Canada's biopharm R&D policy needs revamping

Analysis

By Jorge Niosi

The picture of our pharmaceutical industry is not rosy. According to the Patented Medicine Prices Review Board, Canada's pharmaceutical expenditures on R&D have declined by over 30% since a high in 2008 to 2011. One after the other, Canadian pharmaceutical R&D labs closed their doors, including those of AstraZeneca, Boehringer Ingelheim, Merck, and Pfizer.

Our commercial deficit in pharmaceutical products has double between 2001 and 2011 from $ 4.4 billion to $8.2 billion in current dollars. Also, the price of patented medicines in Canada is among the highest in the world, only lower than those in Switzerland, Germany and the US. Manufacturing employment has declined by 10% in the pharmaceutical industry from over 30,000 to just above 27,000. Among the leading companies, only one is under Canadian ownership and control, Apotex. That company is the only large producer of generic pharmaceutical products.

In biotechnology, one of Canada's target sectors for federal and provincial R&D funding, the situation is not better. A recent study produced at UQAM shows that governments subsidize biotechnology R&D with some $700 to $800 million every year. However, the majority of the dedicated biotechnology firms (DBF) working in the area of human health have disappeared or are disappearing through acquisition, typically by foreign companies.

Except Apotex, no Canadian pharmaceutical company is able to buy a DBF and complete the long and expensive R&D process. Large foreign generic drug manufacturers and pharmaceutical R&D companies are thriving on the cornucopia of results produced by Canadian DBF nurtured by our tax dollars.

The largest and most publicized was Biochem Pharma (sold for $6 billion in 2000) and the latest is Medicago, acquired in July 2013 for $357 million. Research results most often are transferred to the new overseas head office with little or no return on investment to the Canadian taxpayer.

What went wrong? First, neither the Liberal federal government nor any other level of government had anything to say when, in 2000, Israel's Teva acquired the second largest Canadian generics manufacturer, Novopharm. In 2010, Teva acquired German generics manufacturer Ratiopharm mbH, and in 2011 it closed Ratiopharm's Canadian operations.

Yet, sales of generic drug products increase faster than those of patented drug products, due to the fact that the drug pipeline is becoming less fruitful than 10 years ago.

Second, as generic sales increase worldwide, competition gets stronger between traditional generic market leaders, such as Sandoz (a Swiss company subsidiary of Novartis), new entrants such as Teva (Israel), Indian companies like Dr. Reddy or Ranbaxy, and more recent ones such as Aspen (South Africa), and Samsung (South Korea), not to mention American (Hospira and Mylan) and German (Stada) companies. Generic drug companies are becoming major players, and even large R&D pharmaceutical companies, such as Sanofi, are developing their generic medicine subsidiaries. And the arrival of Chinese competitors should follow suit.

Also, Quebec subsidized its R&D industry through the health system by buying original brands even after the patent had expired. In November 2012, Quebec abolished the "15 year" rule that cost $173 million in 2012-13 only. In order to boost pharmaceutical research in the province, while reducing the provincial deficit, Quebec increased its R&D tax credit, a measure that will cost $45 million to the province.

Under these conditions, if we want to lower the price of our medicines, we may have to better support the domestic generic companies that still exist. Original drug pharmaceutical R&D is becoming more expensive and less profitable; the time has come to develop domestic generic product firms. Since the early 2000, Canada has undergone a period of policy inertia that has produced de-industrialization and the decline of R&D and innovation. Time has come for a change.

Jorge Niosi is the Canada Research Chair on the Management of Technology at the Université du Québec à Montréal.