Pharmaceutical R&D spending registers first decline since late 1980s: PMPRB

R&D spending by Canada’s pharmaceutical industry declined in 2003 after 14 consecutive years of increases and dipped below the critical 10% R&D-to-sales ratio. The 2003 ratio for all patentees is 8.8% and 9.1% for those belonging to Canada’s Research-Based Pharmaceutical Companies (Rx&D) — the lowest since 1989. The data are contained in the latest annual report by the Patented Medicine Prices Review Board (PMPRB) which issues information on price trends for all medicines and tracks R&D spending by the pharmaceutical sector.

In 2003, R&D expenditures by 83 reporting firms totalled $1.192 billion, down slightly from $1.199 billion in 2002. (Total expenditures include $1.143 billion classified as current expenditures and about $50 million representing capital equipment costs and allowable depreciation expenses). Those firms racked up sales of $13.6 billion — up 12.7% from $12.1 billion in 2002 — pushing down the R&D ratio.

Spending on applied R&D remains relatively stable at $630 million or 55.1% of the current expenditures, compared to $626 million in 2002. R&D categorized as Other Qualifying is the only area of significant spending growth — $332.2 million or 29% of current spending, up from $304.3 million and a 26% share in 2002.

BASIC RESEARCH DECLINING

Perhaps as revealing as the overall decline in spending is the dramatic drop in expenditures on basic research. Despite a temporary upswing in 2002, the continuing downward trend in basic research spending indicates that major pharmaceutical firms remain reluctant to choose Canada as their location of choice for this type of research, opting instead to conduct R&D here that is closer to the market.

In 2003, basic research accounted for $180 million or 15.7% of current expenditures, the lowest ratio since PMPRB began collecting data in 1987 and down 9.3% from $198.6 million (17.4%) in 2002. Spending on basic research categorized as “chemical” dropped a whopping 25.4% to $77.8 million while biological basic research increased 9% to $102.2 million.

In the area of applied research, all areas experienced declines with the exception of Phase I clinical trials (up 34.9% to $54.1 million) and Phase III clinical trials (up 11.1% to $330.9 million). The latter is the single largest area of R&D spending, accounting for 28.9% of current expenditures.

Of the 83 reporting companies, 21 report no R&D spending at all while 42 report spending of between 0% and 10% of sales. The remainder (20) spend more than 10%.

REGULATORY REFORM URGED

The industry points the finger of blame at the federal government for failing to maintain a competitive operating environment relative to other jurisdictions, as well as the ongoing wave of consolidation that has rocked the sector over the past decade. It contends that without linkage regulations and patent restoration legislation, there’s little that the Canadian-based operations can do to attract new investment and R&D mandates.

“All the CEOs we’re responsible for are doing all they can to generate jobs and investment in this country ... We’re willing to contribute but we need to get a signal,” says Jacques Lefebvre, Rx&D’s VP strategic affairs and communications. “If you’re not increasing your innovation and others are, then you’re falling behind.”

Lefebvre says the numbers in the latest PMPRB report “speak for themselves” and reflect the erosion of Canada’s competitive position globally in the pharmaceutical sector. Compounding the problem is the fact that greater competition occurs within firms than between rivals, giving the country with the most attractive R&D and investment environment a built-in advantage.

“Everyone is trying to attract R&D to their countries and this applies to all sectors. For our industry, we’ve been at a disadvantage,” he says. “There’s some interest at some levels (in Canada) to further erode the environment for R&D ... at the standing committee level.”

To obtain a copy of the annual report go to www.pmprb-cepmb.gc.ca.

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