Pharmaceutical R&D spending continues downward trend — PMPRB report

R&D-to-sales ratio slips to 8.1%

R&D spending by Canada's patent-holding pharmaceutical firms declined by 1.9% to $1.2 billion in 2006 with the largest decrease experienced by members of the industry lobby group advocating strengthened patent laws. The R&D-to-sales ratio of all patent-holding firms was 8.1%, down from 8.7% in 2005. The ratio is the lowest since 1988 — the first year data were recorded following a significant strengthening of copyright legislation.

In 1988, Canada's Research Based Pharmaceutical Companies (Rx&D) (formerly Pharmaceutical Manufacturers Association of Canada) publicly committed to increase the R&D-to-sales ratio of brand name manufacturers to 10%, an objective that was reached by 1993. The ratio remained above 10% for only eight years, however, and has been falling since 2001 (see chart below).

In the past, Rx&D has used the release of annual PMPRB data to slam the Board for exceeding its mandate or urging the government to enact changes to the regulatory regime. Such changes include increasing data protection to eight years and implementing an innovation strategy. Now that the latter two have been achieved by the current government, the tone of Rx&D has changed.

In its response to the new data, Rx&D president Russell Williams hailed the performance of its members for exceeding $900 million in sales, ignoring the $1 billion milestone member firms achieved for several years previously. And rather than acknowledge the failure of members to achieve the 10% R&D-to-sales ratio for the fourth year in a row, Williams spun the data by stating that, between 1989 and 2006, the "R&D-to-sales ratio has averaged over 10%".

The R&D performance for firms outside of Rx&D is far different. The latest data show that these companies account for $261 million or 21.6% of total pharmaceutical R&D spending in 2006, representing an impressive 34.5% increase over 2005.

Non-Rx&D firms are mostly so-called generic drug manufacturers including Apotex Canada Inc which has ranked as the top R&D performing pharmaceutical firm for the past several years. In 2005, Apotex placed #11 in the ranking of Canada 's Top 100 Corporate RD Spenders list with outlays of $183.1 million. The top Rx&D member (Pfizer Canada Inc) placed #12 with $178.7 million.

While patent holding firms are collectively failing to meet long-established target values, it should be noted that the amount of R&D expenditures in 2006 marks the sixth consecutive year that R&D spending has exceeded $1 billion.

An encouraging sign that big pharma is not abandoning Canada as an attractive jurisdiction for conducting research is the share represented by basic research. In 2006, basic R&D's share of the annual total was $232.4 million of current expenditures or 20%, up 8% from the previous year. This is the first time basic research has achieved such a large share since 1997, although it falls far short of its share in early- to mid-1990s (see chart). (Current expenditures in 2006 were $1.159 billion or 95.8% of total expenditures).

Applied research experienced a modest decline in 2006 to $689.6 million or 59.5% of total current expenditures, down 6.5% from $737.5 million in 2005. Applied research includes R&D "directed toward a specific, practical application, comprising research intended to improve manufacturing processes, pre-clinical trials and clinical trials."

Other qualifying R&D was up slightly to $237.4 million or 20.5%, up 1% from 2005. This category includes drug regulation submissions, bioavailability studies and Phase IV clinical trials.

As in previous years, the bulk of pharmaceutical R&D was performed in Ontario (46.5%) and Quebec (42.2%).

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"This is the sixth consecutive year the overall ratio has fallen below 10% and the fourth year in which the Rx&D ratio has failed to achieve this target value."

— 2006 PMPRB Report