Pharmaceutical R&D spending shows modest recovery but far below 1997 plateau

Industry calls for regulatory changes

R&D spending by pharmaceutical companies in Canada inched up in 2005 but not enough to fulfill the 10% R&D-to-sales ratio committed by the industry back in 1987 when government enacted changes to the Patent Act. R&D expenditures by Rx&D patentees - firms represented by Canada's Research-Based Pharmaceutical Companies industry association - was $1.040 billion or 84.3% of the total, up 2.9% from 2004 for an R&D-to-sales ratio of 8.8%. While that represents a marginal increase from the 8.5% R&D-to-sales ratio achieved in 2004, it's a far cry from the 12.9% achieved in 1997.

Total spending in 2005 was $1.234 billion and industry revenue was $14.231 billion. That includes $194.1 million in R&D spending by non-Rx&D members, which was up 20% from the previous year and accounts for 15.7% of the annual total.

Data from the latest report from the Patented Medicines Prices review Board (PMPRB) show that Rx&D patentees have fallen short of the 10% commitment for three years running.

Year-over-year total R&D spending by Rx&D and non-Rx&D members is up a modest $64.3 million or 5.5% (reversing a two-year decline). The R&D-to-sales ratio crept up from 2004's all-time low of 8.3% only because sales for 2005 were largely stagnant.

Since the high-water mark of 1997, the industry's R&D-to-sales ratio has been in a free fall, due largely to double digit increases in sales revenue between 1997 and 2003. During the same period, increases in total R&D outlays failed to keep pace with higher sales revenue, increasing from $725.1 million to $1.2 billion.

RX&D WANTS BETTER INNOVATION ENVIRONMENT

Rx&D has responded to the latest data by calling for "an improved innovation and commercialization environment" to allow Canadian R&D performers to better compete with other jurisdictions. It's top priority is increased data protection for new medicines and vaccines and it notes that the new Conservative government has proposed amendments to Food and Drug regulations to provide eight years of data protection for pharmaceuticals.

"These amendments will impact future life sciences innovation in a significant way. Therefore, Rx&D urges the federal government to implement these changes immediately," it stated in a June 23rd press release.

Despite assertions to the contrary, many pharmaceutical companies active in Canada are not major R&D players. The highest ranking pharmaceutical firm on last year's R&D spenders list was Apotex Inc (#11/$172.4 million), a Canadian generic drug manufacturer. The highest ranking Rx&D member firms were Pfizer Canada Inc (#12/$159.6 million), GlaxoSmithKline Inc (#14/$140.3 million) and Merck Frosst Canada Ltd (#19/$117.7 million) (R$, November 7/05).

The majority of the 2005 increase in R&D spending was conducted outside patent-holding firms. Intramural spending rose just 0.2% to $622.3 million. In contrast, R&D spending by extramural performers saw significant increases. Pharmaceutical R&D spending by universities and hospitals on behalf of firms was up 10.8% to $164.1 million. Spending by other companies jumped 11% to $260.6 million, while spending by other unspecified performers increased 11.6% to $135.7 million.

Basic research accounted for $215.1 million or 18.2% of current 2005 expenditures (which excludes $52 million in capital costs and allowable depreciation). That's down from $221.7 million or 19.7% in 2004.

Applied research accounts for $737.5 million or 62.4% of the total, up from $658.3 million or 58.3% in 2004. Clinical trials made up $567.1 million or 76.9% of the applied research total. That includes $387.3 million on Phase III clinical trials, $109.8 million on Phase II and $70 million on Phase I. Other qualifying R&D for 2005 was $230.1 million or 19.5% of the total.

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