Rethinking investment and market access in Canada
Canada is an excellent market for pharmaceuticals. However, cutbacks in industry investment and deficiencies in Canadian innovation may degrade market access. Industry and government must take corrective action, David Griller discusses.
Canada has historically been a great market for pharmaceutical firms. In 2010, per capita spending on drugs was $741 and was second only to the US according to the OECD.
Private insurance has driven Canada's market attractiveness. Employees are generally covered by private plans paid for by employers. Brand-name drugs were normally reimbursed as soon as regulators at Health Canada approved them. All of this is, however, changing.
"Insurers are also worried about biologics that will hit the market over the next few years."
Employers are pressuring insurers to contain costs. In turn, insurers are forcing generic substitution of blockbusters such as Lipitor, Crestor and Plavix that have recently tumbled over the patent cliff. Insurers are also worried about biologics that will hit the market over the next few years. They are restructuring plans now, anticipating rapid growth in costs.
In Canada, most public drug plans cover seniors and those in need of social assistance. These plans are under financial and policy pressures that impact reimbursement. Policy issues are now looming large.
Some 25 years ago Canada ended a program of compulsory licensing of brand-name pharmaceuticals. Normal patent rights were introduced. In return, industry committed to invest 10% of sales into R&D if the business environment remained favourable. Canada also encouraged industry's R&D with generous tax credits.
Multinational pharmaceutical firms facing a global slowdown have recently cut back R&D and laid-off employees in Canada. R&D investment peaked in 2007 and 2008 at a little over $1.2 billion per year. In 2011, it was down to approximately $1.0 billion (6.7% of sales).
The reduction in investment is exacerbated by ongoing trade negotiations between Canada and the European Union. The EU is asking Canada to enhance data protection and to provide patent term restoration. These measures could increase future drug costs. Industry's cut-backs in R&D and employment combined with requests for longer market exclusivity are unlikely to be well received in Canadian government circles.
"The reduction in investment is exacerbated by ongoing trade negotiations between Canada and the European Union."
The Province of Quebec has already reacted to the cut-backs. With its "fifteen year rule", Quebec was one of the strongest supporters of the pharmaceutical industry. Under the rule, patients and their doctors could ask for the brand-name version of a drug for fifteen years after its listing on the provincial formulary even if a generic version were available. In response to recent lab closures, Quebec repealed the measure. However, it concurrently increased R&D tax credits to encourage local life-science firms.
If Canada wants to grow its share of industrial investment, tax breaks and special deals on intellectual property are no longer very useful policy instruments. Increasing productivity in drug discovery is now the top priority for the pharmaceutical industry. Access to innovation and know-how is far more important to firms than financial incentives. Canada has lots of room to further develop on the innovation front.
Canada's clinical research could easily be improved. The country has many clinical trial centres but recruitment is typically slow and unreliable. Canadian hospitals are probably no less efficient in research than those in the US but they are not "must have" sites from the FDA's perspective. They are losing out to low-cost centres in Eastern Europe and South America. However, speed and efficiency in clinical research trump cost. Improvements in efficiency and reliability would attract more clinical R&D to Canada for the benefit of firms and patients.
Canadian investments in publicly-funded research are not as productive as they might be. The Canadian Institutes for Health Research (CIHR) allocate little of a $978 million budget to serious translational research.
Toronto, for example, could easily rival Boston, San Francisco and San Diego as a magnet for academic-industry collaborations and investment. It has highly productive university researchers, a network of excellent teaching hospitals and a superb medical school. The city attracts around half a billion dollars a year of public funds for life-science research. With a greater focus on translational research, innovation could flourish.
"Industry's cut-backs in R&D and employment combined with requests for longer market exclusivity are unlikely to be well received in Canadian government circles."
Some positive signs are already emerging. The University of Toronto's MaRS Innovation organization recently recruited Dr. Raphael Hofstein as President and CEO. Dr. Hofstein was a key player in the development of Israel's highly productive biotechnology sector. In addition, the Ontario Institute for Cancer Research (OICR) has translational science as its mandate. OICR's charismatic president, Dr. Tom Hudson, is driving a major lab to clinic research program.
Canada could also make itself more attractive for investment by cleaning up the process for listing drugs on public formularies. Firms face price and value-for-money reviews nationally. They then face affordability reviews by each provincial drug plan. Forcing firms to jump three barriers may save money in the short term but limits access to innovative drugs with all the downsides this implies. Plan managers need to streamline listing processes and to put more drugs on formularies even if this means negotiating harder with firms on prices so as to control overall expenditure.
Canada has a small population but has been a very good pharmaceutical market on a per capita basis. It is watched by many other nations. Industry needs to restore its investment in Canada. If cutbacks are too severe, Industry risks killing the Canada Goose that laid a golden egg.
About the author:
David Griller, Ph.D., FCIC, FRSC
David Griller is managing partner at Genspark Consulting responsible for the firm's pharmaceutical practice. David has worked with major pharmaceutical companies including AstraZeneca, Bristol Myers Squibb, Merck, Novartis, Pfizer, Roche, Sanofi Aventis and Sanofi Pasteur. He has been closely involved in the development of biotechnology and innovation strategies for governments and research institutions.
David co-founded Oncozyme Pharma, a company in the oncology sector that has now advanced to human clinical trials. Before his business career, David was a research chemist and authored around two hundred scientific papers and patents mainly on "free radicals." Recent publications by David include two books on life sciences – "Pharmaceutical Research and its Value to Canadians," which explores options for bringing more research to Canada, and "How to Build a Pharmaceutical Industry: Québec's Story."
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How can Canada's clinical research be improved?
