   4.3   4.8   
201381   798.3   -14.7   4.4   5.1   
201285   936.1   -5.6   5.3   5.6   
201179   991.7   -15.8   5.6   6.7   
201082   1,178.2   -7.4%   6.9   8.2   
200981   1,272.0   -2.9   7.5   8.2   
200882   1,310.7   -1.1   8.1   8.9   
200782   1,325.0   9.5   8.3   8.9   
200672   1,210.0   -1.9   8.1   8.5   
200580   1,234.3   5.5   8.7   8.8   
200484   1,170.0   -2.0   8.3   8.5   
200383   1,194.3   - 0.4   8.8   9.1   
200279   1,198.7   13.0   9.9   10.0   
200174   1,060.1   12.6   9.9   10.6   
200079   941.8   5.3   10.1   10.6   
199978   894.6   12.0   10.8   11.3   
199874   798.9   10.2   11.5   12.7   
199775   725.1   9.0   11.5   12.9   
199672   665.3   6.4   11.4   12.3   
199571   625.5   11.5   11.7   12.5   
199473   561.1   11.4   11.3   11.6   
199370   503.5   22.1   10.6   10.7   
199271   412.4   9.6   9.9   9.8   
199165   376.4   23.2   9.7   9.6   
199065   305.5   24.8   9.3   9.2   
198966   244.8   47.4   8.2   8.1   
198866   165.7      6.1   6.5   
Source: Patented Medicine Prices Review Board 2013 Annual Report
* Total spending includes current expenditures, capital expenditures and allowable depreciation expenses



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