R&D-to-sales ratio for Rx&D members declines for eighth consecutive year to $1B

Pharmaceutical R&D slumping

The decline in pharmaceutical R&D investment in Canada is accelerating with the latest data showing a 7.4% drop in expenditures by all companies and nearly 12% for those who are members of Canada's Research-Based Pharmaceutical Companies (Rx&D). Despite assertions by Rx&D that investments by its member companies are under-reported by 20%, most of the additional spending it cites is not R&D.

Collectively, member R&D outlays declined $132.7 million between 2009 and 2010 to $1 billion or 8.2% of sales revenue, according to the latest annual report of the Patented Medicines Prices Review Board (PMPRB). That places Rx&D members below the 10% commitment made to the government for the eighth year in a row — a situation industry officials argue is unlikely to change until Canada's patent and regulatory regimes are strengthened.

Of the 82 companies covered in the report, only 15 had R&D-to-sales ratios of 10% or more.

Basic research accounted for 21.1% of total expenditures, up slightly from the previous year. Correspondingly, applied R&D was down slightly to 54.6% while other qualifying R&D remained constant at 24.3%.

On a year-to-year basis, Ontario lost some ground to Quebec and the Western provinces as a pharmaceutical R&D-performing region. dropping from 46.6% to 44.7%. Quebec's share rose 0.4% to 41.2% while the Western provinces jumped 2.7% to 12.6%

Among comparator nations, Canada ranks below every country except Italy at 8.1% of R&D-to-sales in 2008. Top-ranked Switzerland had a ratio of 119.9%, followed by the UK (42.3%), the US (19.4%) and Sweden (25.6% versus 44.4% in 2000).

Rx&D investments under-reported

Days prior to the release of the PMPRB data, Rx&D president Russell Williams issued a statement relating to the release of a KPMG report on R&D spending and investments by Rx&D members. Commenting on the report, the statement contends that the actual total is $1.5 billion annually, not the $1.1 billion in investments "traditionally reported to the PMPRB".

"Current R&D measuring and reporting mechanisms by the PMPRB and Statistics Canada ... do not provide a complete picture of the true investments our members are making in Canada," states Rx&D. "We never had a complete reflection of the contributions made by Rx&D members in this country."

Of the additional spending, however, more than half ($210 million) accounts for product donations to patients and community programs such as "breakfast for learning in schools, community-based sports and recreation, and contributions that support environmental responsibility and land and wildlife preservation". The report says PMPRB misses another $199 million as it targets only a subset of the Rx&D membership ($48 million) or other types of R&D spending ($151 million) not reported to the independent, quasi-judicial organization.

The PMPRB report acknowledges its data do not cover all pharmaceutical research in Canada. For example, if a firm conducted R&D in Canada but has no sales here or only sells non-patented drug products, its R&D is not included.

The PMPRB was part of the steering committee of the KPMG survey, along with Rx&D, the Canadian Institutes of Health Research, Industry Canada and others. The survey was undertaken to examine the current mechanisms for measuring R&D and other investments made by Rx&D companies.

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