Basic research increases share of medical R&D according to latest PMPRB report

Spending by the patented pharmaceutical industry on basic research reached $198.6 million in 2002, accounting for 17.6% of all R&D outlays. The 21.8% increase over 2001 reverses a seven-year decline in the proportion of R&D expenditures devoted to basic research, according to the fifteenth annual report by the Patented Medicine Prices Review Board (PMPRB).

Overall, R&D spending in 2002 totaled $1.184 billion, up 11.6% over the previous year’s tally of $1.060 billion. The 76 patent-holding firms captured in the report registered the same level of R&D intensity as last year (9.9%) which was the lowest since 1991. The company total includes 36 firms that are members of Rx&D and they registered an R&D intensity of 10.0%, the lowest level since 1992. Rx&D firms account for $10.3 billion or 86.6% of total sales revenue for 2002, which amounted to $11.9 billion. Total expenditures are comprised of current expenditures (95.2%), capital equipment (3.4%) and allowable depreciation (1.4%).

APPLIED R&D STAGNANT

Applied R&D and other qualifying R&D continue to dominate pharmaceutical R&D spending in Canada, with the latter now accounting for $301.6 million or 26.8% of current expenditures, up from $242.6 million or 24% in 2001. Applied R&D — which includes manufacturing process and all pre clinical and clinical trials except clinical phase IV which is categorized as other — fell as a percentage of current expenditures in 2002. The 2002 total was $626.3 million or 55.6% of current expenditures, compared to $604.8 million and a 59.9% share in 2001. Decreased spending on pre clinical trial I and clinical trial III activity was offset by increases in manufacturing process R&D which increased nearly 40% over 2001 to $110.9 million.

The increase in overall pharmaceutical R&D is impressive given the troubled environment technology-intensive industries have experienced in recent years. The high-water mark for R&D intensity came in the mid-90s when the sector exceeded 12% R&D-to-sales for four years in a row. Since then, intense competition globally and from the generic industry, have pushed the ratio back down to 10%, renewing calls from Rx&D members for a strengthening of the Canadian patent regime.

“The 10% R&D-to-sales ratio is the result of a challenging environment,” says Jacques Lefebvre, Rx&D’s executive director of communications and public affairs. “Too often people think the competition is between companies but the real competition is within companies. The environment in Canada is making it increasingly challenging for CEOs that report to global headquarters to make the case (for R&D) in Canada versus other jurisdictions.”

RX&D WANTS CHANGES

Rx&D also compiles annual R&D spending data. The 2002 version has not been released but preliminary figures show a substantial drop to $917 million or 8.8% of sales from 10.6% in 2001. This is particularly distressing since the Rx&D survey includes a greater number of member firms than the PMPRB report, especially smaller companies that have yet to move any products into the marketplace. PMPRB only tracks patent-holding pharmaceutical firms with products on the market, thereby excluding many smaller firms at various levels of pre-commercial R&D activity.

In press statements issued shortly after the PMPRB report was released, Rx&D called on the federal government to remove certain hurdles to conducting medical R&D. The main thrust of its lobbying efforts are aimed at attempts by the generic industry to weaken notice of compliance or linkage regulations. Rx&D describes the linkage regulations as the “cornerstone of patent policy in Canada”, while the generic industry views them as biased in favour of Rx&D members.

A separate report on corporate R&D spending paints a more optimistic picture of the pharmaceutical and biotechnology industries. It shows that 31 firms from the two sectors placed in the Top 100, although the top performing pharmaceutical R&D spender is Apotex Inc, a generic company (see page 3).

R$