Brand name drug sales soar in Canada, while R&D sags

Canada's manufacturers of brand name medicines have once again fallen far short of a promise to invest 10 per cent of their annual sales into research and development.

According to a report by the Patented Medicine Prices Review Board, sales of brand name drugs hit a record $20 billion in 2016, yet makers of those drugs invested just $918 million in R&D, or 4.4 per cent of total sales.

The industry made the 10 per cent R&D promise in 1989 in exchange for the federal government extending drug patents from 17 to 20 years under the first U.S. free trade agreement signed in 1988. The deal ensured a longer monopoly on lucrative drugs while delaying cheaper generic drugs from becoming available in Canada.

The report states the deal was "intended to foster an investment climate favourable to pharmaceutical research and development in Canada. However, the percentage of R&D to sales by pharmaceutical patentees in Canada has been falling since the late 1990s."

But a pharmaceutical trade association insists that conclusion and the numbers upon which it's based are flawed.

"The way I've referred to it colloquially is accurate, but incorrect," said Pamela Fralick, president of Innovative Medicines Canada, which lobbies on behalf of most of the largest brand name drug makers, such as Roche, Pfizer and GlaxoSmithKline.

Fralick said the definition of R&D by the federal government doesn't include companies funding outside research such as at hospitals or universities, which she said raised R&D spending by members of Innovative Medicines Canada to $1.2 billion in 2016.

"We're using our definition to reflect that this industry really is committed to being a player in R&D in Canada," Fralick said.

The problem with the 10 per cent goal is that it's just a goal, according to Dr Joel Lexchin.

"It was a promise from the companies that was never written into the legislation…. There was no obligation for the companies to keep that goal, and there was no way for the federal government to enforce it," he said.

The Toronto physician and York University professor said despite the industry's claims, patented drug companies have been winding down their research presence in Canada for years now.  

"One of the consequences of consolidating and merging is that they also merge their R&D facilities and that means that they are cutting down on the number of sites that they're doing their R&D in. And one of the casualties of that has been Canada."

• AstraZeneca cuts 132 jobs, shuts Montreal facility

Since 2000, Merck, AstraZeneca, Sanofi-Aventis and Johnson & Johnson have either shuttered research facilities or laid off R&D staff. Canada now trails France, Germany, Sweden, the U.S. and U.K., in in-house R&D. These are all countries where large patented drug makers are headquartered.

But Lexchin questions whether stepped up industry R&D in Canada would actually lead to new cures and treatments.

He said new drug development often focuses on common chronic diseases such as diabetes, high blood pressure or high cholesterol for which there are existing treatments on the market.

"The drug companies, as rational economic actors, focus their R&D on areas that they think they're going to have the largest commercial gain, which are not necessarily the area where public health need is the greatest," Lexchin said.

Instead of relying on the pharmaceutical industry to conduct critical research, he wants the federal government to boost its spending on R&D. The most recent figures show the U.S. spends about 70 per cent more on research per capita than Canada, which is also well below the Organisation for Economic Co-operation and Development average.

On Friday, the federal government acknowledged "there is no link" between protecting companies' patents and R&D spending.

• Federal government proposes changes designed to drop cost of patented drugs

The statement was made as part of a long-awaited regulatory change to how the PMPRB calculates fair prices for patented drugs. The government says the new regulations will save Canadians $12.6 billion on brand name drugs over 10 years.